SWITZERLAND: An Introduction to Private Wealth Law
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OVERVIEW OF PRIVATE WEALTH LAW IN SWITZERLAND
Switzerland is experiencing one of its most interesting times in over 100 years for private wealth law. Whereas only selected amendments have been introduced to the inheritance law provisions of the Swiss civil code since its introduction in 1907, these provisions are about to undergo a major revision which will come into force on January 1st, 2023. This revision will impact inheritance as well as family law. As a result, Swiss specialist practitioners are busy revising testamentary dispositions and marriage contracts to ascertain that they are adequate and fit best with the intentions of the testator in light of the upcoming new provisions.
Other important legislative developments in the field of private wealth law are expected in the near future. These include legislative amendments introducing marriage for all (coming into force on July 1st, 2022) and a revision of the inheritance law provisions of the Swiss private international law (expected for 2024). Practitioners specialised in trusts also follow closely discussions and developments on the initial draft issued by the Swiss Government last January of proposed new provisions on trusts to be included in the Swiss Civil code.
2. The revision of the Swiss Civil Code coming into force on January 1st, 2023 in a nutshell
The aim of the revision is to take into account current social realities, particularly modern family structures as well as the increase of the average life expectancy. Freedom of testators will be enhanced by new provisions which reduce the compulsory portion of the descendants from three quarters to one half of their legal share in the estate of the deceased and abolish the compulsory portions of the parents. The compulsory portion of the surviving spouse or registered partner will however remain unchanged.
The revision also clarifies certain points of controversy existing under current inheritance law provisions, in particular with regard to calculation of compulsory portions and treatment of benefits of 3a pension plans concluded with banking foundations or insurance institutions.
Finally it includes certain new rules which impact family law. Until now, the entitlement of a surviving spouse to a compulsory portion in the estate of the deceased spouse ceased with the entry into force of the final divorce decree. This was considered inconvenient and contrary to the parties’ interest, in particular during lengthy and highly controversial divorce proceedings. Under the new law, protection of the compulsory portion ends with the lis pendens of the divorce proceedings, provided these proceedings are initiated either upon joint petition, or following unilateral request (a) to which the other spouse agrees, or (b) which is introduced once the two-year separation period required by Swiss law has expired. This enables the spouses to dispossess each other of the entirety of his/her legal share once the divorce proceedings are pending, by establishing a Will, a possibility which needs to be taken into consideration whenever the parties’ estate will or might be governed by Swiss law. Secondly, any previously established Will or agreement in favour of the other spouse will become invalid when the divorce proceedings start, unless the parties have explicitly confirmed that such agreement should survive the divorce, either at an earlier stage of their marriage, or once the proceedings are pending.
3. Other recent developments in family law
As from July 2022, marriage will be available to same sex couples. The rules of the "registered partnership" (the only option available to same sex couples until now) will remain applicable for those registered partners who wish to continue with this regime (to some degree incomplete). Couples wishing to convert to the rules of marriage can easily do so by means of a simple declaration at the civil status office. A similar declaration to the registrar’s office is also available, since January 1st, 2022, to anyone wanting to notify a change of gender.
In parallel to extending the availability of marriage, the Swiss Government has declared its readiness to examine whether to establish some sort of a "lesser degree" marriage, resembling the Pacte civil de solidarité in French law. The purpose is to reduce unfair negative impacts of living together, in particular if one of the partners has suffered economic disadvantages (e.g. by renouncing a career to raise children), as such disadvantages cannot be compensated under current law if the partners have not concluded an agreement.
Lately, the Supreme Court has issued another important decision on surrogacy, confirming the unsatisfactory unequal treatment of the genetic father and the genetic mother on the basis of current Swiss law. This situation occurs whenever the relationship with the child has not been registered based on a decree of a competent foreign court, but on foreign statutory law only.
4. Tax Law
Individuals domiciled or resident in Switzerland are subject to unlimited taxation in Switzerland with respect to income and wealth.
Income tax is levied at federal, cantonal and communal level, at progressive tax rates. The maximum total tax rate among the various Cantons and Communes is currently around 40-45% and the minimum is around 20-25%. There are several aspects which may render Switzerland particularly attractive from an income tax point of view: (i) the possibility for foreign citizens, under certain conditions, to be taxed on a lump sum basis, (ii) the full exemption of private capital gains from income tax, applicable to all resident individuals unless certain specific exemptions apply, (iii) the existence of a specific participation exemption on qualifying dividends, (iv) the availability of special tax rules applicable to expatriates, employees’ incentives (stock option, shares, and the like) and participants to start-up projects.
Wealth tax is levied at cantonal level only, at progressive tax rates. The maximum total tax rate among the various Cantons and Communes is currently around 1% and the minimum is around 0.1%.
Donation and inheritance taxes are also levied in Switzerland at cantonal level. Taxable basis and tax rates vary among the Cantons, but in general tax rates are progressive and increase with the increasing of the donation’s value and moreover with the receding of kinship between donor and donee. In general, donations to spouses and civil partners are tax free in all Cantons, while donations to direct descendant and ascendant are tax free in most Cantons.
Contacts between the taxpayers and the tax administration are relatively easy in Switzerland and binding tax rulings are common practice.
Annette Spycher, Partner of Kellerhals Carrard Bern, Co-Chair of Private Clients
Ingrid Iselin, Partner of Kellerhals Carrard Geneva, Co-Chair of Private Clients
Giovanni Stucchi, Partner of Kellerhals Carrard Lugano, Head of Tax