5% substitute tax on Swiss pensions

Context

TL;DR

• Response no. 125/2024 concerns Swiss pensions
• AVS as a monthly annuity, LPP as a one-off lump-sum redemption
• The substitute tax provided for is 5%

Key facts

• Regulation → Article 76 of Law no. 413 of 30 December 1991
• Institutions Revenue → Agency, AVS and LPP
• AVS → first pillar and monthly income
• LPP → second pillar and one-time redemption
• Rate → 5%

In response no. 125/2024, the Revenue Agency examined the tax treatment of benefits paid by the Swiss social security schemes of the first AVS pillar and the second LPP pillar. The clarification concerns those who receive pension income from the Swiss Confederation and intend to transfer their tax residence to Italy.

The case examined

After carrying out an employment activity in Switzerland and paying the related contributions, the taxpayer had decided to move to Italy, changing his residence. He had also requested the advance payment of the AVS, which was expected to be paid in the form of a monthly annuity.

The method envisaged for the sums of the LPP management was different. The second pillar would be liquidated in the form of a one-time ransom. The difference between income and capital led the taxpayer to ask the Revenue Agency how to apply Article 76 of Law no. 413 of 30 December 1991, as subsequently amended.

The question concerned in particular the entire amount of the sums relating to the second Swiss pillar. The applicant asked if the substitute taxation of 5% could include both the mandatory and the over-compulsory part, according to the terminology of Swiss legislation.

In the proposed interpretative solution, the taxpayer believed that the same rate should be applied to the two benefits: to the annuity paid by the AVS insurance and to the entire capital paid by the LPP management. The administration's response therefore addresses both forms of disbursement and their connection with Italian tax discipline.

Operational details

The framework between the Convention and Italian law

Articles 18 and 21 of the Convention between Italy and Switzerland constitute, according to the tax administration, the first point of reference for determining where pension income is to be taxed. The international treaty was ratified by Law no. 943/1978. The provisions referred to establish that pensions are taxed exclusively in the recipient's State of residence, excluding double taxation on the sums received.

Two levels to distinguish

The Convention identifies the State of residence entitled to levy the tax. Italian domestic legislation, on the other hand, defines the substitute tax treatment applicable to pension benefits. In the case described, the person had transferred their residence to Italy, while the benefits derived from Swiss social security schemes.

Paragraph 1-ter of Article 76 of Law 413/91, referred to by the administration, extends substitute taxation at a rate of 5% to sums paid anywhere by insurance for disability, old age and survivors, identified by the acronym AVS. The same provision also covers the occupational pension scheme for old age, survivors and disability, identified by the acronym LPP.

The text also includes benefits paid by Swiss early-retirement bodies or institutions, when accrued also on the basis of social security contributions taxed at source in the Confederation. For the question submitted to the Italian Revenue Agency, this passage means that the distinction between the mandatory and over-mandatory component of the second pillar does not exclude the latter from the scope of the indicated rate.

The comparison between AVS and LPP therefore does not describe two different rates. Instead, it highlights two payment methods, a monthly annuity and a one-off capital payment, which the response brings under the same substitute regime provided for Swiss pensions.

Key points

Declaration, payment and limits of the clarification

The Revenue Agency's response also addresses the methods for fulfilling tax and declaration obligations. The taxpayer can self-assess the tax due in the declaration, indicate the sums collected in the reference year and pay the amount using Form F24, with tax code 1242.

The operational data indicated by the source

The procedure described links the calculation to the amount of sums actually collected in the year considered. The form of payment remains distinct: the AVS in the examined case would have been received as a monthly income, while the LPP would have been paid on a one-off basis. However, the answer deals with both services within the scope of the 5% substitute tax.

The text does not report a concrete pension amount or a numerical simulation. Instead, the regulatory basis, the two Swiss social security management systems, the tax residence taken into consideration and the tax code to be used for the payment are indicated. This delimits what the reconstruction allows to affirm without further calculations on the individual perceiver.

A further distinction concerns the 25% that appear in the list of source-related content. That percentage refers to a different measure: the cross-border commuter flat tax indicated as applicable from 2027, equal to 25% of taxes paid in Switzerland. It is not the rate presented in answer no. 125/2024 for AVS and LPP pensions, for which the text examines 5%.

For the official documentation on the AVS, the [AVS Synoptic Table 2026] is available (https://www.ahv-iv.ch/p/2.01.i). To find your way between AVS, LPP and annuity, AVS and LPP is available.

Source: filodiritto.com