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Swiss Taxation Part3

Switzerland Taxation of Foreign Employees of Tax-Privileged Operations

There are no special rules applying to the foreign or Swiss employees of tax-privileged operations. The various exemptions from income tax described above do not apply to employees: any business employing and paying people in Switzerland will have to follow the normal rules for the taxation of individuals. 

A person is deemed resident in Switzerland if:

§       He has Swiss employment (to work in Switzerland a non-national needs a work permit - limited work permits of 90-120 days can be granted and where granted lead to limited taxation);

§        He carries on a business in Switzerland; or

§        He lives in Switzerland for not less 180 days in any one year. If however he remains in the same abode the time required to be a resident for tax purposes drops to 90 days. 

Switzerland Exchange Controls 

Switzerland has no exchange controls.

Switzerland Activities of Tax-Privileged Operations

The various tax-privileged forms described above are all subject to limitations on their activities or structures as set out. In approximate terms:

§        Holding Companies must derive most of their income from subsidiaries;

§        Domiciliary Companies must have only the smallest toe-hold in Switzerland;

§        Auxiliary Companies (in 7 cantons only) may have some local activity;

§        Service Companies must be active only within their own groups; and

§        Mixed Companies combine Domiciliary and Service Company restrictions.

Switzerland Employment and Residence

There are no special privileges for the employees of non-resident or tax-privileged entities in Switzerland. Entry into Switzerland, residence in Switzerland and the right to work or purchase property in the country are all inextricably interlinked.

However, agreements with the EU are gradually putting EU freedom-of-movement rules into place which will eventually allow EU citizens to by-pass the quota permit system altogether. 

EU citizens now have:

§        a free choice of residence and work cantons;

§        the right to change jobs and employers; and

§       a right to work for their family members.

Eventually, EU-citizens will have complete freedom of movement within Switzerland and Swiss citizens within EU-countries. However, there will be a fixed quota for work permits until 31 May 2007 with a maximum of 15,000 new long-term residence permits a year and 115,500 new short-term residence permits a year.

On 31st May 2007, quotas for EU citizens wishing to work in Switzerland have been suspended. As of June 2009 Switzerland will make a decision on whether or not to extend the agreement. If the response is positive, freedom of movement will be fully introduced between Switzerland and the EU as of June 2014. 

Obtaining Residence in Switzerland:

The available types of permit are the '120-day' permit, the class A, B or C permits, the fiscal deal permit and the political refugee permit. The class A permit (for 'blue-collar' workers) and the political refugee permit are not described further here. Permits other than the '120-day' variety are subject to a quota system. However, agreements with the EU are gradually putting EU freedom-of-movement rules into place which will eventually allow EU citizens to by-pass the quota permit system altogether.

·       The '120-Day' Permit:

This permit allows a managerial or specialist worker to work in a specified position for up to 120 days in a particular year; rotation among a number of individuals is not allowed.

The Class B permit is the most commonly issued permit and gives the right to live and work in Switzerland. It is the permit of choice for professional and managerial people, self employed individuals who wish to start their own company in Switzerland, people who wish to reside in Switzerland and are wealthy enough to live off their own resources (but see the Fiscal Deal Permit below).

The Class B permit has the following characteristics:

§       It is usually granted for a period of up to one year at a time;

§       If the permit is for work purposes then the applicant must have a job to go to in Switzerland; 

§        The granting of this permit must not have the effect of depriving a Swiss national of employment. Since many trades in Switzerland are protected by guilds which prohibit the recruitment of foreign workers an application for a Class B permit is not always successful;

§       The Class B permit allows the applicant to bring his wife and children into the country but not his extended family;

§       The application is not prejudiced by inability to speak the official languages of Switzerland;

It takes about 3 months to obtain a Class B permit.

·       The Class C permit:

The class C permit is a longer-term residency permit which gives the applicant almost the same rights as Swiss citizens and allows the applicant to buy real estate in Switzerland. To obtain a class C permit one must have had a class B permit for between 5 and 10 years depending on country of origin. The class C permit is the last step before applying for Swiss citizenship. It is subject to the same conditions as the class B permit.

The 'Fiscal Deal' Permit:

This is a variant of the class B permit and is primarily for wealthy individuals who wish to live in Switzerland off income earned outside Switzerland (e.g. international tennis players and Formula 1 drivers) but who have no need or desire to work in the country. To obtain a fiscal deal permit the applicant needs a certified net wealth of at least 2 million Swiss Francs and must be willing to spend at least 180 days a year in the country.

The Fiscal Deal Permit allows the applicant to pay considerably less tax than a Swiss national of his income bracket would normally pay since the assessment to tax is not based on the applicants real income but rather on a much lower notional amount.

The amount of tax payable by the holder of such a permit is a matter of personal negotiation with the canton in which the applicant resides. Switzerland is already a low tax country by OECD standards and the 'Fiscal Deal' results in extremely low levels of taxation. It takes about 3 months to obtain a Fiscal Deal Permit.

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