Call for pensions paid abroad to be taxed at source

Swiss pensioners who wish to rent or buy property in Portugal are exempt from income tax for a decade Keystone

A proposal to tax at source the old-age pensions of Swiss retirees living abroad has been made in parliament. The aim is to prevent differential treatment of pensioners based on where they live. 

On Wednesday, Christian Democrat senator Peter Hegglin tabled an interpellationExternal link in parliament to address unequal treatment between pensioners who reside in Switzerland those who opt to spend their twilight years abroad. 

“Some of the beneficiaries of the pension scheme are, for example, located in the Dominican Republic, where they do not pay taxes. In addition, they receive child benefit because they have dependent children,” he said. 

Hegglin has now pressured the government to examine the possibility of taxing pensions at source. “It’s the simplest solution,” he said. 

Free riders?

Currently, Switzerland does not levy taxes on the old-age pension, as well as disability and military insurance, that are paid out abroad. Generally, recipients abroad are taxed in their country of residence. However, some beneficiaries escape taxation, either because a country has not concluded an agreement with Switzerland or because it has renounced taxing pensioners in order to attract them. 

Portugal is one such special case. Since January 1, 2013, European pensioners who wish to rent or buy property in Portugal are exempt from income tax for a decade, provided they live there for more than 183 days a year. 

This is not the first time that the pensions of the Swiss abroad have attracted unwelcome attention in parliament. Last year, a comment by the president of the Radical Party, Petra Gössi, to adapt pensions of Swiss expats to the cost of living in their chosen country of residence caused quite an uproar within the community. 

In October 2017, a report by the Swiss Federal Audit Office called for the introduction in Swiss law of a right to tax pensions abroad at source. This measure is expected to bring in an additional CHF25 million-CHF30 million ($26.3 million-$31.6 million) in tax revenue.   

In 2014, 800,000 old-age pensions were paid out abroad, representing approximately one third of all pensions. In terms of value, expatriate pensioners received 14% of the pension volume, equivalent to CHF5.6 billion.