Swiss "FI Gotchas"?


#1

What surprising problems do you have when you actually retire early in Switzerland? Are there things that you didn’t include in your planning and wish you had thought about while you were still working?

I don’t know the answer but I wonder about some potential gotchas…

  • Citizenship and residence permits: Can you successfully apply for these when you are FIRE? Are you at risk of not getting your B/C permit renewed if you are not working?
  • AHV: Do you have to keep paying contributions in FIRE? How much?
  • Taxes: How does this picture change in FIRE e.g. with wealth tax?
  • Housing: Can you rent an apartment when you have no job and salary?
  • Weirdo factor: Is it difficult or embarrassing to explain your FIRE situation e.g. to the local Gemeinde?
  • Subsidies: Some services like childcare are subsidised for people with low incomes. Can you access these subsidies legally? (Morally?)

I would love to hear what doubts other people have and especially how it is going for anybody who has actually pulled the trigger on FIRE in Switzerland.


#2

I can answer your question about the AHV as I have done a lot on research on this topic. Yes, you have to pay until you reach retirement age. It is calculated according to your wealth and retirement income (but as I understood not investment income). There is this brochure (in German). You can calculate it here (also in German - 40. Beiträge der Nichterwerbstätigen).

A point I wonder about is how to keep the mortgage when FIREd. Usually the bank wants an income statement from work. Would they accept investment income?


#3

Hey there bruce
You raise some interesting questions, which might also concern me. I am planning to retire in Switzerland.

Wealth Tax for example in the canton of aargau is 0,21% with >1’200’000 CHF in assets.
In this case the wealth tax is 2520 / year (for 1,2M), not that much… I think if you “pay” yourself an income from you portfolio, you have to pay a tax on that, but I’m not too sure about this…

I have another tax question I would like to add. When in the accumulating phase, we profit from no capital gains tax in Switzerland. Professional traders however get taxed on capital gains.
Now when we start to live off our investments we are not sustaining ourselves with a job, will we get classified a professional investors and thus have to pay capital gains tax?


#4

B depends, C no

Why would it change? You owed it before and you’ll owe it afterwards

There’s no law against it, but landlords don’t like renting to such people, so yes expect some problems if you intend to switch apartments

Among the safe criterias in Kreisschreiben 36 is that at most 50% of your income comes from realized capital gains. Today’s dividend yields are like 2-3%, if you withdraw same amount in capital gains in total you’d be withdrawing over 4-6% of your portfolio per year which is likely unsustainable and is what you should be worryng about instead.

Sure, but as it’s usually low compared to what a regular job would pay, expect that they will approve a correspondingly much lower mortgage when the time comes to renew it, the difference you’ll just have to cough up in cash or sell the house


#5

Ah gotcha, so only capital gains count not the dividends, thats good to know thanks hedgehog :smiley:


#6

Dividends are always taxable income. That Kreisschreiben is about capital gains taxation.


#7

As long as you don’t need assistance and pay a nominal amount of taxes, there is no explanation needed or warranted. Independently wealthy people or private rentiers have always been a thing in Switzerland.

Depends on their rules. Those can be different for each municipality. And then your own, I guess.

For the public assistance for medical coverage (Prämienverbilligung) in Zurich (canton) the limits are income CHF 49’200.00, wealth CHF 300’000.00.

https://www.svazurich.ch/internet/de/home/produkte/praemienverbilligung/anspruch.html

A professional trader is somebody who buys and sells securities and creates income. Simply
cashing out investments is a different ballgame.

No worries. You are merely liquidating assets which does not create taxable income.
Reason is that taxation had been taken care of when you got the money you invested - and capital gains are of course not taxed for private investors.

Edit: Dividends are dividends - normal income, whether you are on FIRE or not.

Wealth tax maxes out in the german speaking Cantons at around 0.3 percent. For details, see p. 54f. (Jump to 56/57 in the pdf).
https://www.estv.admin.ch/dam/estv/de/dokumente/allgemein/Dokumentation/Zahlen_fakten/Steuerstatistiken/steuerbelastung/2016/SB-KH_2016.pdf.download.pdf/SB-KH_de_2016.pdf

There are normally fewer tax deductions after retirement. Your dividends still create taxable income. Use of 3a requires income that is charged by social security (AHV), which dividends are not.
Edit: Regarding the progressive income tax, a rule of thumb is that income between 50-60k is efficient (stronger progression above it). So this at least should be ok, although your mileage may vary according to Canton.

To add to the correct answer of @Erma: What screws you is that you have to pay based on your wealth. Keeping a job that pays the minimum AHV contributions brings advantages regarding AHV (less contributions) and taxes (3a possible).


#8

Cray, u out by a factor of 10, Wealth tax range is 2 to 3 per mille in many German-speaking cantons. Also there are outliers like Basel where it can easily be 4 to 6.
That’s even more than the 2 per mille that u will pay for AHV contributions based on wealth (eg 1’000’000).
Do these mild AHV contributions really screw you? Each year with AHV contribution gets u a tidy amount per month after 65, so this my be one of the best investments u’ll make and can hardly be seen as screwing you (assuming the AHV pot isn’t all empty by the time u get to 65).


#9

Only about 50 Fr per month tops with current rules (=28200 max pension / 44 max contribution years / 12). If 65 is not yet on the horizon for you, it’s probably bad value for the money

Numerical example, let’s say you’re 35, so 30 years till retirement, and assuming discount rate of say 7% (probably realistic for long term returns in equities heavy portfolio), NPV works out to

In [38]: d=0.07; sum(28200/44. / (1+d)**i for i in range(30, 1000))
Out[38]: 1286.9529765897514

Which is less than 1947 Fr you’d have to spend now at 1M wealth for this benefit, so NPV says no

Assuming lower discount rate and higher age it could work out in your favor, but note 28200 is the maximum pension assuming AHV’ed income of 86400+ Fr on average per year (that’s 2.6M comp you’d have to earn over 30 years!) The payoff is likely a lot lower if your average is much lower than 86400 because you didn’t work most of the years. Changes in laws or that the system becomes unsustainable long before your retire are also noteworthy risk factors. Also, should your circumstances change and you’d want to cash out earlier, you’ll only get at most the total of what you paid in, no interest for you, just heavy time value loss


#10

Thank you for correcting, it was percent, not promille. I added a link for those who want to know it more precisely.


#11

Well. First you earn the money and pay AHV contributions. Then you stop working and pay AHV contributions again off the same money. Since it’s a wealth “tax”, you even have to pay it off the substance. If you had a good income, most of your contributions vanish in the system without an effect on your rent. If there will still be rents then.


#12

I really would not try to interpret it on my own. There are the 5 guidelines. If you realize more capital gains than you get from dividends, you are breaking one of these guidelines. If they can tax you, why wouldn’t they want to tax you? Sure, maybe they don’t, but I would first like to hear from a few people who are already retired.

Side question: if someone owns real estate that he bought many years ago, and selling it would generate huge capital gains, is there a way to spread that sale over several years?

Second question: does anyone have any experience with this: Is it realistically possible to “technically” retire in Switzerland (keep Swiss domicile, permit C, pay taxes here), but spend most of the time abroad/travelling? I read here about the authorities tracking such people, neighbours ratting you out, but why would they do this? What incentive is there to kick out a person who pays taxes, but is away most of the time?

Why do places like Monaco and others require you to be present at least 3/6 months in order to keep your domicile?


#13

What incentive is there to kick out a person who pays taxes, but is away most of the time?

I would speculate that the real issue is your relationship with the other countries you spend time in. If you are spending time in several countries then you may be considered “tax resident” in several of them at the same time. So where should you pay your taxes? To understand this you have to read the “double taxation treaties” between those countries. These documents are usually fairly readable and available in multiple languages including English.

Typically there will be “tie breaker” rules to decide where you pay tax. Which country do you spend at least 183 days per year in? If none then which country are you established in with home, insurance, etc? If none then which country do you hold citizenship in? etc.

Countries like Monaco might have an incentive to keep their residence requirements tight for international relations e.g. to avoid being declared a tax haven by other countries. Just speculating.

(I bet there are internet forums specialized in these “international nomad” scenarios but I don’t know where off hand.)


#14

@Erma little tip for when you find links on institutional sites. If there is a “de”, “d” on the german link, try to change it with “e”,“en” or something like that.
Here is your link in english:
https://www.ahv-iv.ch/p/2.03.e


#15

And what about professional sportsmen? Tennis players, ski jumpers? The often spend 300 days in a year travelling around the World and only come home for 2 months. Yet nobody has problem as to where they should pay their taxes.

I am aware of the dual taxation treaties, I used to get sent to work in one country, while being employed and living in another. My company had me keep a “tax calendar” to make sure that I don’t spend more than 183 days abroad. But this is understandable. If you work and spend most of time in country A, it’s unfair that you would pay taxes in country B. But what if you spend 3 months in each of 4 countries, but it’s Switzerland that you call home?


#16

And what about professional sportsmen? Tennis players, ski jumpers? The often spend 300 days in a year travelling around the World and only come home for 2 months. Yet nobody has problem as to where they should pay their taxes.

I would expect that dual taxation treaties decide these matters. If a country wanted to make a problem they would have to show that, according to the treaty, the sports player was more resident in their country than the others.

So if you are a football player you shouldn’t have to pay Russian taxes to play at the World Cup. You might have to pay UK taxes if you are playing in the Premier League all season though.

If you make enough money I am sure the tax authorities will be reviewing their treaties to see if they can get a slice of the pie. (If you aren’t raking in millions I doubt that they care.)


#17

Actually some international sport organizations, they directly negotiate these kind of issues directly with the countries concerned (e.g. FIFA). Moreover, the participants/player and sometimes even the related companies are part of the negotiation and they utlimately do not pay any taxes where the competition is held.

@Bojack Make sure for your long stay that you spend them in countries having a double tax treaty with Switzerland or you will end up paying taxes in both countries, having the burden to prove how much time you spend in each one. I guess you don’t want to pay taxes on a portion of your income and wealth in a country with a very high tax rate :slight_smile: