SWITZERLAND: An Introduction
Overview Of Private Wealth Law In Switzerland
Introduction
A major revision of inheritance law provisions of the Swiss Civil Code came into force on January 1st, 2023. Other important legislative developments in the field of private wealth law are expected in the near future. A revision of the inheritance law provisions of the Swiss private international law is currently discussed by the Swiss Parliament. Practitioners specialized in trusts also follow closely discussions on the initial draft issued by the Swiss Government in January 2022 of proposed new provisions on trusts to be included in the Swiss Civil Code as well as in tax legislation.
New Swiss inheritance law provisions in force since January 1st, 2023 in a nutshell
The revision was made to modernise Swiss inheritance law in view of modern family structures, current social realities as well as the increase of the average life expectancy.
The new provisions provide a reduction of the compulsory portions, thus notably enhancing the freedom of testators. Compulsory portions of descendants have been reduced from three quarters to one half of their legal share in the estate of the deceased; compulsory portions of the parents have also been abolished. The compulsory portion of the surviving spouse or registered partner however remains unchanged under the new law.
The revision further clarifies certain points which were previously controversial, in particular with regard to calculation of compulsory portions and treatment of benefits of 3a pension plans concluded with banking foundations or insurance institutions.
The new inheritance law provisions also impact family law. Previously the entitlement of a surviving spouse to a compulsory portion in the estate of the deceased spouse ceased only with the entry into force of the final divorce decree. Under the new law, protection of the compulsory portion ends with the lis pendence 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. Also, any previously established will or agreement in favour of the other spouse now becomes 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.
Recent developments in family law
No new laws have been enacted recently, nor are there any important laws “in the pipeline” for the next few months. Significant changes are however under way, eg a law destinated to allow the donation of egg cells, or another law introducing a new civil status which would be some sort of compromise between marriage and concubinage. What exactly this new status will include is still to be discussed, and heated discussions are to be foreseen.
On the whole, family related issues have become more prominent in legislation, eg in taxation (ie with a significant increase of deductions for child care), or social security, and they are very prominent on the agenda of members of Parliament (seeking eg to introduce a general parental leave for fathers).
The Swiss Supreme Court has issued an impressive number of important decisions on alimony law and child maintenance, defining more closely the method of calculation. As an example, it is now standard practice that the tax amount due on child maintenance must be included in the calculation of the latter. Another specification was made regarding alimony for children above the age of 18: Such alimony is now limited to a slightly increased basic amount, and does, as a rule, not include a share of the so called “surplus”.
Obtaining post-marital alimony for former spouses has become more demanding, as the Supreme court has on one hand increased the level for so called “life shaping” marriage, and on the other hand reduced the thresholds where the age of children under one parents’ care is being considered as an obstacle to follow an employment. However, contrary to what one might have assumed from reading newspapers and tabloids, this has not come as a surprise, nor has there been a “revolution”. And there remains space for decisions in favor of longtime spouses having sacrificed their career for the sake of the family.
Shared custody remains a huge issue, with a tendency of certain courts to assume that the interest of children is usually best taken care of with shares of 50/50. Not for the first time, one extreme solution (fathers losing custody upon separation, which was common practice until a few years ago), is being replaced by the other extreme, and the sake of the children, although emphasised by everyone, is in peril of becoming of secondary importance.
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%. In relations to income tax, there are several aspects which may render Switzerland particularly attractive from a tax point of view, like eg (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 done. In general, donations to spouses and civil partners are tax free in all Cantons, whiles 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.