The starting point for determining Swiss tax liability for individuals, as well as its scope, is always tax residence and affiliation. Under Swiss tax law, personal affiliation is defined by the Federal Act on Direct Federal Tax and established either by a tax-recognized domicile or a qualified period of stay. If an individual is deemed to be tax resident in Switzerland, the individual’s tax liability is generally unlimited; that is, their worldwide income and wealth are taxable in Switzerland.
In cross-border cases, potential double taxation is avoided under Swiss rules either through unilateral provisions or a double taxation agreement (DTA), both of which can restrict unlimited tax liability under Swiss domestic law.
With the trend towards intensified international tax competition in the area of personal taxation and the rise of new working models, such as remote work and “workations,” dual residence or even dual non-residence conflicts are becoming increasingly frequent. In cross-border scenarios, questions of tax residence and the location of the centre of vital interests have therefore gained greater significance in practice.
Recent years have seen notable developments in local Swiss tax practice—especially in Canton Zurich, Switzerland’s largest canton both economically and in terms of population. A stricter stance has emerged, particularly in cases involving cross-border family arrangements. Since the withholding tax reform effective from 2021, Zurich’s tax authorities no longer automatically treat spouses who live in a legally undissolved marriage but have separate residences as being subject to unlimited Swiss tax liability.
In scenarios where one spouse resides abroad, authorities now consistently presume that the centre of vital interests has shifted abroad, especially when school-age children live outside Switzerland. Even in the case of adult children, tax residence may still shift abroad, as personal and family factors generally take precedence over economic ones for tax purposes.
In such situations, it is important for taxpayers to be familiar with the local tax authorities’ position. If the cantonal tax authorities deny unlimited tax liability for a spouse residing in Switzerland, two main avenues should be carefully considered as potential counterarguments.
First, the taxpayer should determine whether a (preferably tax-optimizing) declaration based on so-called “quasi-residency” can be filed. If the taxpayer does not otherwise meet the criteria for tax residence by virtue of a qualified stay or recognized domicile, they may nevertheless be treated as a Swiss tax resident if at least 90% of their global income is taxable in Switzerland. However, if the spouse living abroad is engaged in a gainful activity (for example, to cover personal living costs) or has other sources of income, quasi-residency is unlikely to be established, due to the high threshold.
Practitioners may seek to challenge the presumed centre of vital interests by arguing that a de-facto separation exists. Demonstrating such separation does not require a formal legal decree, but must be substantiated through the following facts and circumstances:
In summary, married couples or registered partnerships have a joint filing obligation and have unlimited tax liability for their worldwide income in Switzerland as long as they are deemed Swiss tax residents. If one of the spouses moves abroad (especially if minor children leave too), the remaining partner is likely to qualify as a Swiss non-resident for tax purposes, despite the fact that the remaining spouse’s personal situation is unchanged in terms of living and professional arrangements. This may lead to a less favourable tax position, particularly with regard to non-Swiss-source income from gainful activities or other private or passive income (such as dividends and interest) which is no longer subject to Swiss tax and may potentially to be taxable in the other country where the partner moved to.
Dejan Milosevic
Timothy Brechbühl
BDO in Switzerland
In cross-border cases, potential double taxation is avoided under Swiss rules either through unilateral provisions or a double taxation agreement (DTA), both of which can restrict unlimited tax liability under Swiss domestic law.
With the trend towards intensified international tax competition in the area of personal taxation and the rise of new working models, such as remote work and “workations,” dual residence or even dual non-residence conflicts are becoming increasingly frequent. In cross-border scenarios, questions of tax residence and the location of the centre of vital interests have therefore gained greater significance in practice.
Recent years have seen notable developments in local Swiss tax practice—especially in Canton Zurich, Switzerland’s largest canton both economically and in terms of population. A stricter stance has emerged, particularly in cases involving cross-border family arrangements. Since the withholding tax reform effective from 2021, Zurich’s tax authorities no longer automatically treat spouses who live in a legally undissolved marriage but have separate residences as being subject to unlimited Swiss tax liability.
In scenarios where one spouse resides abroad, authorities now consistently presume that the centre of vital interests has shifted abroad, especially when school-age children live outside Switzerland. Even in the case of adult children, tax residence may still shift abroad, as personal and family factors generally take precedence over economic ones for tax purposes.
In such situations, it is important for taxpayers to be familiar with the local tax authorities’ position. If the cantonal tax authorities deny unlimited tax liability for a spouse residing in Switzerland, two main avenues should be carefully considered as potential counterarguments.
First, the taxpayer should determine whether a (preferably tax-optimizing) declaration based on so-called “quasi-residency” can be filed. If the taxpayer does not otherwise meet the criteria for tax residence by virtue of a qualified stay or recognized domicile, they may nevertheless be treated as a Swiss tax resident if at least 90% of their global income is taxable in Switzerland. However, if the spouse living abroad is engaged in a gainful activity (for example, to cover personal living costs) or has other sources of income, quasi-residency is unlikely to be established, due to the high threshold.
Practitioners may seek to challenge the presumed centre of vital interests by arguing that a de-facto separation exists. Demonstrating such separation does not require a formal legal decree, but must be substantiated through the following facts and circumstances:
- No shared matrimonial home
- Dissolution of the shared household
- Each spouse maintains a separate residence
- No pooling of resources for housing and living expenses
- No joint appearances as a couple in public
- The separation must be ongoing (at least one year) or end with the legal dissolution of the marriage
In summary, married couples or registered partnerships have a joint filing obligation and have unlimited tax liability for their worldwide income in Switzerland as long as they are deemed Swiss tax residents. If one of the spouses moves abroad (especially if minor children leave too), the remaining partner is likely to qualify as a Swiss non-resident for tax purposes, despite the fact that the remaining spouse’s personal situation is unchanged in terms of living and professional arrangements. This may lead to a less favourable tax position, particularly with regard to non-Swiss-source income from gainful activities or other private or passive income (such as dividends and interest) which is no longer subject to Swiss tax and may potentially to be taxable in the other country where the partner moved to.
Dejan Milosevic
Timothy Brechbühl
BDO in Switzerland