What will you pay in taxes when you take out your second pillar?

Updated on January, 4th 2024.

If you have reached this page, you are in a situation where you can withdraw your 2nd pillar pension before retirement age.

• Moving abroad?
• A well-deserved retirement?
• Buying real estate?
• A new self-employed activity?

Whichever option you choose, you are within your rights to withdraw your 2nd pillar pension.

The question today will be to understand how taxation will work and how much will be payable once the withdrawal request has been sent.

I warn you, there are many subtleties and the calculations can be a bit far-fetched.

Withdraw your 2nd pillar to stay in Switzerland

In this first paragraph, we will look only at the situation where, after your retirement, you will remain domiciled in Switzerland. This is the case when you use your 2nd pillar to finance your principal residence (EPL), when you become self-employed or when you reach normal retirement age.

How are 2nd pillar withdrawals taxed in Switzerland?

It’s quite simple: to request the withdrawal of your assets, you will need to fill in the form provided by your pension fund / vested benefits institution and add the various required documents (marriage certificate, identity document, etc.).

Once the application has been sent and validated, you will receive the full amount in your bank account within a few days (or even weeks). Shortly afterwards, the tax authorities will send you a payment slip showing the amount of tax you owe.

Once the sum has been paid, you will be free to enjoy your LPP/BVG capital.

It may be useful to indicate on your tax return that you have received BVG capital in order to explain the change in assets logically. Of course, you will also need to declare the amount withdrawn as part of your taxable assets (if you still have anything left at the end of the year).

How much tax will you pay when you withdraw from your 2nd pillar in Switzerland?

This is the most complicated paragraph of our article, because in Switzerland, when it comes to tax, each canton is free to tax your capital as it sees fit. It is true that in the French-speaking cantons of Switzerland there is a degree of consistency between tax methods.

As you will have understood, your canton of residence for tax purposes is decisive in calculating tax, as is your municipality.

Please note: just because you’ve heard that moving to Schwyz is the best idea for saving tax doesn’t mean it will work. As long as you are resident in Switzerland, your municipality and canton of residence will tax you.

We will take the time to write a more detailed article on taxes on withdrawals in the canton of Vaud and another on the canton of Geneva, but in the meantime, here is a summary table of the main communes we deal with at FBKConseils :

Retirer son 2^e pilier pour partir vivre à l’étranger 

If you’ve read the previous chapter, then I’d advise you to forget all about it. Erase everything and start again, because the process is quite different.

If you are leaving Switzerland for a foreign country, there are several things you need to understand:

Are you entitled to withdraw your 2nd pillar pension when you leave Switzerland?

If you have read our various articles, you will now be able to tell the difference between the compulsory part and the non-compulsory part. It all depends on your employer and, more specifically, your pension fund.

Take your BVG certificate and look at your vested benefits. You’ll see a line like this: Vested benefits CHF 150,000 of which BVG/LPP portion CHF 70,000. This means :

• your compulsory portion is CHF 70,000
• Your excess compulsory portion is CHF 80,000

First stage completed.

Now, here are the rules to determine whether or not you are able to withdraw your 2nd pillar :

• If you leave Switzerland for a European or EFTA country, you will only be able to take with you the compulsory part of your 2nd pillar, i.e. in our example: CHF 80,000.
• If you leave Switzerland for a country outside Europe, you will not be limited in any way: you will be able to recover your entire BVG/LPP assets, i.e. CHF 150,000.

How does the taxation process work when I withdraw my 2nd pillar pension when I move abroad?

The process is the same whether you are entitled to take all of your BVG/LPP assets or only the excess portion:

Step 1

Once you have completed the form and attached the required documents to your application, the Foundation will pay the amount requested, minus the tax deducted at source, into the bank account indicated. You will therefore receive an amount net of tax. Withholding tax is set according to a cantonal scale and will be applied according to the canton from which your money originates. If you invested your vested benefits in Schwyz, you will be taxed in Schwyz, and if you invested your vested benefits with Banque Cantonale Vaudoise (BCV), you will be taxed in Vaud.

Step 2

Once you arrive in your new country, you will have to declare this capital withdrawal. This is where things get complicated, as Switzerland has signed a huge number of double taxation agreements with other countries. These agreements stipulate precisely who is entitled to tax your BVG capital.

• It’s up to Switzerland to tax you: If this is the case, the tax deducted at source in step 1 will become definitive. This also means that your new country should not be able to claim any additional tax on this amount. However, you should be aware that no tax does not always mean no social security contributions. Find out all you can before you leave.
• It’s up to the foreign country to tax you: This is generally the case for European countries such as France, Italy or Spain (unless you have in the past worked for a public-sector institution such as RTS, the canton, hospitals, etc.). In this case, you will have to declare the capital withdrawn and then ask your new country to tax you. The tax differences between countries are enormous, so we advise you to take the time to do all the simulations before requesting the withdrawal, as taxes can really consume your savings.

Step 3

Once you have received the foreign tax notice, you will be able to request a refund of the tax initially deducted in Switzerland. In the end, you will only be taxed once in your new place of residence.

When it’s Switzerland’s turn to tax you when you go abroad, there are many ways to optimise your tax situation.