MONEY MATTERS

Our last article looked at techniques for avoiding pitfalls in

acquiring property in the United Kingdom, such as avoiding

the 40% inheritance tax. This article focuses on the acquisition of

property in Switzerland, with its unique charms, potential pitfalls and

strategic planning opportunities.

The good news: five reasons to buy Swiss property and live in a European low tax country

Switzerland as a popular tax and investment haven?

With the Swiss franc performing as a stable currency and restrictions

on ownership of property coupled with a possible flat tax system,

Switzerland as a country for long-term investment with low taxes can

make a lot of sense.

Five great reasons for considering Switzerland would be:

1. Stable residential property market (see graph below)

2. Stable currency in a volatile world currency environment

3. Opportunity to reside in a lump sum (low) tax jurisdiction, no

matter what your actual global income is

4. Swiss National Bank interest rates as low as 0.25%

5. Stable rental yields

Retire in Switzerland and pay the fiscal lump sum based on your expenditure

For those wishing to retire to Switzerland, there are many ways to settle there. A particularly interesting strategy is to use the fiscal ‘lump sum’ system. This system is termed the ‘Forfait’ fiscal in French, or ‘Pauschalbesteuerung’ in German, and is part of the Swiss Federal law that applies no matter which canton you may choose to settle in.

Should you wish to retire and minimise your taxes in Switzerland, you have the option of paying a fixed amount of tax each year calculated on either of the following:

• Your annual rental payment, or

• The rental value of your home

Your income is calculated as five times your expenditure on rental or mortgage payments, irrespective of the millions you may make elsewhere in the world. Therefore, this lump sum has no relation to the actual income you may make from worldwide sources.

Why Do Celebrities and Foreigners Choose to Invest or Retire in Switzerland?

By Jas Sekhon

9 Free Spirit Nov / Dec 2010

MONEY MATTERS

The bad news: foreigners may not acquire Swiss property? – (Lex Friedrich)

Unlike many other jurisdictions, it is not as easy to acquire Swiss property

for several reasons, such as the restrictions imposed by ‘Lex Friedrich’

Federal Law on the Acquisition of Real Estate by Non-Residents.

For example:

• EU/EFTA nationals who hold a Residence Permit B and

all foreign nationals with a Residence Permit C can buy

any number of properties in Switzerland (although special

cantonal approval is required to buy a property that exceeds

3,000 m2 in size).

• Other foreign nationals are only allowed to buy a holiday

home or investment property in Switzerland with approval.

There is a quota of 1,440 foreign purchases each year.

• Investment properties available for purchase by non-residents

may be low-rental apartments which may be tied to below-

market rental prices for 20 years.

• Foreigners buying holiday homes or investment properties

are only allowed to live in the properties themselves for three

months at a time, and for a maximum of six months in any year.

• Authorisations are obtained through a Swiss notary who

applies to the relevant cantonal authority.

• There may be basic and imputed taxes on property as well as

capital gains/speculation taxes.

Strategies and techniques to acquire Swiss property

With the restrictions, there are few proven strategies for you as a

foreigner or expat to use when acquiring Swiss property. Seeking

professional advice is one approach – however, working with

international tax advisers, such as the Tax & Finance Group, you

may be able to make use of a number of strategies to achieve your

aims of residential property and low taxation in Switzerland. The

strategies listed below are general in nature and given the complexity

of the laws, please consult professional tax advisers before seeking

to implement the same.

Please note that establishing a Swiss company per se (owned by a

foreign resident) to buy Swiss real estate is not a solution. A proposed

solution is as follows:

1. The investor secures a ‘right to purchase’ under existing

Swiss legislation.

2. A trust with a Swiss trustee is established.

3. An application is filed to obtain a resident permit through

a ruling to grant the investor with the right to have income

assessed under the ‘forfeiting’ system (some conditions

have to be met).

4. The Swiss real estate is bought by the investor, the trust or an

underlying company, and the tax authorities are notified in

order to review the ruling.

The advantages of the proposed solution described above are

the following:

• Obtaining Swiss residency will allow for the purchase of Swiss Property and does not imply physical presence.

• Obtaining a ruling such that income for the investor will be assessed under the forfeiting system will minimise the level of Swiss taxes to be paid.

• Establishing a trust with a Swiss trustee will reduce the level of personal income and wealth assessed under the forfeiting system and will reinforce the interests of the investor in Switzerland. Whilst a company may also be used, a trust is a more flexible solution for global asset protection and tax efficiency.

• The application of the ruling does not have to take place in the same canton where the property is located (Many fiduciaries have excellent relationships in various Swiss cantons, such as Ticino (Lugano), where the minimum level of income assessed is lower than in many other cantons)

• Swiss residency may allow the investor to benefit from Swiss Double Taxation Agreements, and thereby reduce taxes on other worldwide income. For investors resident in high tax countries, it may result in considerable tax savings, especially with a suitable trust structure.

This particular process of acquiring Swiss real estate takes

approximately three months, and the fees can easily be in excess of

CHF150,000 with the majority of the costs (80%) incurred in liaising

with relevant authorities.

There are also alternative solutions to buying Swiss real estate as a

foreigner, and they would need to be tailor-made according to an

individual’s needs and requirements.

Conclusion

If you can afford it, Switzerland provides an innocuous solution to your

tax and residency investment problems. Clearly, the stability of the

market provides an opportunity to invest and possibly minimise your

taxes in a European jurisdiction that provides a quality of life professed

by many to be unequalled within the developed world today.

Nov / Dec 2010 Free Spirit 10

JAS SEKHON

Jas is an international tax lawyer and currently the head

of the T&F (Tax and Finance) Group’s operations in Dubai,

a trustee company regulated by the Dubai Financial

Services Authority, located in the Dubai International

Financial Centre. T&F Group also has offices in London,

Lugano, Monte Carlo, Dublin, Luxembourg and Panama.

!

MONEY MATTERS

11 Free Spirit Nov / Dec 2010