Switzerland is a place with a high quality of life for many people, and not just because of its beautiful landscape. In addition, in most cantons there is no inheritance tax on inheritance to descendants and spouses. All the more reason to consider moving to Switzerland?
However, such a move from Germany to Switzerland can lead to a tax disaster and should therefore be planned very carefully in advance:
Overriding taxation by Germany under the DTA
Certain provisions in double taxation agreements (DTAs), for example, which extend Germany’s right of taxation (so-called “overriding taxation”), pose tax risks for newcomers from Germany: In the event that the taxpayer has unlimited tax liability in both countries under the national tax laws of Germany and Switzerland, for example because he maintains a residence in both countries but is deemed to be resident in Switzerland under the DTA (e.g. because his “permanent residence” is in Switzerland or he has his center of life there), Germany can continue to tax the taxpayer as if he were an individual with unlimited tax liability in Germany. Double taxation is only avoided by offsetting the taxes levied in Switzerland, taking into account the exemption regulations. As a result, however, income taxation is channeled to the higher German tax level.
Even a complete move to Switzerland does not exempt you from German tax
In the event of a complete departure, i.e. giving up the German domicile, Germany is also granted an extended right of taxation. In this case, in the year of departure and in the following five years, the income originating from Germany and the assets located there can be taxed in Germany without restriction, irrespective of the other DTA provisions. Any tax levied in Switzerland on the same income and assets is credited against the German tax, insofar as this is provided for in the DTA.
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Nevertheless, the overriding taxation does not apply in the case of relocation if the taxpayer is a Swiss national or if the relocation to Switzerland is for the purpose of taking up employment or marrying a Swiss national.
Complicated inheritance tax aspects
Despite moving to Switzerland, inheritances remain taxable in Germany for a period of five to six years. The prerequisite is that the deceased had a permanent residence in Germany for at least five years in the previous ten years and that his or her death occurred within six years of moving away. However, the exceptions described above for recognized personal circumstances (e.g. nationality, marriage) also apply here.
In the case of dual residency, Germany is granted overriding taxation for inheritance tax under the DTA without exception and on a permanent basis if the deceased resident in Switzerland had maintained a secondary residence in Germany to the extent of a permanent residence for at least five years at the time of death. Furthermore, Germany has a right of taxation if the acquirer had a permanent residence or habitual abode in Germany at the time of death. Exceptionally, this does not apply if the deceased and the acquirer are Swiss.
Caution: exit tax and taxation on deemed disposal of assets
In the case of a planned move to Switzerland, aspects of exit tax and taxation on deemed disposal of assets (Entstrickungsbesteuerung, § 6 AStG, § 4 para. 1 sentence 3 EStG) should also be taken into account if the taxpayer owns shares in a corporation within the meaning of § 17 EStG or other business assets. If the exit tax or tax on deemed disposal of assets is triggered, the taxpayer must pay tax on the hidden reserves in his shares or business assets when he moves to Germany – as if he were selling them. This also applies if he has not sold and therefore does not experience any inflow of liquidity.
Other civil law and tax aspects of moving to Switzerland
In addition to tax consequences, it is also advisable to consider civil law aspects, e.g. with regard to the validity and enforcement of testamentary dispositions and the possible change of the statutory German matrimonial property regime. Swiss (tax) law is also not without its pitfalls: most cantons levy a wealth tax, for example, and there is a complex social security system that may be relevant for newcomers.
Continue reading:
German Exit Taxation: Requirements, Amount, Advice
No more immediate German Exit Taxation within Europe!
