Among other provisions, dividends paid to individual pension funds – Pillar 3a in Switzerland – are exempt from transfer tax from 1 January 2020. A mandatory arbitration clause ensures that double taxation is avoided even if the competent authorities fail to reach an agreement in the cartel procedure. In principle, most contracts follow the OECD Model Contract. Double taxation is generally avoided by applying the progression exemption method, i.e. all income is taken into account to determine the applicable rate, but exempt income is not actually subject to taxes. Uncollectible foreign taxes on capital income (interest, dividends) are generally deducted from this income on and up to the actual Swiss tax. Unused credits cannot be presented. There are ways for U.S. expats to avoid a lot of double taxation. There is a treaty between Switzerland and the United States that describes some of these advantages. A tax advisor will help you understand the agreement and the benefits available.
Bern, 20.09.2019 – On 20 September 2019, Switzerland and the United States of America exchanged in Bern the instruments of ratification of the Protocol of Amendment to their Double Taxation Convention in the field of income taxation (DBA). The protocol, which entered into force on the same day, marks an important milestone in tax relations between Switzerland and the United States. Capital gains – The taxation of capital gains follows the same rules as those defined in the OECD model. Real estate profits are taxable in the country where the property is located, while profits from the sale of personal property are taxed in the seller`s State of residence. If such profits are attributed to a permanent establishment of the other State, they shall be subject to the claim in the State concerned. The agreement, however, allows U.S. expats to avoid double taxation of their income taxed in Switzerland by allowing them to claim U.S. tax credits when they file their U.S. tax return at the same value as swiss income taxes they have already paid when they file their U.S. tax return. The U.S.-Switzerland tax treaty covers double taxation with respect to income tax, corporate tax, and capital gains tax, but a clause in Article 1(2) states that “the United States may tax its citizens (including former citizens) as if this agreement had not entered into force.” This means that U.S.
expats still have to collect U.S. taxes on their global income.