Hello,
from a few years in Switzerland, I built up a small amount of cash in a 2nd pillar (now “Libre passage” at Retraites populaires - no growth, high fees), as well as in 3rd pillar (post savings).
Since several years I now live in UK. I am not a Swiss citizen.
If I understand correctly, extracting the $ from switzerland now would mean that I would be liable to pay taxes on it (either in Switz or in UK, or potentially both)?
I emailed a few banks mentioned on this forum to understand if within the 2nd/3rd pillar wrapper, I could move this cash to a new account which would let me buy an ETF. Because I am international (resident and citizen) they told me this would be not be possible. (Similarly Postfinance won’t let me change to their index-tracker 3rd pillar). Do you know of any Swiss bank that would let me do this?
I am afraid that your situation of expat not in Switzerland anymore make the possibility to transfer the found from one bank to the other difficult.
Why don’t you cash the 2nd and 3rd pillar?
It will induce some tax but it is much lower than the tax you had on your income while in Switzerland. Unfortunately I am not competent to tell you what you would have to pay in the UK in that case.
It will give you the freedom to invest the money in the best solution for you.
If in the future you come back in Switzerland then you will have no second pillar but this is not a big deal. You can buy it back with the cash you have and it is tax deductible (YES, you would have made twice the deduction). The only limitation is not to cash one year and buy back the next one. I expect that you have to wait 5 years to benefit of the tax deduction.
The 2nd and 3rd pillar products are so bad that I would never keep them if there would not be a tax advantage.
In my understanding, transferring the cash out of Switz, to UK, it would count as “income” for this year in UK (I am not sure 100% sure about this). If this is the case, given the way UK taxation is set up, it would be taxed at 40% which is a pretty big hit
As has been said elsewhere on the forum the tax treatment of 2nd & 3rd pillar lump sum withdrawal when leaving Switzerland depends on the Double Tax Agreement between the destination country and CH.
It could be helpful to capture the knowledge about each country in one place and this thread has the most obvious title. I will go first
UK: per the DTA the 2 & 3 pillar payout is not taxable in the UK
Conclusion: if you withdraw your 2 or 3 pillar after moving to UK there is no tax due in the UK. You do however need to pay the source tax in Switzerland. The rate depends on the canton where your 2nd pillar institution is with Schwyz being the lowest.
I am really interested to know how it works in Spain if anyone knows
In case it helps anyone I found a circular from the Swiss tax authorities listing Double Tax Agreements by country and how they relate to the source tax charged in Switzerland
Recap: source tax is charged in Switzerland when you have left the country and withdraw 2 or 3 pillar. For countries where the document says “Prestations en capital: Retrocession possible? Oui” this means that the swiss source tax can be reclaimed under DTA (“retrocession”). This is actually bad news because it implies that the lump sum is taxed in the destination country
Example UK
«Prestations en capital - Retrocession possible? – non » : Means that the source tax charged in Switzerland can’t be reclaimed. This is “good news” because per the DTA the capital payment is not taxed in UK (see prev. post) so you only pay the reduced Swiss rate
Example Spain
«Prestations en capital - Retrocession possible? - oui » : The source tax charged in Switzerland can be reclaimed. This implies the capital payment is taxable in Spain which is also confirmed in the DTA. What is not clear is at which tax rate…
Thanks a lot for that. I found the same document in German from kanton ZH. In my case (Greece) it’s a yes.
In addition, the double tax treaty of Switzerland and Greece states:
“Article 18 Pensions Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.”
Given that in order to cash out 3a early, you’d need to be a permanent resident of another state, and that the 3a payment is taxed to the state you reside in, it turns out 3a should be avoided altogether for most people wishing to withdraw their 3a early, right?
Unfortunately I did my first 3a payment last year so there is no going back, but at least it is only 6.8k and I can stop making payments anymore. Is there some sort of loophole around that at least? Can you cash out your 3a simply by leaving Switzerland and not registering in your new country? Or if you stay over 6 months in that year in Switzerland?
Indeed for 2 & 3 pillar it would be nice to get the money back and pay less tax than was initially “saved”
Here are the ideas I heard about so far:
Move first to a country where 2 & 3 pillar withdrawals are not taxable e.g. UK
Leave employment and become independent before leaving CH which allows you to withdraw pension. Pay taxes but at a reduced rate depending on the Canton of residence
Withdraw money to buy a primary residence in your destination country whilst still resident in CH (not sure how this works, might it be possible if you have family and they move before you leave CH?)
Also in the case of Spain I read that if you want to withdraw the mandatory part of 2nd pillar the swiss pension institution needs a confirmation that you have registered in Spain and are not subject to social security. So no option to “forget” to declare it. I do not know if the same applies to the extra mandatory part of 2 pillar or to 3 pillar.
FYI mandatory part is regulated and can rarely be cashed out when moving to EU so it’s expected.
For the supplementary part, it seems to be a popular move to somehow omit to declare in the new country (which is at least ethically questionable). There’s likely little enforcement since my understanding is that those are not (yet?) covered by the data sharing agreement with tax authorities.
I wouldn’t want to be audited by the new residence country though
edit:
Might be definitely worth it (e.g. malta) for a few months depending on the amounts. Also even if it’s taxed, check what the tax rate is, sometimes it’s not very high (pension payment are often not counted as regular income).
Thanks for the info Barto it’s interesting and maybe I’ll change my back to Spain…I dont want to pay a lot of taxes in Spain (23% I think…) for my 2,3 p.
Maybe go to UK (I dont like ) or another country with lower fees that Spain…
Whether you are able to withdraw the mandatory part seems to depend on whether you need to pay social security in the destination EU country. If you don’t work you may be able to claim a payout of the mandatory part back too.
Based on the second part of your answer it may be smart to leave the mandatory alone in CH and only withdraw the supplementary part of 2 pillar and 3 pillar. Perhaps they are viewed differently. Do you have any sources about this?
Calculate time until the tax return has been submitted and your tax auditor is ready to stamp your tax-at-source reclaim form. Can take up to 2 years. Here’s how to do it (in German, use the translate function on the site)
If I leave Switzerland permanently, what is required to pay out the extra-mandatory part of my 2 pillar as a lump sum? A) We need a leaving permit from population office of your canton of residence
Can the lump sum ever be paid out before the official date of ending residency so that it is taxable at the applicable rate in my canton of residence? A) Not possible, against the regulations. Only after the leaving date
I understand that is possible to withdraw the mandatory part of the 2nd pillar when moving to an EU country if you are not subject to pay social security in the destination country. What is required? A) The BVG-amount must go to a libre passage account of a Swiss bank (law) and you can only close this once 60 years old.
(note: I read elsewhere that there is a lot of confusion on the rules on this last part)
In summary omitting to declare in the destination country could be a strategy but I value sleeping at night
Apparently from January 1st (thanks to Brexit) people moving to the UK can cash out all of their pension assets, without any requirement on the social security status.
link to an overview of income tax treatment of 2nd and 3rd pillar insurance products in Europe from 2017
In summary
Double Tax Agreement between CH and the respective country determines in which country the 2nd and 3rd pillar are taxable (see post above)
The overview in this post gives an overview how the tax is applied in each country
Example: leave CH permanently to Spain and withdraw 2 & 3 pillar. CH -ES DTA says pensions are taxed in the country of residence → Spain . According to the overview in this post the amounts would be taxed in Spain as earned income (not savings income). Marginal rate depends by region. Example: Catalunya 48% on amounts over Eur 175k
I am bumping this thread since I thought it might be the best thread discussing the tax consequences on the 2nd and 3rd pillar after leaving Switzerland.
I am currently debating if I should diversify my portfolio by investing in the 3a pillar. I am aware of the tax benefits (tax reduction based on marginal tax rate, no tax on dividends, and no wealth tax), however, I am slightly concerned about what would happen if I emigrate before retirement.
I read here that when leaving Switzerland one can either pay the capital withdrawal tax based on one’s residency in Switzerland (canton dependent URL) or withdraw after leaving Switzerland and then the tax rate depends where the pension fund is domiciled (e.g, Finpension in Schwyz which has one of the lowest capital withdrawal tax rates).
I was initially under the impression when leaving Switzerland the best option would be to pay the capital withdrawal tax rate in Switzerland and therefore avoid any tax abroad. However, it seems this is not the case?
Taking neighboring countries such as Italy, France, Germany, and Austria into account it seems the tax treaty appears the same (URL). If I understood it correctly the tax treaty with those countries would allow to reclaim the tax paid in Switzerland (Example) , however, it is then subject to tax in the new country which might be income tax of >40%.
Does anybody have experiences with this? I contacted also Finpension but, understandably so, they refer to the tax authorities of the new country which tax would need to be paid. I just find it confusing since I would already pay tax in Switzerland, why would I need to pay tax again in the new country of residency.
I find it is quite clear from the links you have posted (maybe re-read - I don’t mean this in a negative manner).
Have it paid out before leaving = taxed in CH, in your canton of residence, that is all.
Have it paid out after leaving = taxed in CH at rate of 3a provider “residence” AND foreign country you are registered in.
If it’s Germany, yes DTA results in crediting of tax paid to Switzerland, BUT big tax-bill from German taxman for this “foreign income”
Similar for many European countries, with exception of maybe Portugal, but that may have changed / is changing soon.
I believe the interesting examples are (for example Thailand on a retirement visa) where foreign “income” is not taxed, so you only pay the low Schwyz rate (if Finpension).
It really depends 100% on the foreign country you’re going to (and potentially under which kind of visa), and thus there’s probably 194 different outcomes.
If I move to a European country outside UK I would probably withdraw the 2p & 3p before leaving Switzerland. For example by becoming self employed. Pay withdrawal tax in canton of residence (Geneva ~8%). Nothing to pay in destination country
I move to the UK for a while. If I move assets to a fund in Schwyz beforehand I pay ~4.8% withholding tax and no tax in UK
It really depends for each country, for instance for France it can be like 7.5% + social contribution (which is fair considering it pays for health insurance).
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) or another country with lower fees that Spain…