I. Differences in Treatment of EU and Non-EU Citizens

Switzerland

Both EU and non-EU citizens can take up residence in Switzerland under the lump-sum tax regime. The key difference lies in the minimum taxable base: EU nationals generally benefit from lower taxable factors compared to non-EU nationals.

This distinction arises because EU citizens can invoke the Agreement on the Free Movement of Persons (AFMP), allowing them to take residency more easily, while non-EU nationals must meet stricter financial and tax requirements to obtain a residence permit.

Italy

In order to benefit from the Italian lump-sum tax regime, the citizenship of the taxpayer is not relevant. Therefore, the tax treatment granted to Italian or EU nationals is from a tax perspective identical to the one granted to non-EU nationals.

II. Eligibility and Requirements

Switzerland

To apply for the lump-sum taxation in Switzerland the following conditions should be met:

• no Swiss citizenship
• a person takes up residence in Switzerland for the first time or after an absence of at least ten years
• no gainful employment in Switzerland.

For married couples, both spouses must fulfill these requirements.

Third country residents planning to relocate to Switzerland based on the lump-sum taxation generally meet these conditions.

The right to lump-sum taxation expires if an individual:

• acquires Swiss citizenship
• takes up gainful employment in Switzerland.

Italy

The Italian lump-sum tax regime is available to individuals relocating to Italy from abroad, subject to the following conditions:

• the tax residence of the individual is transferred to Italy according to the criteria established by the Italian tax law for income tax purposes;
• the individual had been non-resident of Italy for Italian income tax purposes in at least 9 of the 10 years prior to the first year of application of the regime.

The lump-sum tax regime expires:

• after 15 years from the first tax year in which it was applied;
• if the individual fails to pay the lump-sum tax, in whole or in part.

Unlike in Switzerland, there are no limitations on carrying out gainful activities in Italy. However, income derived from such activities in Italy does not fall within the scope of the lump sum tax regime (see below, section IV).

III. How to Choose the Canton for Relocation in Switzerland / Region in Italy?

Switzerland

Choosing the canton for relocation under the lump-sum taxation regime is a crucial decision, as tax and cultural factors, as well as lifestyle vary significantly across Switzerland. The following key aspects should be considered:

• Tax considerations:
  1. Availability of lump-sum taxation: The cantons of Zurich, Schaffhausen, Appenzell Ausserrhoden, Basel-Stadt and Basel- Landschaft have abolished the system of lump-sum taxation.
  2. Minimum taxable base: The minimum taxable base differs by canton.
  3. Cantonal and communal tax rates: The tax rates vary depending on the canton; cantons such as Zug, Schwyz and Obwalden have lower tax rates, while Geneva and Vaud have higher tax rates. However, a lower tax rate does not always mean a lower tax burden, as the minimum taxable base also plays a crucial role in determining the final tax liability.
• Other considerations:
  1. Proximity to Zurich: Schwyz and Zug are within 20 – 40 minute drive to Zurich, making them ideal for those who require easy access to Zurich.
  2. City vs. mountains: Geneva, Lausanne, Montreux and Zug offer city life, whereas cantons Obwalden, Valais and Graubünden provide beautiful mountain landscapes, making them ideal for outdoor fans.
  3. Airport and connectivity: Cantons Geneva and Vaud benefit from proximity to Geneva airport; cantons Zug and Schwyz are close to Zurich airport.
  4. Italian lifestyle: Ticino offers a Mediterranean climate with palm trees, Italian cuisine, and a relaxed lifestyle, making it a unique choice within Switzerland.
  5. Access to international schools: Cantons such as Geneva, Vaud, Zug, Schwyz, Lucerne and Ticino have well-regarded international schools.
  6. Language: Italian-speaking Ticino; French-speaking - Geneva, Vaud, and parts of Valais; German-speaking Zug, Schwyz, Graubünden and parts of Valais.

Italy

Due to Italy's political structure, the lump-sum tax regime is applicable to the entire Italian territory, regardless of the specific region or municipality where the tax residence of the applicant is transferred.

Consequently, the choice of where to establish tax residence can be based entirely on personal preferences, without tax-related considerations. Relevant factors may include, for example:

• proximity to major business centers such as Milan or Rome;
• accessibility to airports or other transportation infrastructure;
• proximity to renowned locations, such as the Amalfi Coast, Chianti, or Lake Como;
• the cost and availability of residential real estate.

However, the specific municipality and region for relocation are relevant for the purposes of the favorable regime for retired people (see section V below).

IV. Calculation of the Lump-sum Tax

Switzerland

In Switzerland, taxes are levied at three levels: federal, cantonal and communal. Cantons are free to define minimum taxable base for lump-sum taxation, tax rates, and additional requirements. The overall tax burden under the lump-sum taxation depends on the taxable base and tax rates.

1. Determination of the taxable base

The taxable base (i.e., taxable income and taxable wealth) is determined separately for the direct federal tax and cantonal and communal taxes.

The income tax base is calculated based on the total annual living expenses worldwide. However, it cannot be lower than:

• The federal minimum income tax base of CHF 434'700. The minimum income tax base for cantonal and communal taxes is defined by each canton on its own discretion.
• The equivalent of seven times the annual rental expense or rental value of the principal residence in Switzerland.

The wealth tax base is determined only at the cantonal level, since no wealth tax exists on federal level. In most cantons, the wealth tax base is a multiple of the income tax base.

The taxable base is defined individually in the tax ruling with the canton of residence.‍

2. Tax rates

Once the taxable base is determined, standard tax rates apply depending on the canton of residence.

Since no wealth tax exists at the federal level, only income tax base is relevant for the calculation of the tax burden on federal level. The minimum tax at the federal level amounts to CHF 49'990 (CHF 434'700 x 11.5%).

The tax burden at the cantonal and communal levels depends on the canton of relocation. It is calculated according to the following formula: determined taxable base x cantonal & communal tax rate = tax burden.

The overall lump-sum tax burden (including federal, cantonal and communal taxes) for non-EU citizens may start at approx. CHF  200'000, with an average of CHF 250'000 – CHF 300'000. However, the tax burden heavily depends on the canton of relocation.

The minimum tax burden for EU nationals amounts to around CHF 150'000.

The total tax liability depends heavily on the canton of residence, as each canton sets its own minimum taxable base and tax rates.

3. Control calculation

The determined taxable base is subject to the control calculation as part of the annual tax return. A special tax return form for lump-sum taxpayers applies. Notably, there is no obligation to declare foreign-sourced income and foreign wealth, except in specific cases where the taxpayer wishes to claim relief under an applicable double tax treaty. In such cases, the relevant foreign income must be disclosed in order to invoke treaty benefits.

The tax payable under the lump-sum regime must be at least equivalent to the tax that would be payable on Swiss-source income and Swiss assets (e.g., Swiss securities and Swiss real estate and income from such assets).

Italy

First, it should be noted that the Italian lump-sum tax regime is not applicable to income and capital gains sourced from Italy, which remain taxable according to the Italian ordinary rules (i.e., taxation with progressive tax rates, IRPEF, or with substitutive taxes).

That being said, the main features of the lump-sum tax regime can be summarized as follows:

1. Income and capital gains:
   • Foreign-sourced income and capital gains are subject to a substitutive tax in the amount of EUR 200'000 per year;
   • The regime can be extended to members of the applicant's family (e.g., spouse or children), with the payment of an additional substitutive tax of EUR 25'000 per year, per each family member;
   • Foreign taxes paid on income or capital gains covered by the lump-sum tax regime cannot be credited or deducted from the substitutive tax;
   • Capital gains derived from the sale of substantial participations (i.e., >20% in non-listed companies, >2% in listed companies) realized during the period of 5 years after the relocation to Italy are excluded from the scope of the regime, and remain subject to ordinary taxation;
2. Wealth:
   • Assets held outside Italy:
     • are not subject to Italian wealth taxes on financial assets (IVAFE) or real estate (IVIE);
     • must not be reported in the annual Italian tax return.
3. Inheritance and gift taxes:
   • Assets located outside Italy are not subject to Italian inheritance and gift taxes.

V. Are There Any Privileges for Retired Individuals?

Switzerland

Switzerland offers a special residence permit for non-EU citizens over 55 years old, provided they meet specific criteria. This permit can be granted, if the individual meets the following conditions:

• Minimum age of 55 years
• Close ties to Switzerland: This may include previous visits, family connections, or property ownership
• No gainful employment, either in Switzerland or abroad
• Sufficient financial means.

Such persons may also apply for the lump-sum taxation. Typically, their taxable base and consequently the annual tax burden is lower than for other non-EU citizens under the lump-sum tax regime.

Italy

Since 2019, Italy has introduced a special tax regime aimed at encouraging retired individuals living abroad to move their residence to Southern Italy.

Read also our article: New Italian tax regime for retired people abroad.

This regime provides for the application of a flat 7% substitutive tax on all foreign-sourced income, for a maximum period of 10 years starting from the tax year in which the option is exercised.

The main requirements to benefit from this regime are the following:

• the taxpayer receives pensions or similar annuities sourced outside Italy;
• the tax residence of the applicant taxpayer was located outside Italy during at least last 5 years;
• the taxpayer moves his/her residence to a municipality in Italy that:
  • is located in one of the following regions: Abruzzi, Apulia, Basilicata, Calabria, Campania, Molise, Sardinia, Sicily; and
  • has a population not exceeding 20.000 inhabitants.

VI. Additional Major Expenses

Switzerland

In addition to annual taxes, individuals relocating to Switzerland under the lump-sum tax regime should consider the following major expenses:

• Social security contributions of CHF 26'000 per year
• Rental expenses - typically ranges from CHF 60'000 to CHF 100'000 per year, depending on the location and type of property
• Medical insurance of approx. CHF 6'000 per adult per year (costs vary based on coverage and insurer).

The above amounts are approximate estimates and may vary significantly depending on the chosen canton, property type, and personal lifestyle.

Italy

Rental expenses and prices for purchase of the real estate in Italy vary significantly by region. Therefore, it is not possible to provide a meaningful general range.

Lump-sum taxpayers are not subject to Italian social security contributions, unless they are performing gainful activity in Switzerland.

While there is no official complementary medical insurance scheme and the public healthcare system is theoretically accessible free of charge, many individuals opt for private coverage. The cost of adequate private medical insurance depends on the coverage and typically starts from EUR 2'400 per year, per person.

VII. Procedure and Timeline

Switzerland

Before relocating, an individual should obtain a tax ruling from the tax authorities of the chosen canton confirming the application of the lump-sum taxation. This tax ruling will outline the taxable base, i.e. taxable income and taxable wealth, under the lump-sum tax regime.

Once the cantonal tax authorities sign the tax ruling, it should be submitted together with other required documents to the cantonal migration office. Upon approval, the migration office will issue a visa that allows entry into Switzerland and the subsequent application for a residence permit. This visa can be obtained from the Swiss embassy in the applicant’s country of residence.

The above steps take approximately 2 – 3 months.

After arriving to Switzerland, the applicant must submit an application for a residence permit to the local authorities of the canton of residence.

Italy

The option for the lump-sum tax regime can be directly exercised by the taxpayer in his/her annual tax return, to be filed in the course of the year following to the one of the relocation to Italy.

While not mandatory, it is strongly recommended that the taxpayer obtain an advance tax ruling from the Italian tax authorities to confirm eligibility for the lump-sum tax regime. The ruling procedure generally takes approximately 3 to 5 months, depending on whether additional clarifications are requested by the authorities.

It should also be noted that, depending on the taxpayer’s citizenship, a visa may be required in order to legally enter and reside in Italy. This visa must then be converted into a residence permit. Italian law provides for various types of visas, each with specific eligibility criteria and documentation requirements.

Upon arrival to Italy, the taxpayer must, among other formalities, register with the Italian public register of the resident population.

General Factors to Consider When Choosing Between Switzerland and Italy

The Swiss lump-sum tax regime should be considered by individuals who:

• value political and economic stability, personal safety and very good infrastructure
• value a well-functioning public administration with significantly less bureaucratic complexity than in Italy
• seek excellent education for their children
• appreciate high-quality medical services
• prefer investing in Swiss real estate
• require quick connectivity to European and other destinations
• prefer variety of languages, regions, cultures and lifestyles.

The Italian lump-sum tax regime seems particularly interesting for:

• non-EU citizens, for whom the overall tax burden in Switzerland could be (under certain circumstances) higher than the Italian substitutive tax (currently EUR 200'000 per person or EUR 225'000 for the married couple)
• individuals interested in performing gainful activities in their country of residence, since such activities are generally not permitted under the Swiss lump-sum taxation
• individuals interested in manufacturing and industrial environment - Italy hosts one of the most diversified and advanced manufacturing sectors in Europe
• individuals interested in investing in residential real estate in Italy.

Our specialists for Switzerland and Italy will carefully analyze your situation, answer your questions and support you in choosing the right place for your relocation, considering your individual needs, tax considerations and lifestyle preferences.