How does the Canadian Pension Fund work

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When withdrawing the pension fund capital, a tax is due: If you reside in Switzerland, the capital payout tax; the withholding tax in the case of residence abroad. The latter may, under certain circumstances, claim back the Swiss abroad. Only under certain circumstances.

This content was published on November 19, 2017 - 6:24 pm

Emigrants know the trick: they only withdraw their pension fund assets after they have left Switzerland and settled in their new home. Because when withdrawing the capital, a tax is due. The amount of this varies not only from canton to canton but also from municipality to municipality. But if you no longer have a place of residence in Switzerland, this capital withholding tax can no longer be levied. Instead, a withholding tax is deducted from the capital to be paid out, which is usually lower than the capital payout tax, but also varies from canton to canton.

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This withholding tax is lowest in the canton of Schwyz. Resourceful tax optimizers will therefore transfer their capital to a pension fund based in the canton of Schwyz and only withdraw it once they have deregistered in Switzerland. As is usual in tax havens, institutions have set up shop in Schwyz that are after money from such tax optimizers. These include, for example, Pensexpert or Liberty Pensions. The Schwyzer Kantonalbank is also promoting its vested benefits foundation.

However, some people might have missed the fact that the detour via Schwyz may not even be necessary. Namely, if there is a double taxation agreement between Switzerland and the new home country, which expressly provides for the reclaim of withholding tax. This applies to the USA, for example. So anyone who settles in "Trump Country" can claim back the withholding tax in the canton of the pension fund. The same is true for most of the European countries.

Of course, the foreign tax authorities must confirm that the foreign country of residence is aware of this benefit. And in order to be able to make use of the double taxation agreement at all, the foreign tax authorities must confirm that the applicant is registered in the country concerned.

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Attention: The existence of a double taxation agreement does not guarantee that the withholding tax can be reclaimed. Switzerland has certainly signed a double taxation agreement with countries such as Denmark, Great Britain, Iceland, Canada, Sweden and South Africa - and yet the Swiss abroad cannot claim back the withholding tax deducted on their pension fund assets. In tax jargon, this means that Switzerland is assigned the right to tax in the relevant agreement.

What applies to the second pillar does not have to apply to pillar 3a as well. Anyone who emigrates to Thailand will be reimbursed the withholding tax on the pension fund assets; but not on pillar 3a assets. This also applies to Argentina, Mexico and New Zealand.

And one more restriction: only people who worked for an employer under private law can claim back the withholding tax. If, on the other hand, the pension fund balance comes from an employment relationship under public law, the withholding tax cannot be reclaimed and the detour via Schwyz is still worthwhile. Exceptions, for example in the case of dual citizens, confirm the rule.

Here is an example: A former federal employee has pension fund assets of CHF 500,000. In the canton of Bern, the withholding tax is 45,325 francs; in Schwyz, on the other hand, a comparatively modest 22,825 francs. Tax savings before transaction costs: 22,500 francs.

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