Registering a trust in Switzerland

31.03.2021

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Registering a trust in Switzerland

Switzerland is internationally recognised as an important financial centre. This is largely due to its well-established and solid financial infrastructure and favourable tax regime. Setting up a trust fund in Switzerland is a legal way to protect your assets and reduce your wealth tax burden in the country.

Benefits of establishing a trust fund in Switzerland

Here are some common reasons why setting up a trust fund in Switzerland is considered a popular solution:

To protect the beneficiaries, namely their assets.
Registering a Swiss trust is one of the most flexible and effective tax planning tools available.
Asset protection. Establishing a Swiss trust can provide protection against risks such as the imposition of exchange controls by the government on persons holding significant assets.

In addition, when signing a trust agreement, you can

Set age limits for the beneficiaries.
Specify how the assets can be used.
Specify time intervals for payments to beneficiaries.
Appoint a professional to manage your affairs.
Protect your business, for example by appointing a trustee to oversee the management of the business.

Set up a trust in Switzerland with specific instructions with the help of a qualified professional.

Listing the types of Swiss trusts

Type of trust	Description
Discretionary	Setting up a discretionary Swiss trust offers flexibility in asset distribution, with trustees having discretion over payments and rules to prevent impulsive spending.
Blended	Blended trust created in Switzerland combines features from multiple trust types to create a customized trust structure with its own set of tax rules.
Charitable	Organize a charitable Swiss trust to protect assets from taxes by transferring them to a charitable organization acting as a trustee. Income generated benefits beneficiaries.
Accumulation	This Swiss trust helps trustees to grow the trust's capital and control distributions, making it suitable for long-term wealth management.
Irrevocable fixed interest	Settlors make an irrevocable donation for specific beneficiaries, with tax limited to the capitalized income.
Irrevocable discretionary	Settlors irrevocably transfer assets to trustees, relinquishing economic interest, and trustees are not taxed as they're not beneficial owners.
Non-resident	Swiss trust, designed for trustees residing outside Switzerland for tax purposes.
Testamentary	Controls asset distribution after the settlor's passing, ensuring adherence to specific inheritance instructions.
Grantor retained incomet (GRIT)	Minimizes inheritance tax assessment by allowing trustees to receive interest income without including the property's value for tax calculations.

Regulatory framework

Switzerland regulates trusts in accordance with The Hague Convention on the Law Applicable to Trusts. The government introduced a new regulatory system for the trust sector in January 2020. Trustees, both Swiss and foreign, have a three-year transition period to comply with the regulatory requirements and obtain authorisation to register trusts in Switzerland.

The establishment of a Swiss trust provides a structured and legal way to transfer assets, manage them and define the rules for their use. It provides a flexible wealth management solution and the trust agreement is a key document outlining the operation of the trust. Compliance with the legal framework is essential to ensure proper registration and operation of the trust in Switzerland.

How can a foreigner register a trust fund in Switzerland?

Setting up a trust fund in Switzerland involves a complex process and compliance with specific requirements is mandatory. Here are the key points for registering a trust fund in Switzerland as a foreigner.

Define the purpose and terms of the trust in the appropriate documents.

The purpose and terms of the trust are clearly stated. List the assets that will be included, the benefits, and any conditions or restrictions associated with the trust.

Select a trustee.

Appoint a trustee who will be responsible for administering the trust in accordance with its terms. The trustee can be an individual or a legal entity. Swiss law requires that at least one trustee be a Swiss resident or a Swiss legal entity.

Develop a draft trust agreement.

Prepare a detailed trust agreement outlining the details of the trust, including its purpose, benefit, responsibilities of the trustee, and any specific instructions governing the trust. This document serves as the legal basis of the trust.

Determine the founder and beneficiaries.

Swiss law may require disclosure of certain information about the founder and benefits during the registration process.

Due diligence and KYC.

Switzerland places great emphasis on customer identification procedures. Expect to undergo due diligence with documentation to verify the identity of the founder, donors, and trustees. This may include passports, proof of address and other relevant information.

Comply with AML rules.

Switzerland has strict anti-money laundering regulations. Trusts are subject to these rules and trustees must apply AML measures. This includes conducting risk assessments and having procedures in place to prevent money laundering.

Taxation of trusts in Switzerland: key points

In Swiss jurisdiction, trusts are not recognized as separate legal entities, which exempts them from direct taxation. However, assets held in a trust may be subject to different taxes depending on their nature. The following significant aspects deserve your attention:

Wealth tax on asset value

The total value of the assets included in the trust, including finances, real estate and other valuable property, is subject to wealth tax. Applicable rates vary from fractions to several percentages depending on the specific canton.

Income tax on trust income

Trusts that generate income, be it interest, dividends or rental income, are subject to Swiss income tax. These rates have a progressive structure and increase with income levels.

Inheritance and gift taxes

In cases involving the distribution of assets from a trust or in inheritance matters, the Swiss cantons impose inheritance or gift taxes. These rates may depend on the relationship between the donor and recipient, as well as the assessed value of the assets being transferred. Some cantons may extend benefits or reduce rates for close family ties.

Stamp duty on transactions

Transactions involving the transfer of real estate or specific securities may be subject to stamp duty. Rates are generally charged on the document documenting the transaction and fluctuate depending on the nature of the transaction and its monetary value.

It is vital to highlight that Switzerland has a federal structure, which results in significant differences in cantonal tax laws. Each canton retains autonomy regarding its tax laws and rates.

It is advisable to seek professional advice on Swiss trust law from our specialists in any way convenient for you. And we will ensure a smooth and compliant establishment of your trust fund in Switzerland.