Switzerland: a tax haven?
Who said Switzerland was a tax haven ?
Aside from citizens established on a tax flat rate basis, few taxpayers do well, the French-speaking cantons, notably Geneva and Vaud, being particularly greedy with marginal tax rates which quickly rise to around 45%, especially in the case of married couples whose two incomes add up, as we illustrate in the table below:
Should we therefore resign ourselves?
Foresight, understand 2e pillar and 3e pillar(a), is often cited as the royal road to containing the heavy tax burden, through the interplay of contributions and redemptions. Although often mentioned and highlighted, it is still too often under-exploited.
However, these sources of optimization disappear upon cessation of professional activity.
Is foresight the only solution capable of bending the exponential curve of our taxes?
No, because there are many other means that remain available beyond retirement. It is not a question here of making an exhaustive tour of them, but simply of mentioning their existence.
- Real estate
The Swiss love stone, which they most often hold in their own name. Beyond the practice of deducting maintenance costs, the question of using a real estate company arises today. We kept in mind the end of the 1990s with the dissolution of almost all real estate companies. What was no longer good at the time is becoming good again due to the new tax rules capital companies, which allows under certain conditions to reduce its total tax base. Such a solution is not necessarily a panacea and should especially be considered to house a high-yield real estate portfolio, taking into account the individual context of each person, with certain heritage advantages.
- Debt
The Swiss don't like them debts. However, they can often be one optimization source, when the lever is used correctly. We will cite for example the investment in a vehicle generating a higher return over the duration of the loan (ideally in capital gains), or the fact of favoring a voluntary redemption in the pension fund over repayment
A debt (typically mortgage). Finally we will remember that with a marginal wealth tax rate of around 1% in Geneva and 0.8% in Vaud, and the marginal income rates presented above, the tax deductibility of the debt (income and fortune) becomes particularly interesting.
- Shareholders of their company
Many shareholder entrepreneurs favor dividends instead of salary, subject to AVS contribution. In doing so, they deprive themselves of important sources of optimization via their 2e pillar, because the dividend is not insurable within the meaning of the LPP. This way of doing things massively reduces their buyout calculation and all the optimization possibilities that such a strategy offers. If implemented correctly, particularly by optimizing the salary/dividend ratio, the benefits can be significant.
Just as many people create latent reserves in their company accounts. This excess liquidity can become toxic at the time of the sale of the company, being then taxed as a liquidation dividend at the marginal rate on income.
- Asset management
What if the Swiss gained height in order to have one consolidated view on their heritage? They would see that they are often much richer than they had thought.
Multiple solutions exist today to enable them to optimize the tax impact of management actions on all of their movable assets, including pension assets. With identical asset allocation, the net return after taxes can be significantly improved.
For investments subject to taxation, there are vehicles which have interesting tax characteristics. This is the case, for example, with certain real estate funds, for which taxation is taken from the fund and therefore more at the taxpayer level. It should be noted, however, that such funds are sometimes valued at a significant amount, including in particular the tax advantage from which they benefit. We therefore recommend a case-by-case analysis.
- Tax shield
Some cantons offer a tax shield which mainly concerns taxpayers with a certain wealth and who have only low sources of income.
Although its application is automatic, many people do not benefit from it, due to lack of financial structure. Take advice!
- Insurance solutions
Some insurance products offer significant tax advantages. They are often neglected in the structurally low interest rate environment, but can be interesting in a given overall wealth context. We are of course at your disposal to talk about it further and in person.
Do not hesitate to contact us for further information.
