Working in Switzerland and living in France – Pillar 3a
Getting the best of both worlds.
Many people working in and around the Lac Leman area make the choice to work in Switzerland but live in France. This has many advantages, such as cheaper housing and a lower overall cost of living. However, the downsides are that you fall into two separate tax and bureaucratic systems. Whilst this can be a headache at times, with a little planning it is possible to make the best out of both systems.
By living in France you would by default fall into the French tax system for everything but your income, which as it arises and is paid in Switzerland, is subject to the Swiss tax system.
The upside to the Swiss tax system is that many things can be offset to reduce your overall tax bill, such as the cost of commuting, clothing, loan interest, lunches if you are unable to get home and contributions to the Swiss Pension System. For a full list you need to contact a Swiss tax specialist, but the simplest way to minimise your tax bill is to contribute to a Swiss 3rd Pillar pension scheme.
These schemes allow an employed person to gain tax relief on up to CHF6,768 per annum 2015/16, the self-employed or those without an employer funded Pillar 2 can contribute up to 20% of their net income up to a maximum of CHF33,840. These deductions are straight off your top line of tax and as such enter the plans tax free.
There are two types of Pillar 3a plans, these are bank accounts and insurance schemes. The bank account has no obligation to contribute each year and in return you receive whatever the prevailing interest rate is or the banks own funds. The insurance scheme is a contract to pay until retirement, but includes a life insurance element and a guaranteed minimum performance and future cash-in values. The insurance schemes are also accepted for the amortisation of mortgage debt and, if you leave Switzerland, the policy can be converted and continued into a Pillar 3b that does not receive the tax relief but has all of the other benefits.
Use of an insurance Pillar 3a reduces your Swiss tax bill and also boosts your retirement income, so a win-win situation.
Once your income has been taxed, all other areas fall into the French tax system and are subject to Wealth Tax, tax upon interest and social charges.
If you are resident in France, you are required to pay Social Charges of 15.5% on all of your worldwide investment income and gains. Following a ruling in February 2015, if you are employed in Switzerland and paying AVS and medical insurance premiums, then you are not subject to French Social charges on income and gains and any charges paid in 2013 & 2014 can be claimed back. However the claim for 2013, must be submitted by 31st December 2015 or you will lose the right to a reclaim.
It is also important to note that elements that are tax free in other countries, such as ISAs, lump sums from pensions and premium bond winnings, are all subject to tax in France.
As far as your assets are concerned the best and only way to shelter these from punitive French taxation, either on an annual basis or upon death, is via the use of an Assurance Vie contract.
This protects your investments from wealth tax and provides a favourable tax rate upon drawing down of the assets. It can also provide for mitigation of the succession tax, as well as ensuring that the monies end up where you want them to.
A further issue is succession planning, and the fact that if you do not have a French will, then the French authorities will apply the French succession rules to your entire worldwide estate. So it is really important to get a French Will.
Finally the best way to ensure that you are making the best of both worlds is to take expert advice from a company that is licenced in both France and Switzerland such as The Spectrum IFA Group. As expats ourselves we fully understand the rules and laws for both countries.