Withdrawal according to the LPP border pillar: rules, taxes and strategy (cross-border guide)

Context

In a nutshell

• The LPP withdrawal is only possible in strict cases: first home purchase, independent activity, final exit Switzerland
• Taxation at source in Switzerland varies by canton; in Italy IRPEF applies with tax credit
• The new border agreement 2024 changes the deductible: €10,000 for new border crossers, €7,500 for old border crossers
• Double taxation is avoided through the 1976 convention and the EC framework of 730

Key facts

• What: Early or final withdrawal of the second LPP pillar for Italy-Switzerland border workers
• When: On the occurrence of qualifying events (home, independence, expatriation, retirement)
• Where: Canton of Ticino (Chiasso, Brogeda, Gaggiolo passes) and all of Switzerland
• Who: Frontier workers with G permit, LPP pension fund, Revenue Agency, AFC/ESTV
• Amount: LPP rates 7–18% by age group from the 25th year; tax at source CH + IT income tax
• Regulations: Convention 9/12/1976, New Agreement 23/12/2020 (effective 1/1/2024), Law 83/2023

The withdrawal of the second LPP pillar represents one of the most important financial decisions for the border worker working in Canton Ticino. The Swiss law on occupational pensions (LPP) provides that the capital accumulated in the pension fund can only be withdrawn in strictly defined circumstances: purchase of the first home of residence, start of an independent gainful activity, permanent exit from Switzerland or reaching the age of

Operational details

Taxation in Switzerland: tax at source on capital

When the frontier worker requests the withdrawal of the LPP capital, the pension fund applies the tax at source on the capital (Kapitalauszugssteuer). This is a separate tax from the income tax at source and follows its own rates, generally progressive by tiers of capital withdrawn. In the Canton of Ticino, as in the other cantons, the rate depends on the gross amount of the levy and the civil situation (single, married, with children). The tax is withheld at source from the pension fund and paid to the cantonal administration of contributions. There is no withholding "in both countries" on capital: Switzerland taxes at source, Italy taxes on declaration with the tax credit mechanism to avoid double taxation.

Taxation in Italy: personal income tax and tax credit

In Italy, the LPP capital withdrawn contributes to forming the total income of the border worker and is subject to personal income tax according to the ordinary steps: 23% up to €28,000, 35% from €28,001 to €50,000, 43% over €50,000. However, the Double Taxation Convention of 9 December 1976 (art. 18) confers on Switzerland the right to tax pension capital disbursed from Swiss coffers. Italy avoids double taxation by granting a tax credit equal to the Swiss tax paid, to be calculated in the EC framework of the 730 or PF Income form. The credit cannot exceed personal income tax (IRPEF)

Useful tools for your case

To verify your within/over 20 km tax scenario, use the net salary calculator and the tax return guide.

Key points

Step-by-step procedure for withdrawal

1. Check with your LPP pension fund which withdrawal case applies (home purchase, independence, permanent departure, retirement). 2. Request the official withdrawal form and a simulation of the Swiss withholding tax (gross amount, estimated tax, net payout). 3. For home purchase: prepare the preliminary notarial deed or final deed, cost estimates, and any mortgage commitment. 4. For permanent departure: obtain confirmation of the cancellation of the G permit from the Cantonal Migration Office (SEM/cantonal authority) and proof of new Italian residence (civil status certificate). 5. Submit the complete application to the pension fund with the required attachments. 6. Receive the net bank transfer to your bank account (preferably a cross-border CH or IT account with a SEPA IBAN). 7. In the Italian income tax return (730 or Redditi PF): fill in box RM for the capital received and box CE for the tax credit on the Swiss tax paid.

Deadlines and key documents

The withdrawal application must be submitted before the qualifying event (e.g., before the final deed for a home purchase, before the cancellation of the G permit for permanent departure). The pension fund's processing times vary (usually 4–8 weeks). For the Italian tax return, the capital must be declared in the year of receipt (cash basis principle). Keep: signed withdrawal form, receipt for Swiss withholding tax (pension fund certificate), received bank transfer, and the Italian tax return with box CE completed.

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