SWITZERLAND: An Introduction
An Overview Of Private Wealth Law in Switzerland
Economic Situation in Switzerland in 2024
Switzerland managed to recover from an economic dip in growth and rising inflation in 2023 rather quickly. The measures taken by the Swiss National Bank (SNB) proved to be effective in combatting the emerging inflation and economic troubles.
This economic recovery resulted in a series of interest rate decreases by the Swiss National Bank. The current interest rate (1.25%) enables robust economic growth and the real estate market has remained strong, providing stable and safe ground for investment.
A review of the new Swiss inheritance law provisions in force since 1 January 2023
The inheritance law revision, which came into force on 1 January 2023, was designed to modernise and liberalise Swiss inheritance law with a reduction of the compulsory portions for descendants and the abolition of the compulsory portions for parents. Now, more than a year and a half later, sufficient time has passed to have a first review of the new provisions in practice. In general, the experience has been positive. The broader testamentary freedom enables clients to plan more freely and helps them better implement their wishes. However, older cases, where the planning was completed prior to the revision of the provisions, had to be revisited. In particular, this meant that last wills and inheritance contracts had to be checked and amended on the basis of the new legislation to prevent any gaps or mismatch between the previous provisions on inheritance law and the revised provisions, all in accordance with the wishes of the planning testator.
Revision of inheritance law for company succession
In parallel to the inheritance law revision which came into force on 1 January 2023, the Federal Council wanted to further support entrepreneurs by enabling a smoother process during inheritance proceedings. The revision aims at providing higher stability for SMEs and provide security for jobs.
With the inheritance law revision, the testator has greater freedom in the planning of their estate. Such enhanced flexibility applies to company succession as well, enabling an easier transfer of companies to successors. To further favour such transfers, the Federal Council proposed additional measures allowing entrepreneurs to allocate more resources directly to successors who are involved in the business. These proposals should help protect the company from being fragmented due to compulsory portions, thus preserving business integrity and operational continuity.
However, the State Council declined the proposal made by the Federal Council regarding the succession of SMEs, which is why there will be no such revision for the foreseeable future. The reasoning of the State Council was that there was no need for further regulation on this topic. According to the State Council, in most cases the succession of an SME happens in an amicable way by mutual agreement. The minority in the State Council, which argued that liquidating an SME due to a lack of succession rules with multiple heirs would not be in the interest of the Swiss economy as a whole, was unsuccessful. For the time being, the succession of companies remains complex and requires careful planning.
New international inheritance law revision: provisions in force on 1 January 2025
Starting from 1 January 2025, there will be new provisions in place regarding international inheritance matters. Namely, the new provisions will reduce the risk of conflict regarding jurisdiction between authorities in Switzerland and abroad. It will also reduce the risk of conflicting decisions among jurisdictions. For example, people who own assets in Switzerland and abroad will have greater planning options regarding their estate once the revision comes into force on 1 January 2025. This also strengthens legal and planning security.
Swiss family foundations
For years, the Swiss parliament debated the introduction of a family trust. The proposal has now been definitively rejected. The motion in favour of strengthening the family foundation was adopted by the parliament. Until now, the maintenance foundation was not permitted in Switzerland. This was no longer considered appropriate, and the Federal Council has now been tasked by the parliament with drafting the appropriate legislation to implement the proposed strengthening of the family foundation.
Strengthening the fight against money laundering: the transparency register
Currently, the introduction of a federal register (transparency register), in which companies and other legal entities must enter their beneficial owners, is in parliamentary discussion and a proposed draft legislation was submitted to the parliament on 22 May 2024. The register is intended to make it easier for law enforcement to determine the person(s) behind a legal structure. The register would not be publicly accessible, and a simplified reporting procedure would be provided for associations and foundations.
In future, due diligence obligations under the money laundering legislation would apply to the exercise of certain advisory activities (in particular legal advice) that involve an increased risk of money laundering. The self-regulatory organisation (SRO) would be responsible for supervising the exercise of due diligence.
Further measures are planned in the proposed draft of the legislation to prevent the circumvention or violation of sanctions under the Embargo Act. For example, special due diligence obligations to precious metals trading for cash payments of CHF15,000 or more have been proposed.
The Inheritance Tax Initiative
The Young Socialists Party (JUSO) has launched a popular initiative: “For a social climate policy – financed fairly through taxation (Initiative for a Future)”. Knows as the “Inheritance Tax Initiative”, this calls for an inheritance and gift tax of 50% for persons who bequeath or give away more than CHF50 million. This means that a one-off allowance of CHF50 million applies. Cantonal inheritance and gift taxes would continue to exist in parallel. The initiative corresponds thematically to the European Citizens’ Initiative: “Tax the Rich”.
On 15 May 2024, the Federal Council of the Swiss government recommended rejecting the initiative without presenting a direct alternative or indirect counter-proposal. All major parties in Switzerland have also dedicated themselves to opposing the initiative. Following parliamentary consultation, a popular vote could take place in around 2026.
Changes to the taxation of natural persons
In 2024, there has been an increase in the VAT rate, from 7.7% up to 8.1%.
Income tax rates for individuals remained stable in 2024.
Most cantons in Switzerland offer the option for non-Swiss nationals who come to live in Switzerland for the first time or after an absence of ten years and who will not be gainfully active in Switzerland to pay taxes under the lump-sum taxation regime, opening up interesting planning possibilities for individuals with significant wealth. Instead of paying taxes on actual income and assets, the tax base is calculated according to living expenses. The concrete terms of any lump-sum arrangement are subject to negotiations with the relevant cantonal tax authority. Pre-immigration tax planning is thus essential.