SWITZERLAND Law and Practice Contributed by: Natalie Dini and Peter Vogt, Tax Partner AG
foundation is exempt from Swiss federal, cantonal and communal income, capital, inheritance and gift taxes; donations to it are tax-deductible for Swiss donors (within statutory limits). Swiss Family Foundations These are restricted under Swiss law and may exist only to finance a descendant’s education or vocational training, support a family member in need (illness, dis - ability, unemployment) or help them “establish them - selves” (first home, business start-up). They cannot be used to pay ordinary living expenses or serve as a form of indefinite wealth preservation. The founda - tion is liable to ordinary corporate income and capital (wealth) taxes; gifts into the foundation may still trig - ger cantonal gift tax unless the donor is in a zero-tax canton. Foreign Family Foundations Due to the aforementioned restricted use of the Swiss family foundation, foreign foundations – which are usually recognised for civil law purposes – are used instead. The foundation ring-fences wealth outside probate, allows staggered payouts and can soften Swiss forced heirship by replacing outright shares with discretionary benefits. The tax treatment will depend on whether the settlor has given up control over the assets transferred to the foundation. The one- off transfer is treated as a gift and may trigger can - tonal gift tax. Once funded, the foundation’s assets and income are no longer attributed to the settlor for Swiss income or wealth-tax purposes if the settlor has fully given up control. Swiss resident beneficiaries are usually taxed only when – and if – they receive dis - tributions. Foreign Trusts Switzerland has no domestic trust statute, so Swiss residents settle or benefit from foreign trusts. There are no specific tax laws covering the tax treatment of trusts. The tax aspects are laid down in a Circular published by the Tax Authorities in 2007. For tax purposes, trusts are divided into revocable and irrevocable trusts and the latter into fixed interest and discretionary trusts. Depending on the circumstances, taxes may be due either by the Swiss resident settlor
or beneficiary. Under the Swiss tax regime, the trust itself, the trustee or the protector are not tax subjects. 3.2 Recognition of Trusts The Hague Trust Convention, which Switzerland rati - fied in 2007, means Swiss courts recognise and apply foreign-law trusts, but no Swiss statute allows their creation under Swiss law. A draft bill to introduce a domestic trust was tabled in 2021 yet withdrawn by Parliament in 2024 for lack of consensus; it is off the legislative agenda for now. For discussion of the tax treatment of trusts see 3.1 Types of Trusts, Foundations or Similar Entities and 3.3 Tax Considerations: Fiduciary or Beneficiary Designation . 3.3 Tax Considerations: Fiduciary or Beneficiary Designation Tax Treatment of a Swiss Resident Trustee When a Swiss resident acts only as a professional trustee or foundation board member of a foreign structure, the Swiss tax system treats the arrange - ment as outside the fiduciary’s personal tax sphere. The fees earned for the mandate are ordinary Swiss- taxable income, but the trust or foundation assets and income are not attributed to the fiduciary for wealth or income tax purposes, provided the fiduciary cannot benefit personally from the funds. Matters change the moment a Swiss resident com - bines control with personal benefit. If the Swiss indi - vidual is a settlor or beneficiary and holds decisive powers – such as the right to replace trustees or veto distributions, or if they form the majority of the board – Swiss practice characterises the trust as revocable/ settlor-controlled. In that case the capital and income are attributed to that person for tax purposes. Later “distributions” are ignored because the assets were never considered to have left the individual’s estate in the first place. Tax Treatment of a Swiss Resident Beneficiary For a Swiss resident discretionary beneficiary with no control, an irrevocable discretionary trust offers deferral. Under the 2007 Swiss Tax Conference cir - cular, expectative rights are too remote to value, so the beneficiary pays nothing annually; only cash or
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