How do I pay taxes on my retirement benefits in Switzerland if I have already paid into a foreign pension fund?
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How do I pay taxes on my retirement benefits in Switzerland if I have already paid into a foreign pension fund?

People living in Switzerland who have paid money into a retirement fund in a different country are required to pay taxes on those benefits in Switzerland. Under certain circumstances, the country of origin may also impose taxes on those payments. However, in certain circumstances, it may be possible to reclaim those taxes – depending on the double taxation agreement. That is why it is absolutely essential for you to talk to a tax expert in your country of origin and have a look at the double taxation agreement.

Konrad is a surgeon and has been working in Switzerland for 21 years. During that time, he has paid into the system of Federal Old Age and Survivors' Insurance (AHV, 1st pillar) as well as the system of employee benefits insurance (BVG, 2nd pillar). In addition, he has accrued voluntary savings for the time after he retires (flexible pension provision, 3rd pillar). Until the age of 38, Konrad worked in his home country, where he also made regular payments into that nation's system of state pension provision. So, once Konrad retires, he will receive benefits from the pension funds in Switzerland and from those in the country where he used to live. Consequently, the question arises: In which country is Konrad required to pay taxes on which benefits?

Consulting the Double Taxation Agreement (DTA)

The amounts that Konrad has contributed to Swiss pension funds must be fully taxed in Switzerland. This also applies to benefits received from foreign pension funds. There is also a possibility that the country in which Konrad used to live will tax his benefits. Switzerland has concluded so-called double taxation agreements with various countries. Depending on the terms of the agreement, Konrad may be able to reclaim those taxes. For that reason, Konrad should definitely consult a tax advisor in the country where he made his pension provisions.

Laws Governing Taxation in Switzerland


National tax laws

All income from Federal Old Age, Survivors', and Disability Insurance (AHV); employee benefits institutions (BVG); and from recognized forms of tied, private pension provision (third pillar) must be taxed at the individual's place of residence in Switzerland. Lump-sum payments from employee benefits insurance (BVG), as well as benefits in the event of death or permanent physical disabilities or medical conditions, are taxed separately.

Foreign tax laws

When it comes to foreign tax laws, there is a distinction made between employment relationships based on private law and those under public law. If the pension is based on a public employment relationship, then taxes may have to be paid on the amount in the country in which the individual paid into the pension system – depending on whether there is a double taxation agreement between Switzerland and the country in question and what its terms are. As a rule, you should always consult the double taxation agreement, since there will be numerous exceptions for each country.

Taxation of Pension Benefits in Switzerland

Pension fund benefits (similar to BVG) from private employment

Other pensions (e.g. similar to AHV), regardless of the previous employment relationship

Pension

Cantonal and municipal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Direct Federal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Lump-sum payments

Cantonal and municipal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Direct Federal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Taxation of Pension Benefits in Switzerland

Pension fund benefits (similar to BVG) from public employment

Pension

Cantonal and municipal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise 

Direct Federal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Lump-sum payments

Cantonal and municipal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise

Direct Federal tax

Generally taxable in Switzerland, provided the DTA has no provisions stating otherwise