SWITZERLAND Law and Practice Contributed by: Joseph Merhai, Thomas Pasquier and Laurent Schenker, Aegis
domicile provided for under federal law. If the situ - ation is not clear, the tax authorities determine the tax domicile by reference to the strongest personal and economic ties (centre of vital interests), based on an overall assessment of the facts; purely subjective preferences are not decisive in themselves. A stay in Switzerland triggers tax residence when the individual remains physically in Switzerland for at least 30 days while engaging in gainful activity, or for at least 90 days without gainful activity, without signifi - Where an individual is treated as being tax resident in Switzerland and in another jurisdiction under its respective domestic rules, the applicable DTA will typically resolve the conflict through the tie-breaker rules of Article 4 of the OECD MTC. In principle, the individual is deemed to be resident only of the state where they have a permanent home available; if a permanent home is available in both states, residence is assigned to the state with which personal and economic relations are closer (centre of vital interests). If the centre of vital interests cannot be determined (or if no permanent home is available in either state), the tie-breaker rule turns to habitual abode, then nationality, and ultimately a mutual agree - cant interruption. Treaty Provision Individuals who are tax resident in Switzerland are, as a rule, subject to unlimited tax liability and are taxed on their worldwide income for purposes of direct taxes at the federal, cantonal and communal levels. In addi - tion, they are generally subject to cantonal and com - munal wealth tax on their worldwide net wealth. Exemption Mechanism Domestic Swiss law and DTAs provide for mecha - nisms to avoid international double taxation. For example, income attributable to foreign businesses/ permanent establishments and income from immov - able property located abroad are generally excluded from Swiss taxation, although they must typically still be declared and taken into account to set the tax rate. ment between the competent authorities. 2.3 Taxation of Resident Individuals Unlimited Tax Liability
For other categories of foreign-source income, relief is typically granted under the applicable DTA (and, in some cases, under domestic unilateral relief rules), usually by way of exemption or, more rarely, foreign tax credit, depending on the income category and the relevant treaty provisions. Lump Sum Taxation Swiss tax law also allows individual taxpayers to voluntarily opt for a lump sum taxation ( imposition d’après la dépense/Besteuerung nach dem Aufwand ). In principle, this regime is available only to individu - als who: • do not have Swiss citizenship; • become Swiss tax residents for the first time or after an absence of at least ten years; and • do not carry out any gainful activity in Switzerland. Under this regime, income tax is assessed based on the taxpayer’s annual living expenses (including those incurred abroad for the taxpayer and dependants), subject to statutory minimum bases and a control calculation. Cantonal law and practice may impose lower or higher minimum assessment bases, and cer - tain cantons have abolished this regime altogether. 2.4 Taxation of Non-Resident Individuals Domestic Provision Under Swiss domestic tax laws, individuals who, for Swiss tax purposes, are neither domiciled nor tax-res - ident by virtue of a stay in Switzerland are subject to Swiss taxation only based on an economic affiliation. This generally covers both (i) business or real-estate nexus and (ii) certain specifically listed Swiss-source income. A taxable economic affiliation exists where: • the individual is the owner or usufructuary of a business in Switzerland, or holds an interest therein as a partner; • the individual operates a permanent establishment in Switzerland; • the individual owns Swiss real estate or holds rights in rem, or personal rights economically equivalent to rights in rem, over Swiss real estate; or
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