Foreigners who don’t work in Switzerland can benefit from special tax deals known as lump sum taxation, or forfait fiscal in French.
Instead of paying tax on their worldwide income and assets their tax is calculated based on their living expenses.
When someone becomes Swiss they automatically lose eligibility.
The regime, which generated CHF 767 million of tax revenue in 2016, is frequently under attack.
A federal referendum to do away with it in November 2014 was only narrowly rejected by 50.09% of the population.
The main argument for removing the regime is unfairness. The key argument for keeping it is the revenue it brings. Those favouring it say those on these deals would relocate to places like the UK, which also offer attractive tax arrangements to wealthy foreigners, if it was ended.
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While the regime continues, political pressure has forced changes. New rules adopted in September 2012 will apply to all lump sum deals from 1 January 2021.
This week, the federal government published a circular on the tighter rules that will be applied to everyone from 1 January 2021.
The circular sets out a minimum taxable income of CHF 400,000, the ineligibility of those with a spouse or partner who does not qualify, a definition of what qualifies as not working in Switzerland – it excludes artists, scientists, inventors, sports people and directors personally engaged in paid work while in Switzerland, even if they are paid abroad.
Diplomats living in Switzerland cannot move to lump sum taxation when they retire. The rules require foreigners who are ordinary tax payers in Switzerland to be absent for 10 years before they qualify. Resident diplomats and consular staff are considered ordinary tax payers under the rules.