A guide to Inheritance Tax assessment, valuation, trust, and foundations

Taxation of business assets:

• Depending on the cantons, the market value of business assets or participations is normally reduced by 50%. This is subject to the parties involved meeting certain conditions. It is also required that either the heir or the donee plays a key role in the business or that he/she owns a part of the business prior to the death.

Taxation of real estate:

• The tax value on real estate is usually below the fair market value. Depending on cantonal tax laws, this could be 60% - 80% of the market value.
• Specific rules apply for agricultural properties based on the profit earned

Special case: Trusts

General remarks

In Switzerland, trusts are not recognised as individual entities but their effects are.

• Types of trusts:
  • Revocable trust: the settlor is still considered as the owner of the assets of the trust.
    • If the trust (whatever form it has) is set up when the settlor is already living in Switzerland;
    • If the settlor can still control the allocation of the wealth/income or amend the deed of trust.
    • The trust will become an irrevocable discretionary trust the moment the settlor passes away.
  • Irrevocable trust: the settlor has no power and is not a beneficiary.
    • Irrevocable discretionary trust: the trustee can determine the income/wealth to distribute to the beneficiaries;
    • Irrevocable fixed interest trust: the distributions of income/wealth are clearly set in the deed of trust.

Tax treatment

• Revocable trust:
  • The trust’s assets are considered as being part of the wealth of the settlor without consideration of the trust;
  • Gift/inheritance taxes arise at the death of the settlor;
  • The applicable tax rate has to be negotiated with the tax administration on a case-by-case basis depending on the beneficiary of the trust.
• Irrevocable discretionary trust and irrevocable fixed interest trust: no gift or inheritance tax applicable in such cases.

International situation

• Switzerland has entered into double taxation treaties (DTT) for inheritance with the following jurisdictions:
  • Germany
  • Denmark
  • Finland
  • United-Kingdom
  • Netherlands
  • Sweden
  • United States of America
• Real estates are always taxed in Switzerland by the canton where the property is located.
• Business assets are always taxed in Switzerland by the canton where the business of a partnership/sole proprietorship is located.
• The exemption method applies to avoid double taxation in Switzerland.
• Where no DTT is in place and the death of the donor occurs in Switzerland, all worldwide movable assets are taxable in Switzerland except for real estate located abroad which is never taxed in Switzerland. Double taxation may happen in case of:
  • Double tax residency;
  • Over-taxation due to the allocation method of debts.

In case of a death abroad

• All worldwide movable assets are taxable abroad. Switzerland levies a taxation only when the deceased donor was a Swiss resident
• If the deceased owned a property in Switzerland, it will be taxed in the canton where the property is located:
  • Maximum rate will apply (same as for income tax);
  • Possibility to request the application of the effective rate by providing full information regarding the estate;
  • Same treatment is applicable for business assets.
• Switzerland allocates debts in proportion to the allocation of the worldwide assets. In this case over-taxation may happen when debts are allocated by another country using a different method.

Who is liable under Swiss gift/inheritance tax?

Liability for Inheritance Tax depends on the circumstances under which it is due.

• Upon death, heirs are liable;
• With regard to gifts, the donee is liable but the donor can be held jointly liable in some cantons if the donee does not pay the gift tax.

Filing

Any gift or inheritance tax return must be sent to the competent authority within 30 days and 6 months following the gift/inheritance. The time frame varies significantly from a Canton to another as well as if a gift tax or inheritance tax is concerned.

Payment

Generally within 30 days following the issuance of the invoice subject to certain cantonal specificities.