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Voluntary Tax Disclosure
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Voluntary Tax Disclosure

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As a foreigner who is also a tax resident in Switzerland you are obligated to file an annual tax declaration in which all your worldwide income and assets must be reported. This is called voluntary tax disclosure. Failure to report your assets or income abroad attracts heavy fines. 

Read on to find out what this means for you and how you can avoid these penalties or click below to get professional tax advice and support from our partner, Exactio. 

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Most foreigners arriving in Switzerland also become tax residents. Exceptions may apply for business travellers and individuals who keep their habitual abode in their home country, so-called international weekly commuters. Tax residents in Switzerland are obligated to file an annual tax declaration in which all worldwide income and assets must be reported.

Irrespective of where the assets are based, e.g. foreign bank accounts, stocks, real estate or the value of a foreign business and irrespective of where the income stems from, e.g. foreign dividends, interests, rental income, ALL must be declared on the Swiss tax return

Needless to say, the Swiss tax jungle may appear overwhelming for new-comers to Switzerland. This can result in income, wealth, or both not being reported on the Swiss tax return, unknowingly.

 

Unpunished voluntary disclosure of income and assets

Since 2010, it has been possible to make a 'first' voluntary disclosure of such income and assets to the tax authorities, notably without any penalties being imposed. Under normal circumstances, the penalties would range from one-third up to three times of the evaded taxes. Any evaded taxes related to such disclosed income/asset including standard late payment interests are still due when disclosing such income/asset.

The statute of limitation is 10 years, so the tax authorities expect any missed income or wealth for all relevant years to be reported.

According to federal statistics, more than 60.000 individuals have benefited from using the unpunished voluntary disclosure regulation.

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Introduction to the Automatic Exchange of Information

As of 2017, the Automatic Exchange of Information (AEOI) came into force, which means that Swiss authorities receive information about Swiss tax residents and their foreign investments etc. directly from foreign financial institutions and countries.

The first exchange took place in 2018 and the Swiss Federal Tax Administration (FTA) recently announced that it has exchanged information with 75 countries, covering approximately 3.1 million financial accounts. Likewise, Switzerland has received information from abroad on around 2.4 million financial accounts.

in 2019 FTA expects around 90 countries to be covered by the AEOI. Hence, data is being gathered at this moment and it is only a question of time until the Swiss tax authorities receive the information from the countries participating in the AEOI.

What does this mean for the unpunished voluntary disclosure process? 

Although the Swiss tax authorities claim that any information received under the AEOI process does no longer qualify for the unpunished voluntary disclosure, it is still recommended to Swiss tax residents, who may suffer from gaps in their reporting for past tax years, make a voluntary disclosure.

Many cantons have a pragmatic approach to imposing penalties, even if they already have the relevant data gathered through the AEOI process. In addition, they have the flexibility on the range on penalties from one-third to three times of the evaded tax.

A proactive and constructive cooperation from the taxpayer creates goodwill and, even if penalties are imposed, they are more likely to be found within the lower end of the range set by law.

In conclusion, we recommend that those who missed reporting their income or wealth for past years disclose this in a proactive way with the relevant tax authorities.

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