Taxation based on expenditure — commonly known as lump-sum taxation — is a special Swiss tax regime allowing certain foreign nationals to pay tax not on the basis of their actual income and wealth, but on the basis of their annual expenditure. This regime, provided for in art. 14 of the Federal Act on Direct Federal Tax (DFTA) and art. 6 of the Federal Act on the Harmonisation of Direct Cantonal and Municipal Taxes (TAHA), constitutes a factor of Switzerland's attractiveness for wealthy foreign residents. PBM Avocats advises in Geneva and Lausanne persons who envisage establishing themselves in Switzerland under this regime, or who wish to verify the compliance of their current taxation.
Conditions for Access to Taxation Based on Expenditure
Art. 14 para. 1 DFTA provides two cumulative conditions for benefiting from lump-sum taxation. On the one hand, the taxpayer must be a foreign national — Swiss nationals, even dual nationals, are excluded from the regime. On the other hand, they must establish themselves in Switzerland for the first time or, if they have already resided in Switzerland, resume domicile there after an interruption of at least ten years. This regime may therefore not be used cyclically at regular intervals.
The essential condition is the absence of any gainful activity carried on in Switzerland. This condition must be respected at all times: if the beneficiary of the lump-sum taxation begins to carry on a professional activity on Swiss territory — even part-time or in an ancillary capacity — the regime ceases to apply from that date. Active management of a personal investment portfolio is generally not considered a gainful activity. However, the administration of a company, the provision of remunerated advice, or the holding of an active directorship may pose problems.
At cantonal level, certain cantons impose additional conditions, notably a minimum expenditure amount or a minimum annual tax level. In Geneva, the LIPP (art. 14 et seq.) incorporates the federal conditions and specifies local modalities.
Calculation of the Tax Base and Minimum Amounts
The lump-sum calculation base consists of the annual expenditure of the taxpayer and persons living with them, in Switzerland and abroad, including accommodation, food, clothing, leisure, travel and all other elements of the standard of living. Art. 14 para. 3 DFTA sets the seven-times-rent rule: the tax base cannot be less than seven times the annual rent paid or the rental value of the principal residence. For an apartment with an annual rent of CHF 60,000, the minimum base would be CHF 420,000.
The DFTA also imposes an absolute floor amount (CHF 421,700 for tax year 2025, adjusted according to the Swiss consumer price index). Cantons may set a higher floor: the canton of Vaud, for example, imposes a specific cantonal minimum amount. If the taxpayer's actual expenditure is less than the statutory minimum base, the statutory base applies. The taxpayer may always opt for ordinary taxation if they consider it would be more favourable.
The Check Calculation (Kontrollrechnung) and Double Taxation Treaties
A mechanism known as the check calculation (art. 14 para. 4 DFTA) guarantees that the tax paid under the lump-sum regime is not less than what would be owed under ordinary rules for certain income and wealth elements. This calculation is performed each year: if the tax calculated under the ordinary regime on Swiss-source income, income for which a tax reduction is claimed under a double taxation treaty, and wealth elements located in Switzerland exceeds the lump-sum tax, it is that higher amount that is due.
To benefit from the reductions provided by double taxation treaties (refund of foreign withholding taxes, e.g. on German or French dividends), the lump-sum taxation beneficiary must be able to demonstrate that the income in question has been taken into account in the lump-sum tax base (the inclusion condition). PBM Avocats assists its clients in the annual preparation of the check calculation and in applications for the refund of foreign withholding taxes.
Application Procedure and the Role of Tax Counsel
The application for taxation based on expenditure is addressed to the cantonal tax authority before or upon establishing domicile in Switzerland. It is strongly advisable to begin the process before arriving in Switzerland to ensure that all conditions are met and that the regime will be granted. The tax authority may request information on the taxpayer's worldwide income and wealth to verify that the determined tax base is consistent.
PBM Avocats accompanies lump-sum taxation candidates from the prospecting phase: analysis of personal conditions, comparison of tax burdens between cantons offering the regime, preparation of the application file, monitoring of annual declarations and annual verification of the check calculation. Our firm, present in Geneva and Lausanne, has in-depth knowledge of the practices of the tax authorities in these two cantons.
Frequently Asked Questions on Lump-Sum Taxation
Who can benefit from lump-sum taxation in Switzerland?
Taxation based on expenditure is reserved for foreign nationals (non-Swiss) who establish themselves in Switzerland for the first time or after an absence of at least ten years, and who do not carry on any gainful activity there (art. 14 para. 1 DFTA). Swiss nationals are expressly excluded from the regime. The concept of gainful activity is interpreted strictly: any remunerated activity carried on in Switzerland — even in an ancillary capacity — results in loss of entitlement to lump-sum taxation. However, the active management of a personal investment portfolio is generally not considered a gainful activity within the meaning of this provision. Certain cantons apply additional conditions.
How is the lump-sum taxation base calculated?
The calculation base for taxation based on expenditure is the annual amount of expenditure incurred by the taxpayer and persons living with them, in Switzerland and abroad, to maintain their standard of living. Art. 14 para. 3 DFTA sets a minimum calculation base: at least seven times the annual rent or rental value of the principal residence in Switzerland, or at least seven times the annual pension price if the taxpayer resides in a hotel or boarding house. In all cases, the tax base cannot be less than CHF 421,700 (federal minimum amount for 2025, periodically adjusted according to the Swiss consumer price index). Cantons may set higher minimums.
Which Swiss cantons still offer lump-sum taxation?
Lump-sum taxation has been abolished in several Swiss cantons following cantonal popular initiatives. It has notably been abolished in the cantons of Zurich (2009), Schaffhausen (2012), Appenzell Ausserrhoden (2013), Basel-Stadt (2014) and Basel-Landschaft (2014). However, it remains available in many cantons, including Geneva, Vaud, Valais, Fribourg, Berne, Lucerne, Thurgau and Graubünden. In the canton of Vaud, lump-sum taxation is governed by arts. 14 to 14d of the Cantonal Direct Tax Act (LI-VD). In Geneva, it is provided for by arts. 14 and 14A of the Act on the Taxation of Individuals (LIPP).
Can one opt for ordinary taxation after being subject to lump-sum taxation?
Yes. A taxpayer subject to lump-sum taxation may always request to be subject to ordinary taxation. This request is definitive and irrevocable for the current and subsequent tax periods. In practice, opting for ordinary taxation may prove advantageous if the taxpayer has a substantial actual income but effective expenditure below the minimum lump-sum base, or if they wish to benefit from specific deductions (pension fund buy-ins, charitable donation deductions, professional expenses) that are not available under the lump-sum regime. PBM Avocats analyses your individual situation to determine which regime is most advantageous.
Is lump-sum taxation compatible with double taxation treaties?
The question is delicate. Swiss law allows double taxation treaties (DTTs) to be invoked within the lump-sum taxation framework to benefit from reduced withholding at source on foreign income (e.g. dividends or interest from states that have concluded a DTT with Switzerland), but certain contracting states have introduced limitations. The DTT is only applicable to income whose source is located in the partner state and which is taken into account in the lump-sum tax base (the so-called tax check calculation or Kontrollrechnung). This check calculation verifies that the tax paid under the lump-sum regime is not less than the tax that would be due if ordinary taxation applied to Swiss-source income and wealth and to the foreign-source elements taken into account.