What is Fiscal residency?
Fiscal residency refers to the status of an individual or entity for tax purposes, determining which country or jurisdiction has the right to tax them on their worldwide income. This status is typically determined by the country where the individual or business maintains their primary residence or place of operations. In Switzerland, fiscal residency is an important concept for individuals and businesses to understand, as it affects their tax obligations, including income tax, capital gains tax, and other local levies.
Key Features of Fiscal Residency
- Residence Criteria: Fiscal residency is generally determined by the length of stay in a country, the location of the individual’s or business’s main economic activities, and their permanent home. In Switzerland, an individual is generally considered a tax resident if they live in the country for more than 183 days in a year or if they have their permanent home in Switzerland.
- Tax Obligations: Fiscal residents of Switzerland are required to pay taxes on their worldwide income, which includes salaries, investment income, and other sources of revenue. Non-residents, on the other hand, are generally only taxed on income sourced from within Switzerland.
- Double Taxation Agreements (DTAs): Switzerland has signed numerous Double Taxation Agreements with other countries to prevent individuals or businesses from being taxed twice on the same income. These agreements clarify which country has the right to tax specific types of income, and they provide mechanisms for relief from double taxation.
Fiscal Residency in Switzerland
In Switzerland, fiscal residency is primarily governed by the Swiss Federal Tax Administration (SFTA). The SFTA determines an individual’s or entity’s tax obligations based on various criteria such as the individual’s primary residence, center of vital interests, and the duration of stay in the country.
- Determining Fiscal Residency: A person is considered a fiscal resident of Switzerland if they meet either of the following criteria:
- They reside in Switzerland for more than 183 days in a calendar year.
- They have a permanent home available in Switzerland and the country is considered their center of life and personal interests.
- Taxation for Residents and Non-Residents: Swiss tax residents are taxed on their global income, while non-residents are only subject to tax on income earned within Switzerland. For businesses, the fiscal residency is typically based on the location of the company’s legal incorporation or where it conducts its main operations.
Fiscal residency in Switzerland is a critical concept for determining tax liability and ensuring compliance with Swiss tax laws. Understanding the criteria for establishing fiscal residency is essential for individuals and businesses to manage their tax obligations efficiently and avoid issues related to double taxation.