LPP and taxes when moving abroad

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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! 

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 58 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 retirement comes. 

In short, the mandatory part is what you and your employer must 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. 

This is what happens with most European countries, as shown in the table below: 

C’est ce qui se passe avec la plupart des pays européens, comme on le voit dans le tableau ci-dessous.

Table comparing the different European countries on the withdrawal of the 2nd pillar and the 3rd pillar in terms of taxes

In the opposite case, Switzerland will withhold a tax at source, at a rate of 11%. 

How are LPP capitals taxed?  

Contrarily to pensions, capitals are taxed at source. Most countries, namely those who signed bilateral conventions with Switzerland, will withhold an exit tax on your LPP. The modalities and the amount of this tax depends on the tax regime of the relevant country. 

Does this mean you will be imposed twice and that your second pillar will melt away? 

No. 

In the end, you will be taxed only once and, if bilateral conventions exist, you will pay the amount to your country of destination. 

It is a three-stages process. 

  1. First stage: 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 relevant canton’s taxation scale, but on a reduced rate.

Here are a few withdrawal examples: 300,000 CHF or 600,000 CHF as a single person or married person with a child/children. 

Example of tax calculation on a 2nd pillar capital withdrawal of CHF 300,000
Example of tax calculation on a 2nd pillar capital withdrawal of CHF 600'000

Here as you can tell, the rate varies but relatively slightly. 

  1. Second stage: 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. 
  2. Third stage: when you get a proof of payment, Switzerland will reimburse the tax paid (in Switzerland) to avoid double taxation. 

In the end, you pay taxes to your country of residence only, since Switzerland reimburses you the taxes withheld at source.  

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. 

A departure requires preparation 

Especially when it comes to withdrawing your savings, the product of your many years of work. The best thing to do is to hire a professional who can accompany you. 

Should you have any remaining questions, or if you wish to request our support services, drop us a message in the chat box at the bottom of the page.

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