Written by Yanis KharchafiLPP withdraw and taxes when moving abroad
Introduction
Are you thinking of leaving Switzerland soon? Do you wonder what the taxation fate of your LPP will be? How much taxes you will have to pay in order to enjoy your well-diserved savings?
Wait a minute, are you thinking of going to France? In this case, see you here! Otherwise, you are in the right place! You thought you were staying in Switzerland? Then head here. If it’s neither France nor Switzerland, then you’re in the right place
The line-up:
If I move abroad, can I withdraw my entire LPP?
Before discussing taxation, let me remind you that if you leave Switzerland, you can withdraw your entire second pillar only if you settle in a country that is not part of the European Union or if you are 60 years of age or older.
Otherwise, you will only have acces to the supplementary part of your LPP, but not the mandatory part. For instance, if you move to Portugal, your mandatory pension fund will sit tight in Switzerland until your 60th spring comes.
In short, the mandatory part is what you and your employer must legally contribute each month to your pension fund. The law determines a minimal rate, but nothing stops employers from being more generous. The supplementary part, very simply put, is this outpouring of generosity!
FYI: the rules governing the second pillar are the same for frontaliers, Swiss residents with a residence permit and Swiss citizens. I thus invite you to read our articles on this topic: you will see things more clearly.
Pensions or capital?
Once you determined the amount you can withdraw, the following question will come to mind: is it more advisable to ask for payment as pensions or capitals?
Each of the two methods have advantages and disadvantages. The final decision is yours to take.
This article does not aim to identify the best solution but rather to explain how taxation works upon withdrawing one’s second pillar when moving abroad. However, the article: “Withdrawing the LPP: as a pension or as capital?” will help you decide.
How are LPP my pensions taxed?
Switzerland signed double taxation agreements with more than 80 countries. As this term does not necessarily suggest, a double taxation agreement aims to avoid double taxation.
The first stage of the reasoning is therefore to find out whether or not a double taxation agreement exists between Switzerland and your future country.
In this case, usually, the pensions will not be taxed at source. They will be considered as a normal income et imposed according to the taxation law applicable in the destination country. Which, by the way, is not always an advantage.
In the opposite case, Switzerland will withhold a tax at source.
How are LPP capitals taxed?
Unlike pensions, the capital from retirement savings is always taxed at the source. In other words, you won’t have a chance to receive the full amount of the capital you were expecting. A portion will be paid to you, and the other will be directly transferred to the tax authorities. This capital will then need to be declared in your new country of residence. Does this mean your capital will be taxed twice, or double-taxed?
No.
In fact, in the vast majority of cases, you will not be double-taxed. Just like with pensions, the double taxation agreements between Switzerland and your country will determine which country has the right to tax this capital.
It is a three-stages process.
First step: Taxation at source in Switzerland
Switzerland asks you to pay taxes on your second pillar newly withdrawn. The amount will be taxed at source. How much does it amount to? It is calculated on the basis of the tax scale of the head office of the institution where your money is deposited. In short, it is not your place of residence that is decisive (as is the case for Swiss residents), but the place where your vested benefits are stored.
Second step: Declare your withdrawal to your new country of residence
Your second pillar assets are freed and transferred to your bank account. You must declare them at the taxation authority of your country of residence. If a tax is required, you must pay it.
Third step: Final tax
This third and final step depends on the result of the second one. Either your new country has the right to tax the capital, in which case you must pay your taxes there and then request a refund from Switzerland for the tax it would have deducted at the source. Or, in the second case, Switzerland remains responsible for taxing the withdrawal, and the tax that was initially withheld will become final.
Simply keep in mind that in the event of capital withdrawal, you will not be able to rely on the amount of your capital withheld by Switzerland.
Is it possible to optimize the taxes on the withdrawal of the 2nd pillar when moving abroad?
As we approach 2025, we decided to add this section because it’s a crucial question (I agree with you) that constantly comes up. Good news: in certain specific cases, it is indeed possible to optimize the taxes on your 2nd pillar withdrawal. But, as usual, it depends on your situation. Let’s explore this in detail:
The new country has the right to tax your withdrawal
In this first scenario, two strategies are available to optimize the net amount of your withdrawal:
- Choose a country with favorable taxation:This might seem obvious, but it is often an overlooked option. Some countries, like Spain, can impose heavy taxes. The first solution is to avoid withdrawing your capital in these countries and to choose a more favorable timing: either wait to withdraw it in Switzerland or, perhaps, take a “small detour” through a country with more lenient tax policies.
- Understand the tax system of your destination country:At FBKConseils, we don’t claim to know the perfect tax treatment of 2nd pillar withdrawals in all countries around the world. However, it’s certain that if you understand the basics of your new country’s tax system, opportunities for optimization will quickly become apparent. For example:
- Does a staggered withdrawal change the amount of tax?
- Are there regions or municipalities that offer more favorable tax rates?
- Does my age influence the amount of tax?
- Does the reason for withdrawal (buying a residence, retiring, etc.) affect the tax?
Switzerland has the right to tax your withdrawal
Just like in the previous case, two interesting strategies present themselves:
- Split your capital to reduce taxes:The larger the amount withdrawn, the higher the tax rate. The conclusion? If you can divide your capital before your departure (even into multiple parts), you can make several withdrawals, each subject to a lower tax rate. The total amount withdrawn will be the same, but you will benefit from a more favorable tax rate.
- Transfer your capital to a more favorable canton:Although this was briefly mentioned earlier in the article, it’s important to note that in Switzerland, when the reason for withdrawal is leaving the country, it means that you are no longer a resident in a canton or municipality. As a result, the canton of origin of your assets becomes key in calculating the tax. It would be wise to transfer your funds to a canton with more favorable taxes before making the withdrawal. Of course, this type of maneuver can be complex and costly, so before considering this option, make sure that the savings made justify the effort.
A departure needs preparation – and why with FBKConseils?
Especially when it comes to withdrawing your savings, the fruit of your many years of work. It’s best to call on a professional to guide you through this process.
A first appointment with no fees
At FBKConseils, we are available for an initial consultation, free of charge, to answer all your questions. The goal is to help you approach this process with peace of mind, without any lingering questions before you begin the steps.
Administrative procedures
We take care of all the administrative steps. You simply hand us your file, and we’ll handle all interactions with the relevant parties, ensuring that every step is completed correctly, all the way to the final deposit of your capital into your bank account.