In Switzerland, foreign wealthy families often benefit from a lump sum taxation. In practice, however, the existing legislations are handled very differently in the cantons. Authors: Jean-Marie Hainaut, Frédéric Bonny, Dominik Bürgy, Roger Krapf

The Swiss Federal Tax Administration (SFTA) has strengthened its position on the subject of the lump sum taxation in Switzerland with respect to federal direct tax by publishing the circular letter 44 (CL 44) in German, French and Italian. The new circular letter summarizes the existing legal framework and respective practice of the SFTA and the cantonal tax authorities, which resulted from the change of the law on lump sum taxation as of 1 January 2016 (the change of the legislation in 2016 was initiated by the Swiss Federal Council in 2012 and introduced new, stricter conditions for the application of lump sum taxation). Furthermore, CL 44 replaces the previous circular letter 9 from 1993 which was applicable up to this date. It also confirms the transitional period of five years according to which the new, stricter legislation is only applicable for taxpayers who applied for the lump sum tax regime in Switzerland after 1 January 2016. For all taxpayers who already benefited from the lump sum tax regime in Switzerland prior to 1 January 2016, the prior legislation continues to be applicable until and including the tax period ending on 31 December 2020.

The following provides a brief overview of selected aspects of CL 44 and summarizes existing important regulations with respect to lump sum taxation in Switzerland.

General conditions for lump sum taxation

The Swiss lump sum tax regime can only be applied to individuals who do not have Swiss citizenship, who were never subject to unlimited tax liability in Switzerland or at least not within the last 10 years and who do not perform any commercial activity (employed or self-employed) in Switzerland. It is important to note that in the case of a married couple both spouses have to fulfill the requirements in order be able to apply for the Swiss lump sum tax regime.

Prohibition of performing any commercial activity

According to CL 44, performing a commercial activity in Switzerland – which would exclude the possibility of benefiting from the Swiss lump sum tax regime – is defined as carrying out any type of main or auxiliary employment (employed or self-employed) here (meaning in the Swiss territory) which generates income in Switzerland or abroad. This definition is particularly important for foreign artists, scientists, inventors, athletes or board members who are personally active in Switzerland for commercial purposes. However, this definition still leaves some room for interpretation. As an example, it will be necessary to analyze on a case-by-case basis whether a foreign sportsperson would be considered as performing a (prohibited) commercial activity in Switzerland by practicing on a regular basis in the Swiss territory in light of participating in tournaments or other events outside of Switzerland, i.e., whether practicing is considered as an indispensable prerequisite for a professional sportsperson in order to earn money. It remains to be seen how the cantonal tax authorities will interpret the circular letter in this respect.

Changing between lump sum tax regime and ordinary taxation

Up to now, the cantonal tax authorities had different opinions with respect to the possibility of applying again for the lump sum tax regime after renouncing it for a first time by switching to ordinary taxation. In CL 44, the SFTA states that such a person can “in principle” not apply for the lump sum tax regime a second time. It will be interesting to see how the cantonal tax authorities will interpret the term “in principle.” Indeed, the SFTA seems to take the position that in some exceptions multiple changes between lump sum taxation and ordinary taxation might still be possible.

Determination of minimum annual expenses based on multiple of rental value

Under the lump sum tax regime, the income tax base of the individual should correspond to his/her annual worldwide living costs. Under the new legislation which is applicable since 1 January 2016, these annual living expenses for taxpayers with their own household must equal to at least seven times the annual rental value of the taxpayer’s home or the annual rent paid. In this connection, CL 44 now explicitly provides that if the taxpayer has more than one real estate property at his disposal in Switzerland (as owner or lessee), the highest annual rental value or rent paid has to be taken into account for calculating the multiple, even if that is not the main residence of the taxpayer. This specification in the circular letter is especially important for those lump sum taxpayers who, for example, only rent a smaller apartment as a main residence, and at the same time also own or rent a more expensive apartment in Switzerland for weekend and vacation purposes.

Control calculation

The legislation on Swiss lump sum taxation requires every taxpayer benefiting from this method of taxation to establish a so-called “control calculation” on an annual basis, together with the annual tax return.

On the one hand, this control calculation has to include all gross income from Swiss sources, i.e., Swiss real estate and other assets located or invested in Switzerland (including financial assets). With respect to financial assets (e.g., securities such as shares and bonds), the CL 44 clarifies that “Swiss sourced” means the issuer of the security needs to be resident in Switzerland, while the location where the security is physically being stored is irrelevant. In other words, income from shares or bonds issued by Swiss entities would qualify as Swiss-sourced income, whereas income from shares or bonds issued by foreign entities which are physically stored in a Swiss bank deposit is considered as foreign sourced. For cantonal and communal tax purposes, the control calculation will also include the estimated amount of wealth tax relating to the Swiss-based assets (same definition as above).

On the other hand, gross income which has to be declared in the annual control calculation also includes foreign-sourced income – such as dividends, interests and royalties – for which the taxpayer wishes to claim for partial or total exemption of foreign withholding taxes in accordance with a Double Tax Treaty. CL 44 contains a clear description of how the “gross amount” of such foreign-sourced income has to be determined. Indeed, the “gross amount” is defined as the total amount of income received by the taxpayer, after deduction of any non-refundable (and also non-creditable) foreign withholding taxes. This means that in such cases foreign non-refundable withholding taxes at least are deductible from the tax base, considering that a foreign tax credit is not available under a lump sum regime. It is important to note however that special regulations are applicable with respect to the Double Tax Treaties with Austria, Belgium, Canada, France, Germany, Italy, Norway and the United States (so-called “modified lump sum taxation”).


The new circular letter 44 summarizes and confirms the current legislation and tax practice regarding lump sum taxation in Switzerland with respect to federal direct tax, and also provides further guidance with respect to various aspects which were not necessarily handled in a uniform manner by the different cantonal tax administrations up to this date. From that perspective, the issuance of this new circular letter is a positive development as it confirms Switzerland as an attractive jurisdiction for foreign wealthy families willing to relocate. Nonetheless and as explained above, certain statements of the circular letter still leave room for interpretation and have thus created a need for further clarification. Taxpayers should monitor how the cantonal tax authorities will apply the new circular letter in practice. In addition, lump sum taxpayers should review their existing rulings and arrangements in order to ensure that they are in line with the new circular letter 44.