Tax treatment of trusts in Switzerland and why use a Swiss trustee – Tax

Worldwide: Tax treatment of trusts in Switzerland and why use a Swiss trustee

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Switzerland and the use of trusts

Switzerland has no specific law on trusts, but trusts recognized with the ratification of the Hague Convention on the Law Applicable to Trusts (1985), July 1, 2007. Although there is no of domestic law governing trusts in Switzerland, trusts of other jurisdictions, and their specific rules, are recognized and may be administered in Switzerland.

In Switzerland, the settlor (the natural person who transfers assets into the trust for the benefit of the beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss trustee. The trustee holds and manages the assets of the trust on behalf of the beneficiaries.

Why use a trust and what is the role of a trustee?

A trust is a very flexible instrument and is particularly useful for estate planning, wealth management and asset protection.

Basically, the concept of trust is relatively simple: the Settlor places the assets in the legal custody of another (Trustee), who holds the assets for the benefit of a third party (Beneficiary). The trust is not a separate legal entity, but rather a legal obligation agreed between two parties: the settlor and the trustee.

Trustees owe a fiduciary duty to the settlor and beneficiaries, as well as to the trust itself. Depending on the jurisdiction under the laws of which the trust is incorporated, the trust may have a predetermined life or be indefinite. Trusts are inherently very flexible.

Taxation of trusts in Switzerland

The Hague Convention (Article 19) states that the Convention does not affect the powers of sovereign states in fiscal matters. Consequently, Switzerland has maintained its sovereignty with regard to the tax treatment of trusts.

The tax advantages offered by the use of a trust with a Swiss trustee depend essentially on the tax residence of the Settlor and the Beneficiaries.

Under Swiss law:

  • A Swiss resident trustee is not subject to Swiss income tax or capital gains tax on assets held under management in a trust.
  • The constituents and the beneficiaries are exempt from Swiss taxes as long as they are not considered to be Swiss residents.

Why use a Swiss fiduciary?

In addition to the potential tax benefits detailed above, there are a number of reasons why the use of a Swiss fiduciary may be advantageous:

  • Switzerland has long been renowned for its discreet professional support in the management of the affairs of high net worth individuals.
  • Switzerland is located in the center of Europe, where many wealthy individuals are based. Swiss Trustees therefore have the advantage of being able to provide frequent and high-quality support, as they can regularly liaise and, where appropriate, meet with clients and / or other professional advisers.
  • Switzerland’s economic, political and legal stability provides a solid basis for the provision of high-quality support and administration services.
  • Switzerland has a number of favorable and well-developed banking laws and has been a popular international banking center for many years. It is a jurisdiction with a good reputation and offers a high quality of knowledgeable professionals working in asset management, tax planning and private banking.

The Dixcart office in Switzerland and Trust Services

The Dixcart office in Switzerland is a member of the Swiss Association of Trust Companies (ASAC) and is registered with the Romande Association of Financial Intermediaries in Switzerland (ARIF).

Confidentiality in Switzerland

Switzerland is well known for its commitment to banking services, professional secrecy and commercial competence.

  • The SATC provides that: “All information relating to a guardianship and acquired by a member must be strictly confidential by the member, its directors, officers and other employees”.

A breach of confidentiality, whether professional or commercial, would only be permitted by law in cases of criminal liability.

Summary

A trust based on the trust law of, for example, England, or Guernsey, or the Isle of Man, or Malta or Saint Kitts and Nevis and with a Swiss trustee, can offer a number of ‘tax efficiencies, as well as advantages in terms of asset preservation and confidentiality.

Dixcart can establish and manage such structures of trust.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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