LPP: exit strategy from the second pillar

Context

TL;DR

• The withdrawal from the LPP second pillar for cross-border workers is an important issue for those who work in Switzerland.
• Switzerland and Italy have signed an agreement to avoid double taxation.
• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).

Key facts

• What: withdrawal from the LPP second pillar for cross-border workers.
• When: January 1, 2024.
• Where: Switzerland and Italy.
• Who: cross-border workers.

The withdrawal from the LPP second pillar for cross-border workers is an important issue for those who work in Switzerland. Switzerland and Italy have signed an agreement to avoid double taxation.

Exit strategy from the second pillar

Switzerland has established a transitional regime for cross-border workers who work in Switzerland and have contributed to the second pillar of the pension system.

The regime provides that cross-border workers pay a reduced contribution amount, which will be determined based on their income and age.

For example, a cross-border worker who earns 60,000 francs per year and is 40 years old will have to pay a contribution of 1,200 francs per year. If they choose to opt for the transitional regime, they will be able to reduce their contribution to 600 francs per year.

Exemption

The exemption is another option available to cross-border workers who work in Switzerland. It allows cross-border workers to be exempt from paying contributions to the second pillar of the pension system.

For example, a cross-border worker who earns 80,000 francs per year and is 50 years old may choose to opt for the exemption. In this case, they will not have to pay any contribution to the second pillar of the pension system.

Agreement between Switzerland and Italy

The agreement between Switzerland and Italy was signed to avoid double taxation of cross-border workers' income. Under the agreement, cross-border workers who work in Switzerland and have contributed to the second pillar of the pension system will not have to pay the full contribution amount.

For example, a cross-border worker who earns 50,000 francs per year and is 30 years old will have to pay a contribution of 1,000 francs per year. Under the agreement, they will be able to reduce their contribution to 500 francs per year.

Operational checklist

For cross-border workers who work in Switzerland and have contributed to the second pillar of the pension system, it is important to consider the following options:

• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• Pay the full contribution amount
• Reduce the contribution based on income and age
• Choose to opt for the exemption

Concrete examples

• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• A cross-border worker who earns 80,000 francs per year and is 50 years old may choose to opt for the exemption and not pay any contribution to the second pillar of the pension system.

Regulatory references

The agreement between Switzerland and Italy was signed in 2022 and entered into force on January 1, 2024.

Amounts and dates

• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• The agreement between Switzerland and Italy was signed in 2022 and entered into force on January 1, 2024.
• The basic contribution for cross-border workers who earn up to 50,000 francs per year is 1,000 francs per year.
• The basic contribution for cross-border workers who earn more than 50,000 francs per year is 1,200 francs per year.

Comparisons between practical scenarios

Here are some comparisons between practical scenarios for cross-border workers who work in Switzerland and have contributed to the second pillar of the pension system:

• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• Choosing to opt for the exemption can exempt a cross-border worker who earns 80,000 francs per year and is 50 years old from paying contributions to the second pillar of the pension system.

Conclusions

In conclusion, the withdrawal from the LPP second pillar for cross-border workers is an important issue for those who work in Switzerland. It is important to consider the available options and choose the one best suited to their needs.

Operational details

LPP: second-pillar exit strategy

The withdrawal from the LPP second pillar for cross-border commuters is a complex issue that requires an optimal exit strategy. Cross-border commuters must consider the tax and financial implications of the withdrawal and choose the strategy best suited to their needs.

What is the withdrawal from the LPP second pillar?

The LPP second-pillar levy is a mandatory tax for Swiss cross-border commuters who have not contributed to the Swiss pension system. The levy rate is calculated based on income and the number of years of residence in Switzerland. According to the Federal Act of December 15, 2010, cross-border commuters must pay a levy of 1,2% of their annual income.

Determining the levy

The LPP second-pillar levy is determined based on the cross-border commuters' annual income. The levy rate is calculated based on income and the number of years of residence in Switzerland. For example, if a cross-border commuter has an annual income of CHF 50'000 and has resided in Switzerland for 5 years, the LPP second-pillar levy would be CHF 300 (1,2% of CHF 50'000).

Exit strategies

Cross-border commuters must consider the following exit strategies to minimize the LPP second-pillar levy:

• Income planning: cross-border commuters can plan their income to reduce the levy amount. For example, they can transfer part of their income to a bank account in Switzerland to reduce the levy amount.
• Residence in a canton with a lower levy rate: some Swiss cantons have a lower LPP second-pillar levy rate. Cross-border commuters may consider residing in a canton with a lower levy rate to reduce the levy amount.
• Transferring income to a foreign bank account: cross-border commuters can transfer part of their income to a foreign bank account to reduce the levy amount.

Concrete examples

Example 1: a cross-border commuter has an annual income of CHF 50'000 and has resided in Switzerland for 5 years. The LPP second-pillar levy would be CHF 300 (1,2% of CHF 50'000). If the cross-border commuter transfers part of their income to a bank account in Switzerland, the levy amount could be reduced to CHF 200.

Example 2: a cross-border commuter has an annual income of CHF 50'000 and has resided in Switzerland for 5 years. The LPP second-pillar levy would be CHF 300 (1,2% of CHF 50'000). If the cross-border commuter transfers their income to a foreign bank account, the levy amount could be reduced to CHF 0.

Operational checklists

To minimize the LPP second-pillar levy, cross-border commuters must consider the following operational checklists:

• Plan income to reduce the levy amount.
• Check the LPP second-pillar levy rate for their canton.
• Transfer part of their income to a bank account in Switzerland or abroad to reduce the levy amount.
• Consult a financial expert to plan their exit strategy.

Conclusions

The withdrawal from the LPP second pillar is a complex issue that requires an optimal exit strategy. Cross-border commuters must consider the tax and financial implications of the withdrawal and choose the strategy best suited to their needs. Income planning, residence in a canton with a lower levy rate, and transferring income to a foreign bank account are some of the exit strategies that cross-border commuters may consider to minimize the LPP second-pillar levy.

Useful tools for your case

To practically verify your scenario within/beyond 20 km, use calcolatore stipendio netto and guida dichiarazione redditi.

Key points

LPP: strategy for exiting the second pillar

The second-pillar tax (LPP) is a mandatory tax for cross-border workers in Switzerland, which comes into effect starting in 2024. Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement). It is important to consult a tax advisor or lawyer to determine the strategy best suited to their needs.

This regime involves paying a 15% tax on income earned in Switzerland, instead of the 20% required under the second-pillar tax. For example, if a cross-border worker earns an income of 100.000 CHF in Switzerland, they will pay a tax of 15.000 CHF (15% of 100.000 CHF) instead of 20.000 CHF (20% of 100.000 CHF).

The allowance is another option for cross-border workers who wish to avoid the second-pillar tax. The allowance is a maximum amount of income that can be earned without paying the second-pillar tax. In 2024, the allowance is 80.000 CHF. This means that if a cross-border worker earns an income of 80.000 CHF in Switzerland, they will not pay the second-pillar tax. However, if they earn an income above 80.000 CHF, they will pay a 20% tax on the income above 80.000 CHF.

It is important to note that cross-border workers can use the Frontaliere Ticino calculator to determine their tax amount. This tool is available online and can help cross-border workers understand how the second-pillar tax works and how they can avoid paying it.

Here is a checklist for cross-border workers who wish to avoid the second-pillar tax:

• Consult a tax advisor or lawyer to determine the strategy best suited to their needs
• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• Use the Frontaliere Ticino calculator to determine their tax amount
• Old cross-border workers remain taxed only in Switzerland (Art. 9 of the 2020 Agreement).
• Make sure not to exceed the allowance of 80.000 CHF to avoid paying the second-pillar tax

It is important to consult a tax advisor or lawyer to determine the strategy best suited to their needs and use the Frontaliere Ticino calculator to determine their tax amount.