New tax treaty with Switzerland becomes effective
On 9 November 2011 the new tax treaty between the Netherlands and Switzerland became effective. The tax treaty replaces the treaty dating from 1951. A significant deviation from the old treaty is the division of the rights between the Netherlands and Switzerland to levy tax on pension income and executive remuneration. These provisions will apply from 1 January 2012.
Emigration and pension
Under the provisions of the previous tax treaty with Switzerland, the country in which the pension recipient lives (residence state) in principle has the exclusive right to levy tax on the pension income. This exclusive right remains valid under the new treaty. However, under the new tax treaty the right of taxation may also be shifted to the country from which the pension income derives (source state ). This requires that the following conditions are satisfied :
- the pension entitlement was previously tax-exempt for purposes of defining the taxable income in the source state. This means that the pension was accrued under a tax facility ;
- the residence state does not tax the pension income against the generally applicable tax rate, or taxes less than 90% and;
- the gross yearly total of the pension income, to include life annuities and social security benefits, does not exceed EUR 20,000.
The new pension provisions affect Dutch pensioners residing in Switzerland. From 1 January 2012 tax on pension income can be levied not only by Switzerland but also by the Netherlands. This could happen to Dutch pensioners who, for example, have entered into a so-called pauschalsteur with the Swiss (local) government. This means that considerably less tax could be due in Switzerland than would otherwise have been the case in the Netherlands.
Executive remuneration
Under the old tax treaty half of the executive remuneration received from a corporate entity with its statutory seat in the Netherlands was taxed in the Netherlands, whilst the other half was taxed in Switzerland. By contrast, executive remuneration received from entities with a statutory seat in Switzerland were only subject to taxation in that country.
Under the new tax treaty, the entitlement to impose tax corresponds with the corporate place of residence. If a company is established in Switzerland then the executive remuneration paid by that company is also taxed in Switzerland. Remuneration paid by entities established in the Netherlands is taxed in the Netherlands. However, wages and salaries (fixed remuneration) paid by an entity established in the Netherlands to executives residing in Switzerland are subject to 50% taxation in the Netherlands and 50% taxation in Switzerland.
The place of effective management is decisive in determining a corporate entity’s place of residence. Contrary to the old tax treaty, the place of statutory seat is now of lesser significance.
More information
The new tax treaty may, depending on our personal circumstances, have major consequences for you. It is thus advisable to take appropriate action in forehand.
More information about the new tax treaty, without any further obligation, can be obtained from Chris van Wijngaarden (chris.vanwijgaarden@vmwtaxand.nl) or Abdelmajid Ettafahi (abdelmajid.ettafahi@vmwtaxand.nl). They will be happy to provide you with information if you are planning to enjoy your retirement in Switzerland, or if you are already living in Switzerland and receive pension income from the Netherlands.
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