Taxes on the LPP and the pillar 3A in France

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Are you leaving Switzerland for France? How much will you pay in taxes on the withdrawal of your second and third pillars? Noé will give you an answer!

 Are you planning to go back to France after a working experience in Switzerland? Or do you wish to start a new experience in France after having worked in Switzerland for years?

Two life paths, one same question how much will you pay in taxes on the withdrawal of your second and third pillars?

Quick disclaimer: if you are not thinking of France as a final destination then you should read my more general article on this topic. And if you are unsure about whether you can benefit from your LPP savings, I invite you to read withdrawal conditions of your second pillar (LPP).

Otherwise… let’s go! 

A three stage taxation system: 

The Helvetic Confederation signed two double imposition agreements with more than 80 countries precisely in order to avoid paying taxes on your savings twice.

With France, just like with most European countries, the taxation system is in three phases.

Stage 1: Switzerland first withholds at source a tax which varies depending on the relevant amount, your marital status and the relevant commune. 

Example: 

Example of tax calculation according to marital status on a 2nd pillar capital withdrawal of CHF 600,000

Stage 2: when your assets are released you must declare them in your new country of residence, here France.

It is now the turn of French taxation authorities to require taxes from you. at this point, two scenarios are possible, which I will detail right below. 

Stage 3: once you paid the amounts, your taxes at source can be reimbursed. These little fiscal gymnastics will allow you to pay, in the end, only one tax, the French one.

Two taxation scenarios on the French side 

France considers your LPP and third pillar assets as forming parts of a withholding tax, that is an extraordinary income.

In the first case, a fixed rate is applicable. Which is generally advantageous when the relevant amount is substantial. in the second case, the tax is proportional to the amount received, which can be advantageous when the amount is smaller

The withholding tax: under which conditions? 

The withholding tax is taxed at a fixed rate of 7,5% minus 10% meaning 6,75%, regardless of the amount of your assets

To qualify the withdrawal must meet one of the two following conditions: 

  • be used to purchase a primary residence
  • be withdrawn as capital in a single operation (another part can be withdrawn as pensions).

The purchasing of a primary residence 

The condition is rather clear: if you wish to finance the purchasing of a property which will serve as a primary residence, then you will be taxed at a fixed rate of the withholding tax. 

Be careful: depending on your pension fund and the bank, you will not be able to finance all of the costs related to your purchase with your LPP assets (notary fees, bank guarantee, administrative fees). 

The withdrawal of the capital at once

The other condition to benefit from a fixed rate is to withdraw the capital at once. for example, you cannot decide to withdraw the supplementary part when you are 45 years old or before that and demand the mandatory part later on. 

That being said, you can decide to withdraw a part of your capital and the remaining part will be paid out to you as pensions. The first part will be taxed at a fixed rate of 6,75% and the other will be taxed as usual – as an income.

Taxation of the exceptional income

What does “exceptional” mean? It is mostly a negative definition. In other words, when your withdrawal does not meet the characteristics of a withholding tax as discussed right above, it is considered to be “exceptional”.

This option is mostly interesting for smaller amounts, since the taxation is based on a progressive scale: the scale of the income tax.

The tax burden can quickly become significant.

In any case, it is a good idea to call a professional that will be able to calculate and compare different amounts. 

Can I decide the taxation method? 

If your withdrawal is considered as a withholding tax, you can decide between a fixed rate or a progressive rate. 

Otherwise, the conditions of the exceptional income apply.

Diagram showing the possibilities according to eligibility for the flat rate

In conclusion, no matter the French tax that you must pay, once it is paid, remember to ask to be reimbursed of the amount withheld by the Swiss authorities. 

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