Taxation of lump-sum benefits and pensions from pension funds abroad
If an insured person in Switzerland receives lump-sum benefits abroad from the second pillar or from pillar 3a, this withdrawal is generally subject to Swiss withholding tax (QST). This replaces the domestic lump-sum payment tax that would apply if the person were resident in Switzerland. It is important to note that the amount of withholding tax is not based on the country of residence of the beneficiary, but on the tax rate of the canton in which the relevant pension or vested benefits foundation is domiciled. In certain cases, this results in lower tax rates than in the case of a lump-sum withdrawal in Switzerland. If a double taxation agreement (DTA) exists between Switzerland and the country of residence of the person concerned, which assigns the right to tax the lump-sum payment to the country of residence, it is generally possible to reclaim the withholding tax levied in Switzerland. This generally requires a corresponding refund procedure with the competent Swiss tax authority. If there is no DTA, however, no refund can be made, which in the worst case leads to economic double taxation if the country of residence also subjects the lump-sum benefit to taxation. If withholding tax is levied on pensions, the person subject to withholding tax can generally reclaim the withholding tax levied on the pension benefit by 31 March of the following year using the corresponding application form if, according to the DTA, the right of taxation is not assigned to Switzerland but to the country of residence. The application form must be completed in full and signed.
Employer qualification Private law and public law employer
If you have assets from your tied pension plan paid out as a result of moving away from Switzerland or draw a pension, you can reclaim the withholding tax due on them depending on the country and after declaring them at your new place of residence in Switzerland. A distinction is made here as to whether you previously had an employer under private or public law. The FTA circular is primarily authoritative in this regard.
Practical example with a public sector employer;
Mr Lukas Wunder, a Swiss citizen, is a pensioner and is spending his retirement in idyllic Brittany in the west of France. He has opted for a annuity from the pension fund. Immediately before retiring, he worked for the canton of Basel-Stadt. His last job was with a public employers active. In accordance with the double taxation agreement between Switzerland and France, Switzerland therefore has the right of taxation and levies the tax directly at source.
Source: FTA 2025 circular, information sheets on withholding tax and overviews of DTAs
Practical example with an employer under private law;
Mrs Barbara Wunder, a Swiss citizen, is a pensioner and is spending her retirement on the tranquil island of Sylt in northern Germany. She has also opted for a annuity from the pension fund. Before retiring, she last worked for a pharmaceutical company in Basel, i.e. a employers under private law. According to the CH-DE double taxation agreement, Germany has the right to tax the pension benefits and no withholding tax is deducted.
Taxation of pensions in accordance with the OECD Model Tax Convention
The taxation of pensions and similar remuneration is regulated in the OECD Model Convention regulated in Articles 18 and 19. In principle, the country of residence of the beneficiary has the right to tax pensions. An important exception applies to benefits that originate from previous employment in the public sector. In these cases, the special provision of Article 19 of the OECD-MA applies, which generally reserves the right of taxation to the paying state (source state).
The material scope of application includes benefits from previous employment that are of a pension nature, i.e. serve to protect against risks such as longevity, disability or death. The form of financing is irrelevant, meaning that non-mandatory or voluntary benefits from occupational pension schemes are also covered. However, individually saved pension benefits, for which Article 21 para. 1 OECD-MA applies, are not covered. As this also assigns the right of taxation to the country of residence, there are generally no different tax consequences.
Some double taxation agreements concluded by Switzerland expressly extend the scope of application to capital withdrawals from Pillar 3a. The term "pension" covers regular pension payments, while "similar remuneration" can also include one-off lump-sum payments. Most Swiss agreements follow this system, whereby individual agreements differentiate between periodic and one-off benefits.
Specialised legal entities
Further clarification is required for Specialised public limited companies to be made. Such companies are not based on a contract under private law, but are created directly by law. One example is SBB or Swisscom. Although the federal government holds a 51 % stake in Swisscom, it is considered an employer under private law.
Moving away with consequences:
In the article, only the Swiss perspective was presented and the tax and financial framework conditions were shown at the starting point.
Moving away from Switzerland can open up opportunities, but also harbours tax pitfalls. Seek advice at an early stage in order to optimise your pension provision and pension payments and start your retirement abroad without any worries.