U.S. Tax of Swiss Income, Assets & Accounts

U.S. Tax of Swiss Income, Assets & Accounts: The U.S. tax of Swiss income is very complicated. In addition, with all the issues with Swiss reporting, the IRS has taken an aggressive approach on matters involving foreign accounts compliance.

The tax laws between Switzerland and the United States are tough. That is because there are multiple different tax agreements in place between the U.S. & Switzerland, including:

  • Bilateral Tax Treaty
  • FATCA Agreement
  • Totalization Agreement
  • Specific Visa and travel rules

It would be impossible to provide a comprehensive detailed summary in one article (and still keep you awake).

Therefore, we will summarize the main aspects of international tax law as it involves Switzerland and the United States.

Main Issues

  • Income Tax Treaty
  • Estate Tax Treaty
  • FATCA Agreement & Reporting Institutions (FFIs)
  • Totalization Agreement
  • IRS Offshore Voluntary Disclosure Options

Income Tax Treaty

The United States has entered into an income tax treaty with Switzerland. The treaty deals with many different issues involving how each country taxes the other’s citizens/residents on many different issues, including:

  • Taxation of Business Income
  • Taxation of Retirement
  • Passive Income
  • Exempt Income
  • Investment Income
U.S. Tax of Swiss Income, Assets, Accounts and IRS Compliance

U.S. Tax of Swiss Income, Assets, Accounts and IRS Compliance

For example, in a country such as Singapore, where there is no tax treaty, even a Singaporean compulsory retirement plan (CPF) does not receive tax deferred treatment (even though it is a retirement plan, and even if the person resides in the U.S.)

Conversely, if the same person invested in Swiss retirement, then the retirement will generally receive tax deferred treatment (at the Federal/IRS level) until distributions are taken. As to deferral of contributions, it is more complicated depending on who is making the contribution.

The Switzerland and U.S. Bilateral Tax Treaty can be found here.

Estate Tax Treaty

The United States has entered into 19 estate tax treaties with various different countries, including Switzerland. This may significantly reduce U.S. Estate Tax liability.

You should speak with an estate planning attorney prior to executing an estate plan, if you are a US person with assets in Switzerland.

Receiving a Gift or Inheritance From a Foreign Person

If you are a U.S. Person and receive a gift from a Foreign Person, Foreign Business or Foreign Trust, you may have to file a Form 3520. The failure to file these forms may lead to IRS Fines and Penalties (see below).

Resources: Form 3520

FATCA

FATCA is the Foreign Account Tax Compliance Act. It is a US tax law designed to combat offshore tax evasion and facilitate the reporting of foreign accounts.

There are more than 110 countries that have entered into FATCA agreements with the United States, and Switzerland is one of them. In fact, Switzerland was one of the first countries to sign the FATCA Agreement.

What Does This Mean to You?

It means that hundreds of thousands of Foreign Financial Institutions (FFIs) worldwide (including Switzerland) are proactively reporting US account holder information to the United States.

Many FFIs appear to simply be gathering and reporting individuals to the U.S. if there are any ties between the account-holder and United States (current U.S. address, former U.S. address, U.S. citizen or U.S. Legal Permanent Resident status).

FATCA Reporting can have very serious consequences for many reasons:

– Non-Reporting of FBAR (Penalties range from a penalty waiver, all the way up 100% value of the penalty in a multi-year audit and determination of willfulness)

– Penalty Non-Compliance with FATCA Penalties ($60,000 Max)

– Discovery of Nominee or other Unreported Companies not properly reported on Form 5471 or 8865

– Discovery of PFIC (Passive Foreign Investment Companies) and penalties under 8621 (non-monetary, but still intrusive)

– If an Account was used to receive or transfer a monetary gift (s) to the U.S., it may lead to various penalties as well

The United States has made international tax compliance a key enforcement priority, and recently announced several new tax compliance groups designed to focus on offshore and foreign money.

Resources: FATCA Reporting, FATCA FAQ

Which Banks in Switzerland Report U.S. Account Holders?

As of now, there are more than 6,500 Foreign Financial Institutions, within Switzerland that report US account holder information to the IRS. The list can be found here: Switzerland FFI List.

What is important to note, is that the list is not limited to just bank accounts. Rather, when it comes to FATCA or FBAR Reporting, it may involve a much more broad spectrum of assets and accounts, including:

  • Bank Accounts
  • Investment Accounts
  • Retirement Accounts
  • Direct Stock Ownership
  • ETF and Mutual Fund Accounts
  • Pension Accounts
  • Life Insurance or Life Assurance Policies

*The U.S. has also entered into multiple non-prosecution agreements with Switzerland regarding the non-compliance of U.S. Taxpayers and their Swiss Bank and Number accounts.

Totalization Agreement

The purpose of a Totalization Agreement is to help individuals avoid double taxation on Social Security (aka U.S. individuals living abroad and who might be subject to both US and foreign Social Security tax [especially self-employed individuals] from having to pay Social Security taxes to both countries).

As provided by the IRS: “The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country”

The United States has only entered into 26 Totalization Agreements, including Switzerland.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience
  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.