Expatriation and Occupational Pensions

A permanent departure from Switzerland is far more than just a change of residence. It entails complex tax implications that require careful consideration. To best protect one’s financial interests, it is essential to anticipate the consequences of this transition and understand the available options.

When an individual leaves Switzerland permanently, they may, under certain conditions, withdraw their entire vested benefits in cash — including both the mandatory and the supplementary portions. If moving to a country outside the European Union (EU) or the European Free Trade Association (EFTA), it is possible to withdraw the full amount. However, for individuals relocating to an EU or EFTA member state, Swiss legislation imposes a restriction: only the supplementary portion may be withdrawn, unless the individual can prove they are no longer subject to compulsory social insurance in the host country.

Once domiciled abroad, withholding tax is applied by the Swiss canton where the pension institution is located. Tax rates vary significantly from one canton to another. Some, such as Schwyz, apply particularly low rates, which may present a tax optimisation opportunity — especially for individuals relocating to a country that does not tax Swiss capital withdrawals. Nevertheless, this strategy is less relevant in many cases, as numerous countries also tax these capital payments.

If a double taxation agreement (DTA) exists between Switzerland and the country of residence, it may be possible to reclaim the Swiss withholding tax — provided the taxpayer can prove they are fiscally resident abroad. In such cases, the choice of Swiss canton becomes less relevant, as the final tax burden will depend on the tax regime of the destination country.

The local tax treatment in the country of destination plays a crucial role. In France, for example, a reduced tax rate of 6.75% may apply to Swiss pension capital, provided strict conditions are met — including a ban on partial withdrawals. If these conditions are not met, the capital is instead subject to income tax, with rates potentially reaching up to 45%. In Spain, the situation is less favourable: no preferential tax treatment is available, and the capital is taxed as regular income, with progressive rates up to 47% (or even 50% in certain autonomous regions).

Another decisive factor is the nature of the employment held in Switzerland. If the capital stems from public service and the individual holds Swiss nationality, the DTA may allocate exclusive taxing rights to Switzerland — even after the person has left the country. It is therefore crucial to identify the status of the employment before making any withdrawal decision.

Special attention should also be paid to pension contribution buy-ins made shortly before moving abroad. The Federal Supreme Court recently reiterated that such buy-ins may be considered a form of tax avoidance. In a recent case, a taxpayer who had lived in Switzerland for several years made buy-ins totalling CHF 241,500, which she then transferred into two vested benefits accounts before leaving the country. As she could not prove an imminent return to Switzerland, the court deemed the buy-ins incompatible with the true purpose of occupational pensions, and the tax deduction was denied.

Ultimately, the tax treatment of occupational pension capital depends on a combination of factors: the destination country, applicable tax treaties, the nature of previous employment, withdrawal arrangements, and the location of the pension institution. To avoid unpleasant surprises and make well-informed decisions, it is strongly recommended to seek professional advice.

The advisors at Piguet Galland & Cie SA’s wealth solutions department are available to analyse individual situations, anticipate the tax implications of a departure, and guide clients towards the most advantageous options for their future.