nexia international tax conference geneva june 2006 tax incentives in switzerland andreas baumann /...

Nexia International Tax ConferenceGeneva June 2006

Tax incentives in Switzerland

Andreas Baumann / Peter Fröhlich

Overview

1. Transfer from Germany to Switzerland

2. Lump Sum Taxation

3. Agreement on the free movement of persons between Switzerland and the EC to social security

1. Transfer Germany - Switzerland

German GmbH

A B

German Customer

ServicesGerman Supplier

1.1 Startung Situation


Swiss Ltd.

A B

German Customer

Services

German Supplier

1.2 Objective

Foreign Customer

Swiss Customer


• Individual Level: Expatriation taxation? Yes. Hidden reserves on shares will be taxed.

• Company Level: Liquidation of the German GmbH? Yes. Hidden reserves on assets of the German GmbH will be taxed.

German GmbH

A B

1.3 Arising tax issues with the direct move to Switzerland


German GmbH

A B

German Ltd. & Co. KG

UK Ltd.

1.4 Proposed structure – Step 1

Step 1: Introduce German Ltd. & Co. KG no taxation on change of domicile


German GmbH

A B


UK Ltd.

1.5 Result – Step 1

Result Step 1: no taxation on changeof domicile


German GmbH

A B


UK Ltd.

Swiss Ltd.

1.6 Proposed structure – Step 2

Step 2: foundation of a Swiss Ltd. by A& B. to take over the business fromthe German GmbH


Swiss Ltd.

A B

German Customer

Services

German Supplier

?German GmbH

1.7 Transfer of business to Swiss Ltd. – silent liquidation of German GmbH

Foreign Customer

Swiss Customer

2. Lump sum taxation

Conditions:

• The foreigner must attain his main residence in Switzerland either for the first time or after having lived for more than 10 years abroad

• The said person must not be working in Switzerland.

Calculation of the basis:

• 5-times of either the actual annual rent payable on an apartment chosen by the taxpayer

• or the imputed rent in case the alien lives in a house of his own.

2.1 Conditions & Calculation basis


• For every taxable year, the 5-times yearly rental income must be compared with a shadow tax calculation involving a broader tax base, which in itself leads to the assessment of a minimum tax.

• The broader basis includes both, elements of domestic and of foreign source income: • Swiss Source Income • Foreign Source Income for which Treaty Relief is being

sought• If the minimum tax is higher than the tax resulting from the 5-

times yearly rental income, then the former will prevail.

2.2 Shadow calculation


A

BelgiumLtd.

DanishLtd.

Income: 5% of the purchase expenses EUR 1‘000‘000

No business activity in Switzerland!

2.3 Example


BelgiumLtd.

DanishLtd.

A

Income: 5% of the purchase expenses

Tax free!

Lump sum income: EUR 500‘000

2.4 Example

No business activity in Switzerland!

3. Agreement on the free movement

• Under the agreement on freedom of movement the various national social security systems will be coordinated. This does not mean, however, that they will be standardised. Each state will maintain the structure, form and scope of the benefits provided by its own social security system.

• The main points of the agreement are:

• Swiss and citizens of an EC member state will have the same rights.

• Any negative affect on the insurance cover of moving to a different country for purposes of employment and residence will be attenuated or eliminated.

3.1 Relevance of the agreement to social security


Swiss and citizens of an EC member state who are working inan EC member state or in Switzerland or who move fromSwitzerland to an EC member state or vice versa.

The agreement concerns:

• Persons who are or were gainfully employed (pensioners, unemployed)

• Students and members of their families (only in relation to sickness insurance)

• Family members or surviving dependants of persons who are or were gainfully employed, whatever their nationality

• Stateless persons and refugees resident in Switzerland or in an EC member state

3.2 Who is covered by the agreement?


General rule: to the social security system of one single state!

Three different cases:

• To which social security system must gainfully employed persons, who are working in only one state, contribute?

To the system of the state in which they are working!

• To which social security system must persons, who work in more than one state, contribute?

The system of the state in which they are resident, insofar as they work in the same country!

3.3 Contribution to which social security system?


If they live in none of the countries in which they work, they must contribute to the system of the country in which they carry on their principle work or where their employer‘s head office is located.

Caution: Any person who is self-employed in one country but is employed in another must normally contribute to the systems of both countries. This applies, for example, if a person is self-employed in Switzerland and at the same time in gainful employment in an EC member state. However, this rule applies not in relation with every EC member state (regulation Nr. 1408/71)!



• To which social security system must persons contribute who work for a firm in an EC member state, which sends them for a short period to work in Switzerland?

The social security system of the EC member state in which the employer‘s head office is located! This only applies when the mission is for not more longer than 12 months. In the case of longer missions, an application can be made in order to continue with the same social security system.


Thank you for your attention!

ABT TREUHANDGESELLSCHAFT ANDREAS BAUMANN & CO.

Zürichstrasse 27B

CH - 8134 Adliswil

Tel.: + 41 44 711 90 90

Fax: + 41 44 711 90 99

Andreas Baumann, certified tax expert, [email protected]

Peter Fröhlich, lawyer and certified tax expert, [email protected]

nexia international tax conference geneva june 2006 tax incentives in switzerland andreas baumann /...

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