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Lump sum taxation while actively running a business

JustAnotherNomad

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Oct 18, 2019
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There a couple of countries that offer tax benefits to HNWI who don't work in the country, like Switzerland, Italy, Greece etc., or even the UK.
A requirement of these programs is typically that you can't work in the country (or if you do, then tax benefits don't apply to that income).
Even if you had substance in another country, e.g. a company with some employees in Malta or the UAE, they would still tax you if you are actively involved in the business from your new home.

But I had an interesting idea the other day, and I believe this is actually something a lot of people do:
You can set up a company in Liechtenstein, where the corporate tax rate is 12.5%.
And then you live in Switzerland, but you commute to your Liechtenstein office (could be a desk in a co-working space) and only work from there. (I have heard that the Swiss tax office really checks this and demands to see receipts etc.)
Interestingly, the CH-LI DTA specifies that for cross-border commuters, income from the other country is only taxable where you live. So if you live in CH, but work in LI, you don't pay tax on your salary in LI, but in CH.
And as for dividends, there is no WHT. Liechtenstein generally doesn't levy any WHT, but even if this should change in the future, the DTA contains a 0% WHT parent-subsidiary directive.
Now ordinarily, as far as I know, dividends are taxed as income in Switzerland.
However, let's say you're under lump sum taxation. Then there is only the lump sum tax and you aren't taxed on foreign-source income.
If this is true, then shouldn't both the LI salary and the dividends be exempt from taxation in Switzerland? So you would only pay the lump sum and that's it? Or is there something I'm missing?

Do you know of any similar setups? I've only seen Monaco discussed so far, where people say that PE laws generally aren't enforced.
 
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I guess this could also work with an office in Switzerland and lump sum taxation in Italy, which is much lower than the lump sum tax in Switzerland.
The only issue is that the taxation of cross-border commuters isn't as favorable, the salary would mostly be taxed in Switzerland. So you would have to pay yourself dividends - on which Switzerland levies a 15% WHT.
So you would need some sort of holding company. I'm wondering if you could even use an Italian holding company for this. Register it at your home address in Italy, make your wife its director. That should be enough substance and you would be able to prove you're not working for the holding company.
But I don't know if then this could still be an issue for the Italian lump sum tax regime. Worst case you'd need a holding company in Cyprus or so, with some minimal substance.

So then you would probably pay just under 15% corporate tax in Switzerland and the EUR 100k lump sum tax in Italy. Not too bad either.

Did you run some math to see how much would you pay in taxes overall?

Seems like the minimum tax under the Swiss lump sum regime is about CHF 170k, but I only googled this briefly, so I'm not sure if this is correct.
The biggest issue is that they assume you have a net worth of at least 8M, which they then charge 1% wealth tax for.
 
I guess this could also work with an office in Switzerland and lump sum taxation in Italy, which is much lower than the lump sum tax in Switzerland.
The only issue is that the taxation of cross-border commuters isn't as favorable, the salary would mostly be taxed in Switzerland. So you would have to pay yourself dividends - on which Switzerland levies a 15% WHT.
So you would need some sort of holding company. I'm wondering if you could even use an Italian holding company for this. Register it at your home address in Italy, make your wife its director. That should be enough substance and you would be able to prove you're not working for the holding company.
But I don't know if then this could still be an issue for the Italian lump sum tax regime. Worst case you'd need a holding company in Cyprus or so, with some minimal substance.

So then you would probably pay just under 15% corporate tax in Switzerland and the EUR 100k lump sum tax in Italy. Not too bad either.



Seems like the minimum tax under the Swiss lump sum regime is about CHF 170k, but I only googled this briefly, so I'm not sure if this is correct.
The biggest issue is that they assume you have a net worth of at least 8M, which they then charge 1% wealth tax for.
min 300k maybe 250k. But def not below 200k.
 
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min 300k maybe 250k. But def not below 200k.
You would be surprised....

The average is:
1711912545733.png


CHF 821 million / 4,557 =

1711912608513.png


So, 50% pay ≥ CHF180K and 50% pay ≤ CHF180K.

Still, A LOT of money for having the privilege to live in CH!
 
You would be surprised....

The average is:
View attachment 6514

CHF 821 million / 4,557 =

View attachment 6515

So, 50% pay ≥ CHF180K and 50% pay ≤ CHF180K.

Still, A LOT of money for having the privilege to live in CH!
well, that was 6y ago, and lot has changed since 2018. As I wrote above, I highly doubt that in 2024 you can get it below 200k.

It would be very "cheap" in a way as Italy is already a 100k.
The privilege is the privacy and secrecy it provides as ordinary swiss residents are butt naked in front of the tax system and need to declare every cent of wealth owned wherever.

That being said, you think its really possible to get it for lets say 150k today?
I know a dude who settled recently for around 250k in little bumblefuck.
 
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So, 50% pay ≥ CHF180K and 50% pay ≤ CHF180K.
That would be the case if 180k were the median average.
You calculated the arithmetic average.

In your case, if all but one taxpayer paid 100k tax, then this one taxpayer who paid more would have a liability of 364,660k. That would result in an arithmetic average of 180k and a median average of 100k.
 
Still easier surely to move to Thailand etc and have dividends tax free overseas and then retire to Europe with the spoils of that’s your interest.

Sure, I'm not disputing that.

min 300k maybe 250k. But def not below 200k.

Seems like 424k is the minimum income tax equivalent. And 8.6M or so is the minimum wealth they tax.
It seems like you can pay around 90k in some cantons/municipalities on an income of 424k, and then the wealth tax on 8.6M would be another 86k. That's how I arrived at that number.
 
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There a couple of countries that offer tax benefits to HNWI who don't work in the country, like Switzerland, Italy, Greece etc., or even the UK.
A requirement of these programs is typically that you can't work in the country (or if you do, then tax benefits don't apply to that income).
Even if you had substance in another country, e.g. a company with some employees in Malta or the UAE, they would still tax you if you are actively involved in the business from your new home.

But I had an interesting idea the other day, and I believe this is actually something a lot of people do:
You can set up a company in Liechtenstein, where the corporate tax rate is 12.5%.
And then you live in Switzerland, but you commute to your Liechtenstein office (could be a desk in a co-working space) and only work from there. (I have heard that the Swiss tax office really checks this and demands to see receipts etc.)
Interestingly, the CH-LI DTA specifies that for cross-border commuters, income from the other country is only taxable where you live. So if you live in CH, but work in LI, you don't pay tax on your salary in LI, but in CH.
And as for dividends, there is no WHT. Liechtenstein generally doesn't levy any WHT, but even if this should change in the future, the DTA contains a 0% WHT parent-subsidiary directive.
Now ordinarily, as far as I know, dividends are taxed as income in Switzerland.
However, let's say you're under lump sum taxation. Then there is only the lump sum tax and you aren't taxed on foreign-source income.
If this is true, then shouldn't both the LI salary and the dividends be exempt from taxation in Switzerland? So you would only pay the lump sum and that's it? Or is there something I'm missing?

Do you know of any similar setups? I've only seen Monaco discussed so far, where people say that PE laws generally aren't enforced.

What is the point of paying 12.5 % corporate tax on one side and all the costs of living in Switzerland? It is probably doable but sounds very expensive.
Cyprus is much cheaper option compare to that idea. But if you desperately hate Cyprus and love CH then do what you want.

About your other idea CH+Italy, again it does not make much sense as you would have to engage with the complications and costs of Switzerland and because you dont need to do that with the italian 100k flat tax.

It appears that many still dont know the advantages of the italian deal: it shields you from many hassles such as CRS, italian wealth taxes and CFC for example. The point has been officially clarified by the italian tax authorithy already some years ago. Naturally the matter is complex and everybody should assess his own situation with the support of local experts.
 
I dont have much fantasy today, I can only state the obvious: if you have an established business operation in any country with its own economic substance, and ideally no italian clients or specific ties with Italy, so you are simply the director, then you are not going to have CFC issues, as they look at where the income is produced, not where the center of control is.
If you are really interested then discuss your case with some local expert who can analyse your situation in light of the circular letter no. 17/E of 23/05/2017 that the tax authority issued specifically to address those type of concerns related to the cases of neo-resident applying for the option of art.24-bis TUIR (i.e. the 100k option).

As you probably heard, before deciding to move to Italy you can apply for a tax ruling on your specific case, the taxman must give you an answer within 120 days and that answer is binding for them, which means that if you dont modify substantially your corporate structures then your risk of troubles with the taxman is almost zero.

One issue you could have with the 100k option is in case you wish to "exit" your business (i.e. selling the shares of your company where you are the major shareholder thus realizing a capital gain) within the first 5 years from moving to Italy, as in such case the italian capital gain tax would apply and you will have to pay it on top of the 100k; so you have to carefully consider such scenarios.
 
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As you probably heard, before deciding to move to Italy you can apply for a tax ruling on your specific case, the taxman must give you an answer within 120 days and that answer is binding for them, which means that if you dont modify substantially your corporate structures then your risk of troubles with the taxman is almost zero.
#Bingo!

Always get a TAX RULING *before* you take ANY step! Remember, YOU are bringing benefits to people who produce NOTHING! Don't sell yourself short! If they say "no," you walk! Simple as that! ;)
 
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Interesting. I thought they would always try to attribute a PE to the company. What about holding companies? Could you use a holding company with minimal substance (e.g., in Cyprus) to avoid the capital gains tax if you sell the company?