Update for lump sum tax payers in Canton Ticino

Transcription

1 TAX CHAPTER SEMINAR Lugano, 16 th June 2015 Update for lump sum tax payers in Canton Ticino Peter Steimle Steimle & Partners Consulting Sagl

2 Expenditure-based taxation: a special simplified way of assessing income and Swiss wealth for foreign nationals. Effective worldwide income and assets not to be disclosed, not taxable. Taxable base calculated on the annual amount of expenditures to support the standard of living of the tax payer. Lump sum tax payers cannot pursue any gainful-lucrative activity in Switzerland either dependent or as self employment. The right to expenditure-based taxation expires when a person acquires Swiss citizenship or takes up gainful activity in Switzerland individuals were subject to lump-sum taxation at the end of 2013 paying nearly CHF 740 mln. For Ticino: 2014, 955 tax payers contributing with CHF 109 mln overall Swiss taxation. Taxation regime has been under increasing political pressure. To improve fiscal equity and acceptance by the Swiss population, reform of lump tax regime was enacted with Law 28 th September 2012 with an increase of taxable base and conditions more stringent, which will apply: as from at Federal level latest as from for the Cantons A popular initiative named Stop to fiscal privileges for the millionaires called for lump-sum taxation to be abolished. The Federal vote of clearly rejected the initiative (Ticino 68% against the abolition).

3 No gainful activity in Switzerland (professional property trader / developer, security trader); Swiss residency for the first time or after absence of minimum 10 years; Cantonal minimum taxable base fixed each year by Cantonal Decree; Ticino CHF ; Basis to determine minimum taxable income base step by step method. Highest amount forms tax base. A. Worldwide expenses of taxpayer and his family/dependents living in Switzerland; actually cantonal taxable base = federal base; B. Federal and most cantonal level: fiscal base to be at least 5 times the rent paid or rental value if owner of real estate property or twice the annual cost paid for board and lodging if no domestic economy; C. Annual control calculation: ordinary taxation of Swiss sourced income and Swiss assets (wealth taxation at cantonal level) plus gross foreign income for which partial or total relief of foreign taxes is claimed according to Tax Treaty; Modified lump-sum applies in accordance to DTT with USA, Canada, Austria, Germany, Belgium, Italy, Norway (and France?): total income from these countries must be declared and assessed according to ordinary taxation at Swiss maximum tax rates, otherwise foreign country does not recognize Swiss tax residency and treaty benefits are not applicable; The right to tax credit imputation of foreign residual withholding tax is denied to classic lump sum tax payers with the exception of modified lump sum tax payers.

4 Swiss Social Security contributions such as AVS, if pension age not reached. The yearly AVS premiums are calculated on the taxable income basis according to a special calculation system (multiply by 20) and might easily amount to thousands of Swiss Francs a year (maximum ca. CHF annually); Donation and succession taxes where applicable; Municipal real estate tax (1%o on fiscal value); Capital gains tax on sale of Swiss situs real estates. Same treatment as ordinary taxed individuals

5 Legislative amendments of the Federal Act on the Harmonisation of Direct Taxation and amendment of the Federal Act on Direct Federal Taxation. New rules apply from at federal level and latest at cantonal level For new tax payers worldwide expenses must amount to at least 7 times rent paid or rental value or 3 times board and lodging if no domestic economy; For new tax payers minimum assessment basis of CHF at federal level; for existing tax payers as at agreed taxable basis shall be equally valid at federal tax level. The Cantons set at their discretion a minimum amount for the assessment basis which cannot be less than CHF and Cantons must assess also wealth tax; For new tax payers (also existing?), in the case of spouses, who wish to be taxed on an expenditure basis, both must be foreign national and both cannot pursue a gainfullucrative activity in Switzerland; Abolishment option for Swiss Nationals in first year of arrival or after 10 years absence; Existing taxpayers as per will be granted a grandfathering period of 5 years (should apply to ALL objective and subjective conditions?) at both cantonal and federal level. The more stringent conditions will apply to existing lump sum tax payers only as from

6 Minimum taxable base as from 2014 CHF , overall tax burden for married couple Lugano ca. CHF (tax rate 30.6%); Non Swiss wealth taxation: subject to Cantonal Parliamentary vote, worldwide assets assessed on a minimal taxable base being a multiplier 5-10 (multiplier to be determined by the Cantonal legislation) of lump-sum taxable base; in case Swiss wealth taxation in accordance to annual control calculation lower than minimal taxable worldwide wealth, the latter prevails; Grandfathering period of 5 years for existing lump-sum tax payers, assessment under current tax law until (including tax return for tax 2020); grandfathering period equally applicable to all the new subjective and objective conditions? Activity and nationality test for spouses? Worldwide wealth multiplier? (Most probably applicable also to existing lump-sum taxpayers. Third State Nationals (non EU/EFTA) being of significant fiscal interest to the Canton: today minimum assessment basis CHF , in the future? Substantial increase of taxable base on Ticino located properties (for wealth taxation). Project of the Ticino Government to be enacted as from Increase of taxable base however compensation with reduction of wealth tax rates.

7 Reasons for staying with lump sum taxation: Confidentiality and privacy (however, starting 2018 Automatic Exchange of information?); Important foreign sourced income and foreign assets, respectively insignificant Swiss income and Swiss assets; Straightforward and uncomplicated handling of yearly tax return; Advantageous from a tax point of view also considering increased assessment basis respectively new terms and conditions (provided grandfathering period applies to all subjective and objective conditions); Consistent income from USA, Canada, Germany, France?, Austria, Belgium, Norway or Italy (modified lump sum taxation) because no ordinary wealth cantonal taxation. No ordinary Swiss cantonal wealth taxation. Reasons for switching to ordinary taxation: Reduced overall tax burden under ordinary taxation regime compared to lump-sum regime; Unlimited right to tax credit imputation of foreign residual withholding tax; Unlimited access to Double Tax Treaties; Application for Swiss Nationality; Start lucrative gainful activity in Switzerland.

8 Await for Ticino legislation to align with Federal Law as applicable as from and valuate whether grandfathering period will be applicable to all conditions; Analysis of today s personal tax position taking into account significant increases and restrictions as applicable as from respectively ; Evaluation of worldwide asset and income and its overall fiscal impact in accordance to lump-sum fiscal regime as applicable 1 st January 2016 respectively 1 st January 2021 and comparison with ordinary taxation fiscal burden; In any case, consult a tax expert before taking a definitive decision to the question: should I stay under the lump-sum tax regime, should I switch to ordinary taxation or should I go and where?