Switzerland offers foreign nationals establishing themselves there for the first time — or after an absence of at least ten years — a special tax regime: expenditure-based taxation, commonly known as the lump-sum tax. This arrangement, governed by art. 14 of the Federal Direct Tax Act (DFTA), is one of Europe's most attractive regimes for high-net-worth families with no gainful activity in Switzerland.
What is expenditure-based taxation?
Unlike the ordinary regime, which taxes actual income and wealth, the lump-sum tax imposes a notional income calculated on the basis of the taxpayer's annual expenditure and that of their family. This notional income must be at least five times the annual rent or rental value of the occupied property.
Since the 2016 reform, the notional taxable income at federal level cannot be less than CHF 400,000. Cantons apply their own minimums — some significantly higher.
What is included in expenditure: housing, food, travel, leisure, domestic staff and expenditure for dependent family members. Professional expenses are excluded, as the taxpayer may not engage in gainful activity in Switzerland.
Eligibility conditions
To benefit from expenditure-based taxation, the following conditions must be met:
- Not holding Swiss nationality — Swiss citizens are not eligible for this regime.
- Establishing oneself in Switzerland for the first time, or after an absence of at least ten years.
- Not engaging in gainful activity in Switzerland — neither as an employee nor as self-employed. Foreign-source income from passive participation (dividends, interest) does not constitute gainful activity.
- Residing in Switzerland — the taxpayer must have their tax domicile or residence in Switzerland.
Participating cantons
The lump-sum tax is available in the large majority of Swiss cantons. The cantons of Zurich, Schaffhausen, Appenzell Ausserrhoden and Basel-Stadt abolished this regime following cantonal referendums in 2009–2012. The most active cantons for attracting high-net-worth families under this regime include Geneva, Vaud, Valais, Ticino, Graubünden and Lucerne.
Cantonal conditions vary: expenditure minimums, timelines for establishing the lump-sum arrangement and the applicability of double taxation treaties. A cantonal comparison is essential before any domicile decision.
Ridger
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Multi-jurisdiction coordination: the central challenge
For an international family, the lump-sum tax is only the first piece of a complex puzzle. Coordination challenges include:
Double taxation treaties (DTTs): Switzerland has concluded over 100 DTTs. For a lump-sum taxpayer to invoke the benefits of a DTT (e.g. reduced withholding tax on foreign dividends), the relevant DTT must expressly authorise application to lump-sum taxpayers. This is not automatic — each treaty must be analysed individually.
Withholding taxes in countries of origin: foreign-source income may be subject to withholding taxes in the country of origin. Recovery of those taxes depends on the applicable DTT.
Residual reporting obligations: some countries maintain reporting obligations for former residents for several years after departure. Precise monitoring is necessary.
A dispersed family: when family members reside in several countries, each individual situation creates distinct tax obligations. Coordinating across national tax regimes requires considerable expertise.
The family office coordinator's role
In this context, the family office is not a tax adviser — that role belongs to accredited specialists in each jurisdiction. It is the orchestrator that:
- Maintains an up-to-date map of the family's tax obligations in each jurisdiction
- Coordinates local tax advisers and ensures consistency across positions taken
- Integrates tax impacts into the consolidated wealth report
- Anticipates legislative changes that could affect the regime
The successful relocation of an international family is the result of thorough preparation, a well-founded choice of domicile and continuous coordination. To discuss your situation in full confidence, Ridger invites you to get in touch.