Vested accounts

I will be leaving Switzerland to an EU country later this year and will be able to withdraw part of my pillar 2 pension lump sum from a vested account.

As the country I will move to has a progressive tax system, I would end up paying 50% tax if this money is received as a lump sum.

Ideally I would withdraw the money annually over a number of years, which would mean that I wouldn’t have to pay extortionate tax rates.

1. Are there any vested accounts that allow for annual withdrawal of funds?
2. Is it possible to setup multiple vested accounts?
3. As an alternative to the above is it possible to withdraw funds from a vested account into a normal Swiss bank account that I could draw down over several years? 
4. Any other suggestions to avoid paying extortionate tax rates on pension lump sums transferred from Switzerland to an EU country are gratefully received 
    

Firstly: If you move to an EU country, you can only withdraw the non-compulsory part of your benefits. The compulsory part has to stay in Switzerland.

Secondly: You do not have to withdraw your Swiss vested benefits (even the non-compulsory part). You can leave them in Switzerland if you want to.

If you want to withdraw the non-comulsory part AND you are lucky enough that you have enough of those to create a high tax bill, then read on.

Swiss vested benefits accounts can only be cashed out in full, with these exceptions:

• You withdraw vested benefits before retirement age to buy your home (or renovate, pay off a mortgage etc.). The property can be in a different country than Switzerland, but it has to be your main residence. You can withdraw just part of your benefits. The minimum withdrawal is CHF 20,000.
• You get divorced, in which case your benefits have to be split with your ex.

You do not have to withdraw your Swiss vested benefits just because you move to an EU country. You can also leave them in Switzerland, latest until you reach retirement age. So looking at it from the angle, waiting until you want to buy a home and then withdrawing your benefits in installments for that purpose is one way to break up withdrawals over many years.

You always have the option of splitting between two foundations when you exit your pension fund, so that you can cash out each in a different tax year. Make sure to divide between two foundations after you quit your Swiss employer.

Thanks Gareth

So two vested accounts would seem to be the best option.

When I leave Switzerland & cash in the non-compulsory funds do you know if it is possible to pay the withholding tax on the benefits & transfer the funds from the vested account to a standard Swiss bank account (& then just withdraw the money over the period of a few years)? 

If you have a Swiss bank account, you can, of course, have the cashed out benefits transferred to that account.

The Swiss withholding tax is kept by the foundation, so you only get the remainder after withholding tax paid out.

Of course it is possible to keep the withdrawn benefits in a Swiss bank account and withdraw them bit by bit, but this won't make a difference for taxes. From a Swiss perspective the money becomes taxable as soon as it is transferred to you from the vested benefits foundation.

This will typically be the case from a foreign perspective as well. Because you reside in a foreign country when you withdraw, you are taxable in that country. If the laws of that country consider withdrawn foreign pension fund benefits to be taxable income, then the money will be taxable in that country, and you will have to declare it in your tax returns there.

But some countries have tax exemptions for pension benefits, or let you use the money to buy into your local pension fund in your country on a tax-deductible basis, which creates a tax-neutral situation. Consulting a local tax advisor in your new country can help because each EU country has its own laws for taxing foreign pension benefits.

You can and should reclaim the Swiss withholding tax by sending the Swiss tax office proof that you are a tax resident of an EU country. Switzerland has double-taxation agreements with the EU that let you reclaim the Swiss witholding tax. If you do not, then you will pay double (the Swiss withholding tax PLUS any taxes levied by the country you live in).

Thanks Gareth

This is really helpful. I discussed with my EU tax advisor who also confirmed that tax would be due from the date of cashing in the vested accounts so transferring the money in tranches would not have any tax benefits. 

However, since the money would be classified as ‘capital income’ it would not attract the progressive tax rates, and would be taxed as capital gains, which attracts a significantly lower fixed tax rate.