If you own assets in Switzerland (Geneva, Zurich, etc.) or are expected to inherit assets in this country, it is important to understand the legal and tax implications involved in the inheritance process. The different cantonal tax laws in Switzerland create confusion for taxpayers. This is particularly felt when there is a transfer of assets between different cantons or when dealing with asset owners in multiple jurisdictions.
Switzerland has complex rules for the taxation of inheritances that vary from canton to canton. Early understanding of local law and early planning of wills, residency, and gifts during lifetime can significantly reduce exposure to tax payments when transferring assets between generations.
Beyond that, inheritance tax planning can prevent legal disputes, delays in the inheritance process, and unexpected demands from various authorities.
What’s the Difference Between Inheritance Tax and Estate Tax?
- Estate Tax – Imposed on the deceased’s assets before they are transferred to the heirs.
- Inheritance Tax – Applies to all assets received by the heir.
Inheritance Tax in Switzerland – What You Need to Know?
Switzerland consists of 26 cantons, with each canton managing an independent tax regime – including a separate policy regarding inheritance tax.
In most Swiss cantons, inheritance tax applies to heirs. The tax rate is determined according to the location of the assets, the place of residence of the deceased at the time of death, and the family relationship to the deceased. The tax is progressive – the higher the value of the inheritance, the higher the tax rate. Additionally, the degree of family relationship affects the tax rate – close heirs usually receive exemptions or relief, while distant heirs are charged at higher rates.
In most cantons, inheritance tax applies when the deceased was a resident of the canton at the time of death and will be imposed on all taxable assets. However, business assets located in another canton where the business or partnership is located may be subject to inheritance tax in that other canton. Real estate assets are taxed in the canton where they are located, regardless of the deceased’s place of residence. Real estate assets located outside Switzerland are usually not subject to inheritance tax under cantonal law, but this may vary from canton to canton.
Inheritance Tax Rates by Canton
As mentioned, tax rates vary from canton to canton, according to the relationship to the deceased and the amount of inheritance. Spouses, registered partners, and direct descendants (children and grandchildren) are usually exempt from inheritance tax. Step-children and adopted children are also exempt in cases where the canton treats them like biological children. In contrast, heirs who are not family members may pay tax at high rates, sometimes up to 50% of the value of the inheritance.
Only two cantons – Schwyz and Obwalden – have completely abolished inheritance tax, so no tax is imposed in them, regardless of the heir’s identity or the value of the inheritance. In most other cantons, there are tax benefits that can be deducted from the inheritance amount before calculating the final tax. These benefits also vary from canton to canton and are determined according to the degree of relationship to the deceased.
Given the significant differences between the cantons, it is recommended to check the specific laws of each canton, as the differences between them – from rates to the method of taxation – can significantly affect tax management and planning.
Also, in most cantons, the gift tax rate is lower than the inheritance tax rate, so unlike many countries, distributing gifts during the deceased’s lifetime may help reduce the value of the estate.
Inheritance Taxation in Israel Compared to Switzerland
In Israel, unlike Switzerland, there is no estate tax or inheritance tax. However, in certain cases, tax may be imposed on the full value of the inheritance received, such as capital gains tax when selling the asset.
The tax treaty between Israel and Switzerland includes provisions that can prevent double taxation, but it is important to plan the reporting and filing accurately to avoid double payment.
To read the Israel-Switzerland Tax Treaty in English on the Ministry of Finance website, click here.
Making a Will in Switzerland – The Key to Tax Savings and Dispute Prevention
Inheritance does not always transfer smoothly to heirs. Sometimes complex procedural steps are needed to obtain a probate order or permission to realize the assets.
Creating an organized will is not just a matter of personal desire; it is an integral part of estate tax planning. A detailed will can ensure that assets are transferred smoothly and efficiently to the heirs. The will should include the wishes of the deceased but must also be adapted to the requirements of the law so that its validity is not compromised.
In Switzerland, there is a system of ‘forced heirship,’ meaning there are several rules regarding how the deceased’s estate is distributed, with half of the estate automatically passing to the deceased’s spouse and children. Thus, in Switzerland, the deceased’s right to choose to whom to leave their assets applies only to 50% of their assets, and for this purpose, they must make a valid will that clearly and legally explains how the assets should be distributed.
When drafting a will, it is often possible to choose the law that will apply to it. When it comes to assets in Switzerland, this choice can have a substantial impact on inheritance planning and its future realization. Without advance planning, the law that will apply to the deceased’s assets will be the law of the deceased’s last and principal place of residence.
Without advance planning, i.e., inheritance without a will, determining inheritance rights may be more complicated and varies according to the family situation and the last place of residence of the deceased.
If you own assets in Switzerland, our recommendation is to make a will to ensure that the transfer of assets is done as smoothly as possible. A will can prevent misunderstandings or lengthy legal processes and ensure that the process proceeds in an orderly manner even after the death of the deceased.
Received an Inheritance in Switzerland? 8 Steps for Proper Realization of Inheritance from Switzerland
1. Clarification of Factual and Legal Background
First, check the type of asset to be inherited, its location, the identity and status of the heirs, the value of the asset, and more.
2. Checking the Local Legislation
It is recommended to understand the taxation rules in the relevant country to ensure proper and efficient management of the inheritance and gift transfers and minimize unnecessary tax implications.
3. Checking the Timing and Location of Inheritance Realization
Consider whether it is advisable to realize the asset now and, if so, where it is better to realize it – in Switzerland or Israel?
4. Regulatory and Banking Aspects
It is recommended to check the costs of money transfers, whether there is a need to open an account in Switzerland or another country for the purpose of transferring funds, what approvals are required, etc.
5. Planning the Asset Transfer
Consider whether to transfer the asset itself or its proceeds, and what the implications are in terms of tax, exemptions, deductions, etc.
6. Avoiding Double Taxation
In light of the existence of a double taxation prevention treaty, it is recommended to check whether there is a mechanism for crediting tax paid in Switzerland against tax liability in Israel. Make sure that the reporting is done correctly and accurately to avoid double payment.
7. Checking the Future Effects on the Asset
It is recommended to examine the future effects on the asset, for example, a future sale of the asset will often be subject to capital gains tax in Israel as well.
8. Transferring the Asset to Israel
Performing all necessary actions, submitting documents, handling matters with banks in Switzerland and Israel, and executing the asset transfer.
How Can We Help?
The goal is to transfer the inheritance to heirs in Israel in the most tax-efficient way, while addressing legal issues in Israel and Switzerland and issues related to banking and regulation. For example, whether it is better to realize a certain asset in Switzerland or transfer it to Israel; how to transfer inheritance funds to a bank account in Israel; how to use various exemptions between heirs; whether to give gifts during lifetime; whether to establish a trust, and more. Strategic planning, according to law and tax treaties, is essential to minimize tax liabilities.
Nimrod Yaron & Co. has extensive experience in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Switzerland – from the first stage of planning, through dealing with authorities in Switzerland and Israel, to transferring inheritance funds to the heir’s bank account.
Our firm specializes in personally and professionally accompanying Israelis with assets or inheritances in many countries around the world, including Switzerland, from the first stage of planning, through dealing with authorities in Switzerland and Israel, to transferring inheritance funds to the heir’s bank account.
We work with all relevant professional entities in Switzerland and Israel and offer legal solutions both in terms of taxation and banking, tailored to the circumstances of the case.
If you have inherited an asset or wish to bequeath assets in Switzerland in the future, our team of lawyers specializing in international taxation and inheritance law will be happy to advise you on this matter – contact us for an initial consultation.
Q&A
Do I need to pay tax in Israel on an asset inherited from Switzerland?
No. There is no inheritance tax in Israel. However, capital gains tax may apply after the sale of the asset. It is important to check the recommended date for selling the inherited property.
Why are there differences in tax rates between the different cantons in Switzerland?
Each canton defines the tax obligation imposed on heirs separately. That is, each canton determines the tax rates, the amount of exemption, and the method of calculation according to the needs of the canton, which leads to significant differences between the different cantons.
Why is it important to plan the transfer of assets between generations in advance?
The transfer of assets between generations from abroad is not just a family matter but also a tax and economic issue. Early planning, considering legal issues in Israel and abroad, can save a lot of money and prevent legal complications.
How can the inheritance be realized optimally and save tax?
To realize the inheritance optimally and save unnecessary tax payments, all tax options should be examined, including utilizing exemptions, planning gifts, establishing companies, trust funds, and more.
How can the inheritance tax liability in Switzerland be reduced?
Through early tax planning, which includes drafting a will, utilizing exemptions, giving gifts during your lifetime, and more, you can significantly reduce your tax liability.
Is it better to give an asset as a gift during lifetime or to bequeath it?
The choice between giving a gift and bequeathing depends on the circumstances of the case. Sometimes a gift will be taxed similarly to an inheritance. Therefore, the legal and tax aspects should be examined before making a decision.
What are the implications in case there is no will?
In the absence of a will, the inheritance will be divided among the legal heirs according to local inheritance law.
What documents are required for the process of realizing an inheritance in Switzerland?
To realize an inheritance in Switzerland, documents such as a death certificate, a will (if one exists), copies of the heirs’ ID cards, property ownership documents, bank account confirmations, and more are required.
How long does the process of realizing an inheritance in Switzerland take?
It should be considered that the process of realizing an inheritance in Switzerland can take between several months and a year or more, depending on the complexity of the testator’s estate, the number of heirs, the existence of a will, and other factors.
