Early retirement, move to another country and pension fund withdrawal (pillar 2 and 3)

Taxes
42

Chile does not allow for a refund of the Swiss tax withheld according to the list, though Thailand should (for 2nd pillar benefits only).

For a refund of WHT, the country’s tax authority would have to provide the confirmation on the refund form that reads…

“The tax authority of the country of domicile confirms having taken note of the aforementioned payment and, that the recipient of the payment is a person resident as defined in the double taxation agreement with Switzerland”

Are the Thai tax authority going to confirm that for a payment that wasn’t remitted into the country? I don’t know. But Thailand is quite popular with Swiss retirees, so first-hand experience should be easier to find than for many other countries. Googling it online, there seems to be a Swiss lawyer based in Thailand claiming you could receive that payout without being taxed in Thailand if done correctly (for which he is soliciting your business).

2 Likes
43

Here’s the court case where the federal court ruled in favor of the pension holder against the Kantonal tax office on the refund of wht.

Basically, at the time of withdrawing your pension, assuming also that it is a private one, you need to be physically and fiscally present in the destination country and then you should be able to claim back 100% of the WHT.

The countries with this eligibility can be found here:

https://firebasestorage.googleapis.com/v0/b/caveo-5ed92.appspot.com/o/blogPosts%2FAojSL1TAhyz3jBEWn9D4%2Fattachments%2F0?alt=media&token=6c27ef12-79aa-4755-86c5-59e241b8e41a

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44

It’s not entirely true the progressive rate can be found here:

https://finpension.ch/en/capital-withdrawal-tax-compared/#:~:text=At%20the%20time%20of%20withdrawal,a%20reduced%20capital%20withdrawal%20tax.

45

Hi,

I am looking for a strategy to minimize my capital withdrawal tax when I pull the plug and leave Switzerland, in roughly 2 years.

Info: We will be moving from CH to another country that allows cashing out pillar 2 in full. It also allows us to refund withholding tax deducted on pillar 2 only based on this table (not pillar 3a):

https://firebasestorage.googleapis.com/v0/b/caveo-5ed92.appspot.com/o/blogPosts%2FAojSL1TAhyz3jBEWn9D4%2Fattachments%2F0?alt=media&token=6c27ef12-79aa-4755-86c5-59e241b8e41a

We are a married couple so taxed jointly. In essence, we will have to deal with two pillar 2s and two pillar 3s.

Pillar 3
Since we can’t claim back the withholding tax based on the country we are moving to and we are living in Zurich, our best strategy is to:

  1. Move our pillar 3s to a Schwyz domiciled pension fund
  2. Make a staggered withdrawal to on pillar 3s, limit it to under 50k CHF per year then the tax rate is 1.4%

Finpension charges 250CHF on early withdrawal due to emigration.

To minimize cost, including asset management fee, I’m thinking of moving our pillar 3s to True Wealth (average TER 0.13%, domiciled in Zurich) while we are still in CH. When we leave, move the accounts to Finpension (TER 0.39%, domiciled in Schwyz).

Pillar 2
Since we should be able to claim back 100% of the WHT on pillar 2 withdrawal, it matters less where the provider is domiciled. What matters more is the TER, early account closing fee, and investment choices. We will be making voluntary purchases so our pillar 2 will be locked for 3 years after the last purchase.
So far, FinPension looks pretty good.

Per withdrawal with finpension for more than 1 year: 500 CHF
Account management fee: 0.2-0.49% depending on strategies

So our strategy is:
1 year of departure: withdraw one pillar 3a
2 years of departure: withdraw the second pillar 3a
3 years of departure: withdraw all pillar 2

Have I missed anything? Does this make sense?

Sources:

Capital withdrawal taxes compared – finpension.

https://firebasestorage.googleapis.com/v0/b/caveo-5ed92.appspot.com/o/blogPosts%2FAojSL1TAhyz3jBEWn9D4%2Fattachments%2F0?alt=media&token=6c27ef12-79aa-4755-86c5-59e241b8e41a

46

Note that to my knowledge this is possible only from 60 yo.

47

If we keep multiple pillar 3a accounts, then we could do a "staggered withdrawal, right?

48

It’s not. You’re comparing the wrong things.

These are the rates for Swiss residents, e.g. the 1.4% rate at CHF 50’000 would apply to residents of the town of Schwyz - not to foreign residents withdrawing from a Schwyz-based pension benefits scheme.

2 Likes
49

crossposting

These are the rates for Swiss residents, e.g. the 1.4% rate at CHF 50’000 would apply to residents of the town of Schwyz - not to foreign residents withdrawing from a Schwyz-based pension benefits scheme.

Why link to 2020 data (or 2021 as I did above), when you can get the 2022 version basically straight from the source? :wink:

https://www.estv.admin.ch/dam/estv/de/dokumente/dbst/rundschreiben/2022/2-199-d-2022.pdf.download.pdf/ESTV-Rundschreiben-199-D-2022-d.pdf

2 Likes
50

Thanks a lot for the correction! Where can I find the WHT of a foreign resident withdrawing from a Schwyz domiciled pension fund?

51

Just my previous post above for Schwyz.

Finpension also provides a comparison between cantons for tax withheld at source (for payouts to non-residents).

(side note: honestly, I think this is one of these instances where consolidating the discussion into one thread may have made sense)

52

Thanks for the correction! Where can I find the relevant rates?

53

I just want to make sure I understood correctly:
If I leave my 2 pillar fund in Switzerland and then move my residency to another EU country then I will be able to withdraw the full amount after the retirement age paying Swiss taxes only?
I guess it is not that simple and most likely the country of my residency will tax me for that. (Most likely more than 5%.)
(I have seen this document but I am still not sure if I get it right.)

1 Like
54

…or taxes in your country of residence.

According to the applicable double taxation agreement between your new EU country of residence and the Swiss confederation.

If it’s an EU country, I would expect it to be in the list you linked. And that you‘ll effectively have to pay taxes in only one of the two countries. If Swiss withholding tax is refundable, you’ll likely pay taxes in the other country only - if it’s non-refundable, that is if Swiss withholding tax is final, I would expect it to not be taxed in the other EU country.

55

I have read this helpful thread and it looks like all of you have a lot more knowledge about taxes, 2 pillars and retirement than me so I would like to ask you for opinion about 2 pillar withdrawal as well.

I have a significant (for me) amount in 2 pillar now. I have FIREd recently and became self employed (to maintain the residency permit). Now, I have an option to withdraw all the 2 pillar funds (and probably 3 pillar as well).

I am considering 2 options:

  1. Take all the 2 pillar money out and buy VT at IB and keep it there at least until retirement (so 25+ years)
  2. Move all the 2 pillar money to Finpension and invest them in Global strategy with 100% equity.
  • What would you do and why?
  • Do you see any better options then those two?
  • What are the arguments against withdrawing the money from 2 pillar?
56

AFAIK from here, the 2 pillar withdrawal is taxed ~3.5% in Zug so it is very unlikely that there will be lower tax anywhere else in EU. So I am thinking that if I withdraw 2 pillar now, I pay 3.5% and do whatever I want with it but if I retire at 65 in some other EU country I would have to pay the taxes which will be relevant there at that time (and most likely higher than 3.5%). Do I get it right or am I missing something?

57

Without going into details and trying to calculate future returns and not being in your situation and not deciding about my own money: considering a currently known and very advantageous situation vs. unknown future situation, I would probably take out as much pension assets as I could.

This is of course assuming that you indeed keep these money invested and not spend on expensive cars or, worse, invest, freak out in a major downturn and sell with a huge loss.

1 Like
58

My understanding: (disclaimer - not financial or tax advice. Consult a tax advisor!)

If it is probable you will leave Switzerland then as a rule of thumb it makes sense to withdraw 2 & 3 pillar beforehand. In most EU countries the withdrawals are taxable in the country of residence. In general EU tax rates are higher than CH especially since CH has separate, lower rates for such withdrawals.

However you need to go into more detail as it depends on the Dual Tax Agreement (DTA) with each EU country. One exception to this general rule is UK (which is no longer in the EU). Under the CH-UK DTA no tax is payable in UK if you move there and then withdraw 2P and 3P afterwards. Only a withdrawal tax is payable in the canton where the pension fund is domiciled which you can optimise (Schwyz has the lowest tax rate).

If you plan to leave CH before age 58, there are only a few scenarios where you can withdraw 2P
& 3P whilst still resident in Switzerland. These are described in this article from Finpension. Becoming self employed is one way, note there is a 1 year time constraint.

Alternatively if you are most likely to be over 58 when you move to the EU you could choose to leave the money in Finpension and withdraw when you reach that age and are still resident in CH. That way you pay taxes here. FP fees are higher than at IB but your assets are protected from income and wealth taxes. Whichever option makes most sense depends on your personal taxation situation and canton of residence

If you are uncertain where you will live in the future there are good arguments to withdraw now for the reasons oultined by @Dr.PI

3 Likes
59

However, it is not only important how high the tax rate is, but also what the taxes are levied on. In Switzerland, the tax is levied on the entire capital, abroad it could be that only the capital gains, but not the amount paid in, are taxable.

60

The question is if and how you’re going to be eligible for withdraw while (resident) paying taxes in Zug.

That‘s not to say that I haven’t heard of people withdrawing due to emigration but still paying local taxes. But from the logic of the withholding tax and withdrawal eligibility it doesn’t quite add up.

61

OP is independent and that is one of the criteria to be eligible - see Finpension article above