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Difficult times & planning opportunities for investors

By Robbin Davies - Topics: investment diversification, Investment Risk, Investments, Switzerland
This article is published on: 8th April 2020

08.04.20

During this recent period of uncertainty for investors, I thought it might be of help if I gave a few insights as to possible “Safe Havens” for Swiss and neighboring French-domiciledinvestors, together with a personal appraisal of where danger exists, and how to avoid it.

Many of the Swiss insurance companies have brought out innovative savings plans which include capital protection at maturity, often combined with tax-efficient incentives supported by the tax authorities. As you will probably know, each Canton in Switzerland has a slightly different tax treatment, which can however be quite significant, whilst federal regulations are standardised throughout the country. Taking advantage of these concessions is well-worth the time and effort, and at Spectrum we have almost 15 years of experience in advising and helping both new arrivals, and long-term residents.

For all income earners in Switzerland, or those living in nearby France but working in Switzerland, there are tax-efficient solutions with the safety of not only a minimum return, but also, quite frequently, with the flexibility to adjust terms to changing circumstances. Investing or saving is not designed for short-term, and in many ways it is a form of financial disciplinewhich rewards those that “stay the journey”.

The current world-wide Covid-19 virus, once tamed, will very probably change the way the developed world thinks, and works, in the future. Remote working from home will become the norm for certain organisations, reducing pollution, increasing productivity and allowing freedom for commuters to structure their time more efficiently. This demographic change will revolutionise the corporate world.

Why is this relevant to saving and investing? Because by planning ahead, and putting in place the foundation of a portable, secure and viable investment programme it will allow you and your family to have security in the future. It is quite likely that many existing corporations and businesses will merge with current rivals, with there being “safety in numbers”. Others will be bought by better orientated competitors.

Spectrum has access to various insurance-driven products which are able to both protect your assets at the current time, yet also give you a platform for unit-cost averaging when adding in funds in the coming months and years. The payments can be made “ad hoc” – as and when you feel comfortable with the stability of the markets at that time – or can be fed-in on a regular quarterly or semi-annual basis – which smooths the volatility i.e. you no longer have to “time the market”, but instead have “time-in-the-market” working in your favour. Depending on your fiscal status, some of these products can be partially tax-deductible, or tax-deferred, which is the aim and strategy for medium-term investing. Quite clearly not all cases are the same, but we have the experience and knowledge to be able to offer you alternatives to simply leaving your assets in a bank account – currently giving virtually zero interest.

Wishing you good health, keep safe, and we are here to help advise and make suggestions if you would like a personalised interview.

An introduction to Switzerland’s savings and investment market

By Robbin Davies - Topics: Moving to Switzerland, Pillar 3a, Switzerland
This article is published on: 25th February 2020

25.02.20

Welcome to this first edition of our Blog, which by way of introduction is intended not only to bring a little clarity into the fiscal options for newly arrived resident tax-payers, but also to share our local knowledge on more family-orientated subjects.

Starting with the financial and tax issues, there are products that almost every household should be looking at, offered by both insurance companies and local banks. For someone working and paying taxes in Switzerland these are the “Pillar 3a” tax-deductible segregated savings accounts. Those issued by Swiss-based insurance companies offer a further benefit in that life insurance and disability cover can be included in the package, although the structure is slightly different. It is worthwhile getting independent advice to ensure you are getting value for money and that the product is suitable for your goal.

The amount that can be invested and remain tax-deductible changes each year, subject to inflation, but for the 2020 tax year it is CHF 6,826, available to anyone gainfully employed and who has a pension plan. For those who are earning and do not have a corporate pension fund, this allowance is increased up to CHF 34,128 this fiscal year, up to a maximum of 20% of net income. If this sounds a little complicated, it’s a sector where The Spectrum-IFA Group has plenty of experience!

Most expatriates set up supplementary retirement savings accounts – provided this is within the scope of the above restrictions – and still enjoy certain tax advantages. All the major Swiss banks are keen to compete in attracting new clients, and it really does pay to shop around. Having some professional and independent advice is obviously helpful, but various local government agencies are also able to point you in the right direction (although not always in English!).

As you probably already realise, dear reader, there are a myriad of local, regional and federal regulations which encompass everything from reduced price rail tickets given out by the commune where you live, to the requirement to pay for the refuse sacks which you deposit at the local collection point, down to local festivities which often include wine, food and of course music, offered by the commune (but paid for out of the tax you pay to the commune). Very little is free in this country.

Being centrally situated on the continent of Europe, travel for Swiss-residents looking to move around is both easy and usually punctual, but expensive. Splashing out for a 50% discount rail card can be well worth the while if you use the trains on a regular basis, and with the help of the internet, bargain flights, hotels and holidays are becoming far more reasonable and competitive. Having lived here for over 25 years, I am well-placed to give you some good suggestions and tips!

This Blog will be regularly updated with the latest news and any relative cultural and administrative events – we look forward to hearing from you!

Swiss taxes and various deductions

By Robbin Davies - Topics: Pillar 3a, Switzerland, Tax, wealth management
This article is published on: 1st February 2020

01.02.20

This document is intended for information purposes only and does not constitute tax advice. The intention is to highlight that there are a number of financial planning opportunities available and that professional assistance in completing your tax-return is a very good idea. The Spectrum IFA Group can assist you with Pillar 3a tax-deductable savings, arrange a mortgage that is tax-optimised and help you with other forms of financial planning that are tax-efficient. We have certified accounting partners who speak English and will take care of your full tax return from 500 francs, including questions throughout the year.

The calculation of tax throughout Switzerland is based on the net income of the taxpayer. As in most countries, there are several deductions that can be made on your tax declaration. These will, in turn, reduce your taxable income, and therefore the amount of tax you pay.

Although deductions for the direct federal tax are the same throughout Switzerland, deductions at the cantonal and communal levels are regulated differently. Together with all local tax rates, there are frequently large differences between communes, and this should be borne in mind when deciding on where you wish to live, even in the same canton. Switzerland has been at the forefront of internet-based dissemination of information, and generally the relevant information on deductible amounts for your canton and commune can be found on the individual canton’s website, and frequently in English.

Clearly, to claim any of the available reductions in tax-liability, the necessary and supporting paperwork must be submitted with the tax return.

The following are the most important and frequently used, fully compliant and legal deductions.

Work related expenses: Employed persons can deduct work related expenses such as the cost for commuting to work. As a rule, bus and train passes (up to a certain limit) and a flat amount for bicycles, mopeds and scooters are all included under commuting expenses. Under certain conditions, the kilometres driven to the workplace can be deducted when one is using a private vehicle, but there are usually limits both in minimum and maximum distances.

Other work-related expenses include the cost for meals during the working day. Provided one cannot go home for lunch (i.e. there is a minimum distance from the place of work and the tax-payers domicile) these expenses can be deducted from income up to a certain maximum amount, which in turn varies from canton to canton. Additional deductions are also possible for shift or night work. For further work-related expenses such as the cost for work-specific clothing (such as suits), tools or other professional requirements there is a flat rate deduction. If the actual costs can be proven to be higher than the flat rate deduction (which would therefor require receipts to be attached with the tax declaration as supporting evidence) the tax-payer may often deduct the actual costs.

Payments into a pillar 3a: Payments into pillar 3a accounts are tax deductible up to the maximum allowed amount for those residents in Switzerland who have a taxable income. For employees with an employer-provided pension plan, the maximum allowed amount for 2020/21 is 6,826 francs. Self- employed people, and those without an employer-provided pension plan, are allowed to contribute up to 20% of their net income, up to a maximum of 34,128 francs in 2020/21. These maximum allowable deductions are reviewed every 2 years in line with inflation. The tax savings resulting from paying into a pillar 3a are that the taxpayer’s gross income has been reduced by these amounts and are ergo “tax fee”.

Bank vs. Insurance: It should be noted that there are two principal types of 3a. Those provided by banks, where there is no obligation to make a payment during any tax year, and those offered by insurance companies, where the contractual agreement is for a regular annual premium to be paid (this can be made monthly, quarterly, semi-annually or annually). The advantage of the bank 3a is that you are free to pay in or not, depending on your financial circumstances. One down-side is that there is no guarantee on the value of your policy at a later date, as it is always subject to the performance of the bank’s 3a funds. One of the great advantages of an insurance-driven product is that it comes with added life insurance, and also a guaranteed minimum performance and future minimum cash-in values. These insurance policies are also accepted for the amortisation of mortgage debt. On the downside, as there are certain charges taken out of the first annual premium at the very beginning, they should not be entered into without discussion with a qualified expert, and never to be taken for an anticipated term shorter than 5-7 years. Both types of product have federally-governed restrictions on accessing these funds before retirement age, although transfers to other retirement pots are permitted.

Interest Payments: Interest – for example for mortgages or on loans – may be deducted from income. This would apply only to interest and not for repayment of principal used to reduce a loan (amortisation of a mortgage for example). Leasing costs on cars may only be deducted when the individual is classified as self-employed.

Expenses due to illness and accidents: Certain expenses for medical services, which were not covered by your health insurance, can be approved as being tax deductible.

Insurance premiums: Premiums for health, accident, life and pension insurance can often be deducted – up to a certain amount.

Reclaiming withholding tax: When bank or savings account interest is credited, under some circumstances only 65% is credited. In this case the bank transfers 35% of the interest to the tax authorities. On providing the account numbers on the tax declaration, the withholding tax is reimbursed. Withholding tax is applied only to accounts for which the amount of interest exceeds 200 francs. In addition to interest from accounts, interest from other sources such as bonds (including medium-term notes), lottery winnings (starting at 50 francs) and dividend payments are subject to withholding tax, but can often be adjusted to the individual’s marginal tax rate.

Contributions to political parties: Members of a political party may deduct contributions, up to a ceiling.

Contributions to non-profit organisations: Donations to non-profit organisations can usually be deducted. Ask in advance.

Disability costs: People with physical or mental disabilities can make certain deductions for additional expenses. Various organisations throughout Switzerland offer free consultation on this matter as to what might be covered, and at local communal level they are also able to give contact details.

Alimony payments: Alimony payments for children and ex-partners can be deducted in full from gross income.

Charitable donations: Provided the charity is Swiss-registered, the minimum donation is 200 francs, but you may make donations up to 20% of your income.

Deduction for children: Generally a deduction can be made for every child who is under the age of 18, or at further education or still in their initial professional training up to age of 25.

Finally, and this is a typically « Swiss » feature

If you pre-pay your taxes you receive some interest: You can benefit from paying your taxes in advance. This is because the tax authorities pay interest on pre-paid tax payments. This interest is generally higher than the current low interest rates of banks. Clearly not everyone has sufficient liquidity to be able to cover a full year, but even agreeing to pay a partial sum in advance is a good way to make a little extra money.

An overview of tax treatment in Portugal 2016

By Robbin Davies - Topics: Portugal, Tax, tax advice, tax tips, Uncategorised
This article is published on: 28th July 2016

28.07.16

The Portuguese tax year runs from 1 January to 31 December and the tax system comprises of state and local taxes which are generally calculated based on income, property ownership and expenditure.

Portuguese residents are taxed through IRS (Personal Income Tax) on their worldwide income and on a self assessment basis. The income of married taxpayers is based on the entire family unit, and married couples must submit a joint tax return. However, spouses of individuals residing in Portugal for fewer than 183 days in the calendar year, and who are able to prove that their main economic activities are not linked to Portugal, may file a tax return in Portugal disclosing the tax resident individual’s income and their part of the couple’s income.

Income is split into the following categories: revenue from employment, business and professional income, investment income (including interest), rental income, capital gains and pension income. Defined tax deductible expenses are deducted from gross income for each separate category – giving a net taxable income for that category.

A splitting procedure applies to married couples by dividing the family income by two prior to the applicable marginal tax rate being determined. Total taxable income is taxed at progressive rates varying from 14.5% on income under €7,000 to 48% for income over €80,000 to arrive at a final tax liability, then multiplied by two in respect of married couples. There has existed a “Solidarity Tax” of 2.5% which is charged on income over €80,000, and progressively up to 5% for income over €250,000, but this will cease at the end of the 2016 tax year.

Investment income (such as capital gains, interest and dividends etc,) is currently taxed at a rate of 28%. Likewise, rental income is also taxed at 28%, but in both cases tax residents in Portugal may elect for the scale rates to be applied, but once this method is chosen, it will be applied to all income sources. Any tax withheld is considered to be a payment on account against the final total tax liability.

Income from self employment is category B income and is taxed either under a ‘simplified regime’ or based on the taxpayer’s actual accounts. If a taxpayer has earnings below a certain ceiling, they are liable to taxation according to the ‘simplified regime’ whereby 20% of income from sales of products or 80% of income arising from other business and professional services is taxed with a minimum taxable amount due. No expenses deductions are permitted under the simplified regime. If the simplified regime is not applicable then net profits or gains made by an individual are assessed in accordance with the same rules that apply to company tax assessment. Earnings from self-employment or independent activities in Portugal are subject to tax, whether or not an individual is tax resident in Portugal, and may be withheld at source. Tax credits are potentially available for medical expenses, school fees, life and health insurance premiums and where appropriate, mortgage interest, but they are subject to certain conditions. There are other credits available, for example for contributions into retirement schemes and the purchase of eco-friendly renewable energy. Deductions are also available for limited donations to charities, and for payments of alimony that has been determined by a court decision.

It should be noted that with effect from 2010, all foreign bank account holdings are required to be disclosed on income tax returns. In addition, Portugal has a list of of jurisdictions that it considers to be “tax havens”. This list includes the Channel Islands and the Isle of Man, and income from these jurisdictions is taxed at the higher rate of 35%. There do exist alternatives to these jurisdictions which are approved by the Portuguese Tax Authority. Likewise, whilst Trust income is considered liable to taxation, this varies depending on whether the payments from such entities arise from distribution by, or dissolution of, the trust. Nevertheless, where estate planning is concerned, this can be of considerable interest.

Non-Habitual Resident scheme
This attractive regime for new residents with substantial assets is still available for those persons who have not been tax resident in Portugal during the previous five years, whether employed or retired. It provides for substantial tax exemptions during the first ten years of residence. Spectrum IFA Group would be pleased to discuss the structure and implications of the scheme.

Disclaimer
This is not an exhaustive list of taxable items, and changes may occur during the current tax year, but it is designed to give an overview of the most import and key issues. Taking professional advice from a designated tax-advisor is essential, and Spectrum IFA Group is well positioned to assist in finding the appropriate institution or individual to provide such advice.