Capital withdrawal when emigrating – Where to return the withholding tax
At the time of retirement, one is often faced with the decision between pension or capital. Anyone who leaves Switzerland definitively at the time of retirement often chooses the capital option.
If the domicile has already been transferred abroad at the time of payment, the pension fund, vested benefits foundation or 3a foundation in Switzerland deducts the withholding tax on the capital payment directly before transferring the amount and forwards it to the tax authorities.
The “tax haven” Schwyz
This withholding tax varies greatly from canton to canton. As a rule, it is lowest in Canton Schwyz. The decisive factors for the amount of tax are the domicile of the foundation and the amount paid out.
Example: A 65-year-old Grisons citizen emigrates overseas. His vested benefits account with a foundation in the canton of Graubünden amounts to CHF 350,000. The canton receives a withholding tax of CHF 48,425 on payment. In the canton of Schwyz, the tax would only amount to CHF 15,175. If the Grisons citizen transfers his vested benefits credit to a Schwyz pension foundation, he will save taxes of CHF 33,250.
The detour via the “tax haven” of Schwyz is not always necessary. Many emigrants can reclaim the withholding tax if they correctly declare the capital withdrawal from their old-age provision in their new country of residence. Then it doesn’t matter how high the withholding tax is in Switzerland.
Reclaim – that’s how it’s done
The decisive factor for recovery is how the taxation of capital benefits between the new country of domicile and Switzerland is regulated. In addition, a distinction must be made between 2nd and 3rd pillar funds.
Withholding tax can only be reclaimed if a double taxation agreement between Switzerland and the new domicile stipulates that this country taxes the pension capital. It does not matter whether the withholding tax is higher or lower than the tax of the country of domicile.
The withholding tax cannot be claimed back if Switzerland taxes the pension capital according to the tax treaty – or if there is no treaty at all.
The following table compares the 30 most popular emigration countries. This table shows that the refund of withholding tax on vested pension capital is possible in 21 countries and on 3a capital in 16 countries. For example, there is no refund for new residents in Canada, Great Britain or Australia. In these countries, it is worth taking a detour via the Schwyz tax haven.
If the emigrant can reclaim the withholding tax, he or she is usually reimbursed the entire amount without interest. To do this, they must submit an application to the tax office of the canton that levied the withholding tax within three years. The competent tax authority in the new country of residence must confirm that it is aware of this refund.
(Source: K-money 2/2018)