The Unique Swiss Tax Regime: Comprehensive Guide on Expense-Based Taxation
Expense-based taxation is a specific tax regime applicable to foreign individuals residing in Switzerland. It provides an alternative to income tax by allowing taxpayers to pay tax based on their annual expenses rather than their income. However, access to this regime is subject to certain conditions, including the absence of Swiss nationality, residence in Switzerland without engaging in gainful activity, and compliance with all conditions for spouses living in union.
The calculation of expense-based tax relies on determining the annual expenditure, encompassing various costs related to the maintenance of the taxpayer and their family. The taxpayer has the option to choose between expense-based tax and income tax, depending on what is more advantageous for them. However, this choice is irrevocable for a period of ten years. The tax procedure involves filing an annual tax return, verification by the tax administration, and the possibility of appeal in case of disagreement. It is essential for taxpayers to comply with legal requirements and maintain accurate supporting documents to avoid potential sanctions.
Legal Foundations
Article 14, paragraph 1 of the Federal Law on Direct Federal Tax (LIFD), in its version of September 28, 2012, states the following: Individuals have the right to be subject to expense-based tax instead of paying income tax if they meet the following conditions:
a. do not possess Swiss nationality; b. are subject to unlimited taxation for the first time or after an absence of at least ten years; c. do not engage in gainful activity in Switzerland. Spouses living in union must each fulfill the conditions of Article 14, paragraph 1 of the LIFD (cf. Article 14, paragraph 2 LIFD).
Expense-based tax provides a unique approach to individual taxation in Switzerland, recognizing the realities of the cost of living in the country. For eligible individuals, this may be an attractive tax option, but it is crucial to understand the conditions and implications before making this choice.
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