I’ll part ways with my employer end September and go traveling for around 6 months, while remaining a French resident. I’m pretty much at my FIRE number, but the future looks so wide open that I’m very (very) slowly getting more comfortable with it.
So I come to you with a question on 2nd and 3rd pillar, upon leaving Switzerland.
Here’s the situation:
there’s about 120 K in my 2nd pillar and 64K in my 3rd pillar.
my 2nd pillar provider has changed and rules as well, so they’re telling me I can buy-back up to 140000 (I’ve already done 2 smaller buy-backs in the past)
I could withdraw a part of the 2nd pillar, leaving for an EU country
It’s likely I will live in France for a few years but really not sure for the future: I might be in Europe, maybe in France, maybe in Switzerland, or even out of Europe. So I’m inclined to keep the funds in Switzerland and thus move the 2nd pillar funds to a vested benefits account
Here’s where it gets more interesting:
I was looking into Liberty foundation and VIAC for the vested benefits account
Liberty tells me that below an account of 250000chf, I can use a LPP fund solution (0.4% fixed pa + fund fees, with some in the range of 0.2-0.5, so a total of fees of around 0.7-0.8% pa, but with investments being very heavily built on Swiss supports and less diversified internationally and only 5 funds possible). Above 250000 chf, I can use a Multi-fund solution (0.45% pa + transactions fees, let’s say no more than 600-700chf if I plan to keep a small number of funds for the next 20-25 years + fund fees, in the range of 0.15-0.3%, so total of fees of around 0.6-0.7%, but with much larger possible diversification outside Swiss supports). https://www.compare-invest.ch/fr/solutions-de-placement-2e-pilier/avec-libre-choix/multi-fund-invest.html
Liberty is in Schwyz so will get taxed around 4-5% at capital withdrawal, before taxation in another country.
VIAC tells me they’ll release their vested benefits account in winter, with costs similar to their 3a. Assuming a high equity solution, costs would be in the range of 0.5-0.6%.
VIAC is in Basel, so capital withdrawal taxation will be a bit higher, around 6-7%, before taxation in another country.
I was looking whether to cash out the 3a and I’m undecided
I can do so, with CH taxing me then France taxing me at 6.75%, then getting back the CH tax. I have a real estate investment in France that allows for a tax reduction this year and the next, so I can probably get 70-80% of that back from the FR tax (around 3000 chf).
Now, this is time consuming and a lot of paperwork and…I could send the 3rd pillar funds to the 2nd pillar instead, which allows the vested benefit account to be above the 250000chf so invest in the better Liberty solution.
I’m trying to understand what is best for future taxation.
I cannot know what the future holds (especially in 10-20 years time) in terms of cross-border taxation and cross-border withdrawal of 2nd pillar pensions in Europe, though I see more and more countries getting a 2nd pillar structure. But since I don’t need the money now, I’m thinking that keeping them in 2nd pillar/vested benefits tax exempt, in a safe haven like Switzerland, invested with 0.6-0.7% fees is not a bad deal. And there is a possibility that 2nd pillar taxation will be more favorable in the future across Europe, where the EU is trying to develop a pan-european pension solution (PEPP).
On the other hand, if I affiliate to FR social security system (I’m currently in Lamal), withdrawals are taxed at 6.75% + 9% of charges sociales. Therefore, the possibility also exist that withdrawing in the future in some place where I’d wanna buy a house for instance, might result in higher taxes than if I withdraw now.
There’s my dilemma.
If you have any words of wisdom, I’d be infinitely grateful.
Elaborate about what point exactly? I though what I said was pretty simple.
Swiss pillar 2/3 system is expensive and ineffective, you better off taking as much money and as soon as possible out of it. When you leave the coutnry, you have the right to take the money out, perfect opportunity to do it.
Unless you plan to retire in a country that doesn’t tax pillar 2 withdrawals and not too far in the future, you’re still most likely better off withdrawing everything possible as you leave Switzerland.
Otherwise you will pay taxes on withdrawal sooner or later, likely at much higher rates than you’d pay to swiss, meanwhile until that moment half your returns or so will get eaten by greedy swiss bankers.
“Save taxes” is the favorite tune everyone who wants to sell you underperforming investments sings. Don’t invest just to optimize taxes, look holistically at total returns.
Pension and vested benefit schemes are legally prohibited from paying out under these circumstances.
I’m not saying “bending” the rules will be impossible.
But I doubt it’s as simple as you make the “leaving to nowhere” or “long vacation” out to be. I know for a fact that (some?) vested benefits accounts will check and require proof of subsequent residency outside of EFTA before paying out. And if anything, being a EFTA citizen will only make that more than less likely.
I don’t have first-hand experience with this but I heard it’s possible to arrange for a pillar 2 institution to pay out as soon as you deregister from Kreisburo
Now I suspect that would be illegal. It’s perfectly OK to not become a tax resident anywhere if you don’t settle anywhere long enough and I don’t think BVG say anything anywhere that you have to become one to qualify for the payout, merely that you must definitely leave Switzerland with no intention to come back
They might just care about EU vs non-EU residency only because it matters as to whether you can withdraw mandatory part or not.
I thank you for the perspectives and continue to be very interested in the discussion.
Pandas, how do you become fiscal resident nowhere and how do you then provide proof of this to Swiss authorities? I’m genuinely interested.
ElMago, thanks for the link to the other discussion. At this point, I do not find sufficient elements to resolve my questions. Namely: I can open 2 accounts with Liberty (they let you open 2), or maybe VIAC in the future, that’s not a problem, but what I’ve seen is that Schwyz canton withholds about 4% tax and that’s about it, it’s not taxed as income. So I’m wondering why not have it all in one better invested account with the o.6-0.7% fees I mentioned (ETF fees included) and one day withdraw as a lump sum…at that point in time, I might be able to choose a country with a decent taxation level agreement with Swiss, or even be back in Switzerland.
I don’t see much point in doing that. It’s not like pillar 3 that you have to withdraw one whole account at a time. Optimal is likely to withdraw either nothing, or all (or at least as much as possible - you may have to leave mandatory part beyond)
If you withdraw after leaving and settling elsewhere, it’s not the swiss tax that you have to worry about - you get it back in most cases. It’s the taxes in your new country of residence that will get you good - the payout may be taxed fully as income as income tax rates!
Pandas: I’m saying exactly the same things
I agree with your reply, indeed I don’t see a point in having 2 2nd pillars and yes, the uncertainty of future taxation is there, unless there will be a country that taxes very light lump sums (which is the case today for Portugal for instance, or Italy is trying to do something similar to attract retirees). If you have advice on how to minimize that uncertainty, it is welcome.
But can you also help me with the question I addressed to you: how do you become fiscal resident nowhere and how do you then provide proof of this to Swiss authorities? I’m genuinely interested.
But can you also help me with the question I addressed to you: how do you become fiscal resident nowhere and how do you then provide proof of this to Swiss authorities? I’m genuinely interested.
→ It’s impossible. The Swiss authority will need proof of your new location.
To have an account is any brokerage firm or bank (swiss or foreign), you need to have an address, which will be your fiscal residence.
You can also move a country outside EFTA without any social treaty with Switzerland. You rent a flat, you will have a new adress and will be resident in this country.
I have always wondered about the fine details about how it works tax-wise with the 2nd pillar. I believe you are right with respect to the requirement to show you are resident elsewhere before cashing out the 2nd and 3rd pillar.
I have a friend who left Switzerland, cashed out her 2nd pillar, payed a low tax rate (something like 4-5%), and paid no tax in her non-EU/EEA destination country. Is this OK or will she be on the hook for some big tax payments in the future?
Technically, yes. In practice, the onus of proof can then be on you. Taking up residency is pretty good proof of having left for good. Enjoying a vacation? Less so. In practice of course, it also does happen that someone returns back “unexpectedly”.
While it’s legal to live without permanent residency (as is often called a “Perpetual Traveller”), it’s a case largely unaccounted for by governments and public authorities. There is a strong assumption by authorities that everyone has a permanent residency somewhere. And by extension that’s also true for banks, brokers in many countries. You’re not going to open a bank or broking account in any trustworthy jurisdiction stating you’re not resident anywhere. And don’t forget about insurance, health-insurance first and foremost.
Regarding taxes, once you’ll be earning money from a job without registering (which, in turn, will probably require a residency somewhere), you’re technically violating the law in many countries. Even if it’s some online-based self-employment.
Of course, on the other hand there’s also a strong assumption that everyone who spends less than half a year (or the duration of stay given visa or citizenship) in a given country will just be a tourist, without establishing residency. Though there’s a risk they might ask (and in some cases require proof) for your residency at immigration, before letting you in in the first place.
Last but not least, if you have an entry in your passport and/or a place that you can receive mail, utility bills and the like, there’s often an assumption that this domicile is your place of residency.
But still… perpetual travelling status might create as many or more headaches than it solves.
it sounds like yes. i wonder though how would you deal with this tax domicile question if perpetual travelling was your goal. just keep being registered eg in CH? probably depending on which canton but they might actually want you to unregister if you’re outside of CH for more than 6 months…
…or a jurisdiction that has a(n) even more favourable tax regime?
Don’t forget that some jurisdictions will have special exemptions for foreign-sourced income and/or newly landed residents, if they levy income tax at all.
I think the risk is very real if they get wind of it.
Though chances of the latter are small, as long as you keep quiet, receive your mail and pay your taxes and bills ordinarily.
What government or tax administration is going to bend over backwards to lose or rid itself of a tax-payer who doesn’t create any financial burden or other problems?
true, then i believe there’s also different types of domiciles, eg where you work, live (wochenaufenthalter), pay taxes etc. not sure if you couldnt deal with them to keep your tax domicile in CH even though you travel > 6 months. just if thats what you want
Maybe not the best, most in-depth or up-to-date source, but Wikipedia should be a good primer for countries that don’t tax foreign income.
And there is probably an abundance of special tax regimes on top that (for instance, Portugal’s non-habital residency comes to mind) that would be too much to list on one page.
Thank you all for the perspectives.
I think we’ve explored quite in depth some of the fiscal questions. I’ll anyway leave much of that to the future.
Any other thoughts or opinions on the choices that I’ve outlined, in case I do keep the investments (est vested benefits account) in Switzerland?
Thanks again and wish you all a good day!
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