Lump-sum taxation for individuals maintain Switzerland's attractiveness

The term “lump sum taxation” is used to describe the special taxation regime applicable to foreign individuals resident in Switzerland different from the ordinary Swiss income- and wealth tax system.

With the system of «lump sum taxation» Switzerland intends to convince high net worth foreign individuals to move their tax base to Switzerland. The instrument thereby represents a core element in the international tax competition for high net worth individuals. Similar simplified tax systems for high net worth individuals are also known for instance in the Principality of Liechtenstein, Great Britain («resident but non domiciled»), Austria and Malta.

Even though the reference to prominent catchwords such as «settlement» and «special treatment» is obvious, this tax regime is today from a political standpoint far less controversial than its corporate counterparts. The lump sum taxation has recently been under thorough scrutiny in several Swiss cantons and on the federal level. On November 30, 2014, Swiss people have voted in favor of the system and thereby showed their declared intention, that Switzerland shall remain an attractive tax base to foreign high net worth individuals.

On a cantonal level Zurich, Schaffhausen, Appenzell-Ausserrhoden, Basel-Landschaft and Basel-Stadt have abolished lump sum taxation. Thus, for individuals wishing to be taxed according to the lump sum taxation the cantons eligible for residency has narrowed.

The basis of assessment under the lump sum taxation regime are the personal annual expenses of the individual. However, by legislative amendment a new minimum tax base has been determined by the legislator on the federal as well as on the cantonal level.

The following prerequisites (for spouses seperately) must be fulfilled cumulatively by an individual to qualify for the lump sum taxation regime pursuant to Art. 14 of the Federal Direct Tax Law:

  • The individual may not be Swiss citizen;
  • The individual must for the first time obtain an unrestricted tax liability in Switzerland (or after a 10-year-old absence); and
  • The individual may not pursue a gainful employment in Switzerland.

Additionally, Art. 14 para. 3 lit. a – c Federal Direct Tax Law sets the framework to determine the tax base for lump sum taxation. The taxable income under lump sum taxation shall correspond to at least 7 times the housing costs or for individuals residing in a hotel, 3 times of the costs for lodging and food. In any case a minimum tax base in the amount of CHF 400,000 is required for federal direct income tax purposes.

Pursuant to Art. 6 para. 3 lit. a Federal Tax Harmonization Law all cantons which currently use the lump sum taxation for cantonal taxes must also determine a minimum tax base. However, the cantons are free in the amount they wish to set. Due to the ongoing discussion regarding the lump sum taxation regime and the amendment of federal legislation all cantons currently employing the lump sum tax system have amended their regime. The minimum tax base for income tax purposes as set by the cantons varies between CHF 400,000 and CHF 700,000.

On the cantonal level the basis of assessment for wealth tax purposes must also be further clarified. Most cantons have determined 20 times the amount applicable to income tax as the assessment base for wealth tax purposes. For instance, if the minimum tax base for income tax would be CHF 400,000, then the minimum tax base for wealth tax purposes is CHF 8 Mio.

Individuals taxed under the lump sum tax regime are also subject to social security contributions in Switzerland, even though they do not pursue any gainful employment, when they have not yet attained the age of 65 for men or 64 years for women respectively. The basis for the calculation of the social security contributions for non-employed is the reported taxable wealth. Since the minimum tax base for individuals’ subject to lump sum taxation is set at least at CHF 400,000 individuals subject to this rule and taxed under the lump sum taxation regime should attain in most of the cases a reported taxable wealth in the amount of about CHF 8,4 Mio., which yields to the maximum annual contribution for non-employed in the amount of CHF 23,900.

All individuals currently subject to the lump sum taxation regime are not evenly distributed among the cantons. Some cantons attract, mostly for historical reasons, more foreign individuals eligible to the regime than others. Especially cantons in the French speaking part of Switzerland host above average individuals taxed in accordance to the lump sum taxation regime.


For many decades Switzerland has been an attractive place of residence for high net worth individuals. Besides political stability, legal security, an appraised landscape and the cultural variety also low income and wealth taxation has contributed to this development. The lump sum taxation regime represents an important advantage in the international tax competition for high net worth individuals. Switzerland has acted with sound judgment for political changes with the adaption of the lump sum taxation regime and thereby reinforced Switzerland’s good standing as a re-location country for individuals in the realm of international tax competition.