Flat-rate tax

Expense-based taxation

Lump-sum taxation, also known as taxation according to expenditure, is a tax method introduced in Switzerland in 1965 in the canton of Berne.
It was extended to the federal level in 1990.
The main aim of this tax system is to facilitate the taxation of foreigners living in Switzerland, whose financial situation is complicated by their international status.
People who choose this tax system are taxed on the basis of their standard of living rather than their income.

The expense-based tax system is also designed to simplify tax formalities for foreign taxpayers and encourage them to settle in Switzerland.
People subject to this tax regime are not taxed on their income, but on their current expenses.
The legal basis for this type of taxation is laid down in Articles 16 of the Federal Direct Tax Act and 14 of the Cantonal and Communal Tax Act.

In many cases, the taxes of people subject to this tax regime would be lower if they were taxed under ordinary procedures.
This is because some of their foreign-source income, such as that generated by real estate or businesses they own abroad, would not be taxed under ordinary procedures.
As far as other types of foreign-source income are concerned, such as dividends and interest subject to withholding tax, Switzerland would have to share the right to tax with other states in accordance with its tax treaties.

Entitlement to lump-sum taxation

The lump-sum taxation system is intended for individuals who meet certain cumulative conditions.
Non-Swiss nationals who are subject to unlimited taxation for the first time or after an interruption of at least ten years, and who are not gainfully employed in Switzerland, are entitled to pay tax based on expenditure instead of ordinary income tax.
Taxpayers wishing to benefit from this system must apply for it.

Determining the basis of calculation for income tax purposes

Income tax is calculated on the basis of the annual cost of upkeep incurred by the taxpayer for himself and the persons living in Switzerland for whom he is responsible.
For people with their own home, tax is calculated on the basis of the higher of the following two amounts: seven times the rental value (for owner-occupied homes) or seven times the annual rent (for rented homes).
For people who do not have their own accommodation (e.g., staying in a hotel), tax must be calculated on the basis of three times the pension they pay for board and lodging.

The tax based on expenditure must be at least equal to the sum of the income and wealth taxes, calculated according to the ordinary scales, for assets located in Switzerland or for Swiss-source income such as real estate, bank accounts, pensions, etc., and must not exceed the sum of the income and wealth taxes calculated according to the ordinary scales.

Determining the basis for calculating wealth tax

In addition to income tax, people taxed on the basis of expenditure must also pay wealth tax.
This tax is calculated on the basis of the official value of real estate located in the taxpayer’s canton of residence.

Wealth tax is calculated by multiplying the official value of the property by the tax rate applicable in the canton of residence.
Foreign real estate is not taken into account when calculating this tax.

For people who do not own any real estate in Switzerland, wealth tax can be calculated on the basis of their total assets.
In this case, the amount of wealth tax is equal to a fixed percentage of their total wealth, as determined by the tax authorities.

In short, lump-sum taxation is a tax method for foreigners resident in Switzerland who do not receive any income in Switzerland.
This tax system enables taxpayers to pay taxes on the basis of their standard of living rather than their income.
Those wishing to benefit from this system must meet certain conditions and apply for it.
Expense tax is calculated on the basis of current maintenance costs incurred by the taxpayer for himself and his dependants.
Wealth tax is calculated on the basis of the value of real estate assets located in the canton of residence, or on total wealth if the taxpayer has no real estate assets in Switzerland.