I’m planning to stop working in my 40ies, let’s say at age 45 to travel the world and probably settle down in a some places for a few years here and there.
Last year I took out 60k of my 2nd Pillar to buy our house.
Currently I don’t plan to invest in 2nd Pillar since I think I can get better returns elsewhere and I’d have to pay back the 60k first.
The thing that is not quite clear to me is:
What happens with your 2nd Pillar when you stop working in your 40ies?
I know there are quite substantial pension cuts on early retirements, but the earliest retirement is at age 58, so what happens if you stop earlier than that?
I believe you will you have to transfer the 2nd Pillar to a “Freizügigkeitskonto”.
Will you then still get it paid as pension once you reach age 58? What conditions will you have?
If you leave Switzerland and decide to get it pay out:
How much taxes will you have to pay for taking the money out.
Will you loose all potentially saved income taxes at the moment you take the money out?
That’s correct. There are good Freizügigkeitskonto options to transfer the 2nd pillar assets, like VIAC or ValuePension (might be better due to being located in Schwyz, less taxes once you left CH). That way you can invest it without paying taxes on dividends.
There is no pension anymore if you stop working that soon. You can only cash it out.
You have to leave the EU/EFTA to be able to pay it out in cash before 60. Taxes are similar to 3a withdraws, so depending on the amount something around 4-10%.
I would leave it with ValuePension and invest it 100% in stocks till you are 70. Like I said, no taxes on dividends. This will probably offset the higher costs of investing it (0.50% TER).
You can cash out the non-mandatory (non-BVG, that is) part when leaving to an EFTA country.
I plan to do this when taking a gap year. Even planning to return to Switzerland, the conversion rates on the non-mandatory benefits will probably be low, so I’ll rather invest myself - or live off of it. For the parts mandated by BVG, conversion rates are “politically” inflated, so maybe to keep it in a vested benefits institution like VIAC.
In Portugal, for instance, hardly anyone seems to be in my experience (unless being actually employed or claiming benefits?), though I’m not privy as to why exactly that is the case. So might be an interesting in this regard - as does their residente não habitual tax regime. Last but not least, the country seems to one of the nicer places to live for a while, for me.
Have you had any experience with regards to Potuguese taxes on pillar 2 benefits? From what I understand, Portugal has a very favorable tax regime for foreign pensions. Do you know whether this applies to Swiss pillar 2 assets withdrawn early?
Your PK will ask you in which “Freizügikeitskonto” they sould transfer it. If you don’t answer they will transfer it to the “Aufangeinrichtung”
Tipp: When you transfer your money out of the PK you can split it and transfer it in two “Freizügikeitskono”. These adds some flexibility. You can not split it at any other time.
Your money stays in the “Freizügikeitskonto” as long as you don’t have any valid reason to withdraw it. A valid Reason would be for exaple to buy a house in Switzerland or become independent (Selbsständigkeit) which has to be aproved by the SVA.
And you wait until you get to the age where you can withdraw it. 58 is sometimes this age. Depending on where the money is and what the rules of this PK are.
Tipp: If you leave switzerland to a land outside the EU/EFTA you can also withdraw all the money. If you leave switzerland to a land in the EU/EFTA you can withdraw the money that is above the minimum required (überobligatorium). Have a look at your PK Statement. They will state how much ist according BVG and if there is any money above that. You can withdraw the money that is above that. Addition: This applys if you as long as you’re subject to mandatory insurance in the country you are going as @San_Francisco noted above.
Depending on the exact situation.
If you are living in switzerland you pay income taxes according to the place you are living, to a reduced rate.
If you are living outside switzerland, then the ammount is taxed depending on the kanton where the PK/Vorsorgestifftung is located. Have a look here Page 27
Tipp 1: If you live outside Switzeland it’s worth it to transfer the money to a “Vorsorgeeinrichtung” in a canton with low Taxes before you take it out.
Tipp 2: Depending on the Land you are living you can claim the taxes (Quellensteuer) back, if you prove that you declared this money in your home country. Have a look here Page 30 ff.
Tipp 3: The Tax information above also applies to 3a
What do you exactly mean by that?
First thng to consier ist what you will do with the house.
If you sell the house, then you have to pay the money you got from the PK back.
If you do so, then you can reclaim the taxes you paid when you got the money from the PK. The tax authority will not do anything on it own. You have to get active youreself and recaim the paid tax.
If you don’t plan to sell the house in switzerland it can be that you have some trouble. Because you got the money from the PK in order to buy a house you are living in yourself. If you are not living in the house yourself you don’t qualify to get any money from the PK.
But who can or will find out and what he will do, I don’t know. Maybe the bank you have the morgage. No idea waht they will do. Chances are that they will not be happy beacuse different rules apply for morgages when it’s a house you live in and different rules apply when it’s a house you are renting.
If though you question is if you will loose previously saved income taxes the answer is no. Money you did not pay in income taxes because you reduced your income by adding to your PK is saved money and will not be taken back.
Important: This applys if you withdraw your money beacause you lefte the country. If you withdraw your money to buy a house you have to pay the taxes you saved in case you did any additional by in to your PK the last three years.
No experience so far - but maybe, just maybe I’ll collect some not too long in the future
It might be worth noting that the country of residency might tax the payout anyway. Irrespective of any Swiss withholding taxes - or Swiss tax law at all.
That is, in most cases you won’t (legally) have a choice between declaring in your country of residency (and possibly reclaiming Swiss WHT) or not. Most probably you have to do it anyway.
It’s really a grey area, as it’s all about timing (the time between giving up residence in Switzerland and taking up residence somewhere else). Swiss retirement/vested benefits foundations are only required to ensure that you are no longer resident in Switzerland before paying out and keeping the withholding tax.
After that, the ball is in your court. If you want to reclaim the Swiss withholding tax, you can if your new country of residence has a double taxation agreement with Switzerland, but that is up to you. If you have to tax the money in your new country, or if the taxes there are lower than the Swiss withholding tax, it certainly makes sense to do so.
For example, if you move to a country which does not tax pension benefits, then you declare the benefits there and reclaim the Swiss withholding tax (assuming there is a double taxation agreement). In that case you wouldn’t pay taxes at all.
On the other hand, if you withdraw the money and spend the remainder of the tax year as a “drifter” and only take up new tax residence the next year, you would only pay the Swiss withholding tax. Doing that would make sense if the country you are moving to doesn’t have a double-taxation agreement (because the local taxes would apply on top of the Swiss withholding tax which you couldn’t reclaim).
Out of curiosity, when people do that, which tax residence do they declare in their stock broker/bank accounts? (esp. given that the data is now automatically transmitted) Do you keep your wealth out of the banking system for part of a year?
In Switzerland, banking and taxation are (still) two separate things. You do not need to give your bank tax information. You simply need to give them a correspondence address. Some banks will not let you keep your account when you leave the country, but some do. You are under no obligation to prove tax residence in another country in order to give up tax residence in Switzerland. So having “Weltbummler” status for a time is generally not a problem as far as banking is concerned. This could be the case if you sail or travel the world for a year, for example, and never stay in any one country long enough to become a tax resident.
Once you take up tax residence in another country in a new tax year, you obviously declare your assets as wealth, but many countries do not have wealth taxes.
I know in some countries banks require social security numbers or tax identification numbers. I can’t speak for how it it would work in those cases as I don’t have experience with that.
Can you give them an address in Switzerland if you’re not resident? I’d have assume the bank will ask for a new address, and if it’s in country in Échange automatique de renseignements relatifs aux comptes financiers they’ll also ask for an ITIN and sent the data (and that list will change over time, might expect that few countries will be missing given OECD’s goals)
Banks ask for fiscal residence and, if it’s not Switzerland, they will ask for the TIN (tax identification number) of that country of residency. Like @nabalzbhf said, the information will only be transmitted if that country is in the list of countries with which Switzerland has an information exchange agreement, which is most countries right now.
I know that there are some vested benefits foundations (like the one used by Viac) which require you to provide proof of residence in your new country in order to cash out benefits. But that is determined by their contractual terms and conditions and not by Swiss law. Swiss law only requires you to prove that you are leaving Switzerland in order to cash out vested benefits. If you want to cash out compulsory benefits you have to prove that you are not moving to an EU or EFTA country. There is no legal requirement that I know of to provide proof of residence in another country in order to cash out vested benefits.
There might have been a misunderstanding, I was talking about the general banking relationship for “drifters” (how they avoid having tax residency elsewhere given that their swiss bank/stock brokers will transmit the data unless the new residence is in a country which hasn’t put in place data exchange yet).
Nothing in particular for pillar2/3a.
Ok, yes, your’re right, I missed that. I haven’t moved out of Switzerland in some time. In the past there were no issues keeping a Swiss account as a Swiss citizen, even if you didn’t have legal tax residence in another country. But things have changed a lot since the introduction of Fatca and AIA, so it may be more difficult now.
I know people who have left recently and haven’t had problem keeping their accounts for several months until they became tax resident elsewhere, but most of these are Swiss, and I suspect banks may be tougher on non-Swiss. I’ve contacted some Swiss banks on behalf of globetrotter friends and they suggested that the account holder give a POA to a trusted friend or relative who is a resident and use that postal address linked to the account. A joint account with a resident is another option. Obviously that requires trust (and a trustworthy someone).
In the case of waiting out a tax year it could be a matter of just a few months.
Back to vested benefits, if you have a lot of benefits it may be worth looking into capital withdrawal taxes as an alternative to withholding tax. Some cantons (like Appenzell Innerrhoden) have very favorable capital withdrawal taxes. I haven’t done a comparison with withholding taxes yet, but I will when I get around to it. Registering in a low-tax canton for a few months to withdraw your benefits might be worthwhile if its saves you a lot in taxes.
Your tips are helpful, would you also advise to open two vested benefit accounts? From what I understand when you reach the age (plus or minus the 5 years from the mandatory retirement age), the vested benefit account is paid out in a lump sum. So rather than X being paid out in one year at a higher tax rate, I assume you could choose to have one of the vested benefit accounts pay out in one year, and the second vested benefit account in a different year (with the presumption taxes on two payments of X/2 is lower than one payment of X. And then the added bonus is that the 100k bankruptcy protection per account then becomes 200k with the two accounts. Anyways this is what I think is the case having spent the afternoon browsing the internet but would be great to hear if I understand this correctly! Is there any downsides to doing this?
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