Banking Investing

Swiss Banks: Tax Havens for Tax Evasion?

Swiss Bank Tax Havens for Tax Evasion

Are Swiss banks tax havens? Are Swiss banks tax havens because they enable crimes like tax evasion? Maybe, once upon a time, Swiss banks were known for aiding people in committing tax evasion. But times are changing.

Why are the words “swiss banks” and “taxes” so often found in the same sentence? Swiss banks have a complicated history when it comes to taxes. Let’s break it down.

We’re going to break down Swiss bank tax evasion, Swiss bank tax haven, Swiss bank secrecy laws, and all the facts you need to know when it comes to Swiss bank taxes.

Why are Swiss Banks Tax Havens?

Why are Swiss banks considered tax havens? Once upon a time, Swiss banks used to be a popular place to store assets. Due to secrecy laws in Switzerland, Swiss banks were not allowed to disclose personal information related to bank account holders or the details of their accounts to anyone.

Thus, Swiss banks became a tool to aid in tax evasion. However, times have changed. Due to pressure from the United States and the European Union, laws have changed to make it more difficult to commit tax evasion through Swiss bank accounts.

Despite this, Swiss banks are still considered tax havens for their low taxation of foreign corporations and individual account holders.

Swiss Bank Tax Basics

Although Hollywood may have us believe otherwise, it is impossible for foreign account holders to live and/or bank in Switzerland tax-free. That being said, there are still some perks associated with Swiss banking when it comes to taxes.

For one, Swiss banks offer wealthy individuals a relatively low-cost, lump sum payment option on the money the individual is banking within the country and once this sum has been paid, the government considers taxes paid.

Not to mention, when you live in Switzerland as a foreigner, the Swiss government only taxes you 7 times your monthly rent. They also provide the option to tax a household rather than an individual, which can be a huge tax advantage for wealthy couples.

Further, if you own a corporation, there’s a huge incentive to open an office in Switzerland. The government offers tax breaks to companies that hold 10% of their shares of other corporations. They do this by reducing the amount of taxes owed based on the number of shares the company owns.

In this way, Swiss bank tax havens still exist.

Swiss Bank Tax Evasion

Ok, now let’s dive into Swiss bank tax evasion. There’s a long, dark history here of individuals hiding their assets in the republic in order to avoid tax collection through Swiss bank tax evasion.

Just Google search “Swiss bank tax evasion” and you’re sure to stumble upon various news stories about Swiss banks paying millions of dollars in settlements and penalties for conspiring to help Americans and other foreigners avoid paying taxes.

In fact, back in 2014, the second largest bank, Credit Suisse, pleaded guilty to tax evasion. Credit Suisse pleaded guilty to helping wealthy Americans avoid taxes through secret offshore accounts. Credit Suisse agreed to pay the US government $2.6 billion.

Since 2014, there have been a number of similar settlements. In 2019, the Swiss private banking unit of HSBC Holdings Plc agreed to pay $192.4 million to resolve another instance of wealthy Americans using undeclared Swiss bank accounts to evade taxes.

What effect has Swiss bank tax evasion had on their banking secrecy laws?

Swiss Bank Tax Evasion Effects on Swiss Banking Secrecy Laws

If you’re interested in Swiss banks, then you probably know about the Swiss banking secrecy laws. After all, it is these laws that have enabled all of this tax evasion.

Swiss bank secrecy can be traced back to the 1700s. However, it became illegal to share account information with the Swiss Banking Law of 1934. This law declared that it was illegal for Swiss banks to disclose the names of any account holders.

Since this law went into effect, Switzerland gained international fame for anonymity, privacy, and security. However, with that fame also developed notoriety for tax evasion

So, what effect has all of this tax evasion had on the Swiss’ sacred banking secrecy laws?

The United States has certainly cracked down on Swiss banking for its citizens. The Foreign Account Tax Compliance Act (FACTA), enacted in 2010, states that Switzerland is required to provide the IRS with information regarding US resident accounts.

In 2018, the Swiss Federal Tax Administration (FTA) began exchanging bank account data with tax authorities in other countries.

These new disclosures of banking information are certainly after effects of the many settlements Switzerland has had to pay in issues of tax evasion. The US and the EU have put consistent pressure on Switzerland to break down their banking secrecy laws, and the pressure has worked.

Switzerland does not maintain the same levels of privacy and anonymity it once did, making it much more difficult for foreigners to commit tax evasion.

Opening a Swiss Bank Account – Taxes 101

With all this talk of tax evasion, you’re probably wondering, is depositing money in a Swiss bank account a form of US tax evasion? The simple answer is no, silly goose.

It is not illegal to open and deposit money into a Swiss bank account. It is illegal however, to hide the fact that you have deposited money into a Swiss bank account, and it is illegal to neglect to inform the IRS of said account.

Neglecting to inform the IRS of any money you have put into an offshore Swiss bank account will result in you committing tax evasion, which is illegal. And with all of the new laws in place, it’s actually quite difficult to commit tax evasion in Switzerland nowadays.

Now that you know that it’s not illegal to deposit money into a Swiss bank account, you’re probably wondering, “then how much tax do I have to pay to transfer funds to a Swiss bank account?”

This really depends on how much money you plan to deposit and in which currency you’d like to deposit money. If you open a Swiss bank account in Francs, you can expect to pay the whopping 35% Swiss withholding tax, which is applied on the interest accrued in the account.

If you’d like to avoid paying this tax, you can open your Swiss account in your own country’s currency. If you are in the US and you plan to open a Swiss bank account, in order to be in accordance with the law, you need to report those holdings to the IRS. Expect to pay the same income taxes you would on your income within your US accounts.

As long as you don’t open a Swiss Franc account, you can expect to pay zero dollars in Swiss income taxes as a non-resident foreign national.

Why Open a Swiss Bank Account Nowadays?

Now that the perks of privacy, secrecy, and anonymity are not necessarily a part of the Swiss banking system anymore, what’s even the point of putting your money into a Swiss bank account? Are the days of Swiss bank tax havens really over?

It turns out there are still a lot of benefits to opening a Swiss bank account as a foreigner. You’ve heard how often Switzerland is equated with neutrality. There’s a good reason. Switzerland is a politically stable country and has remained neutral in many global conflicts, including World War II when it protected assets both for the Nazis and for German Jewish people.

This neutrality has aided in solidifying Switzerland’s economy and currency. In fact, all assets in Swiss bank accounts are 100% protected in the event of a catastrophe like a natural disaster. This is all to say that through opening a Swiss bank account, you can expect low financial risk. That’s a peace of mind you may not get through any banking system within your home country.

Are Swiss Banks Tax Havens for Tax Evasion?

Conclusion: Not really.

Although there are tons of stories and cases of tax evasion and secrecy, don’t expect to open a Swiss bank account that can’t be traced back to you in order to avoid paying taxes. It’s illegal and the Swiss have laws and regulations in effect to discourage this kind of thing.

Regulations are sure to continue tightening as more settlements are paid out to various countries, including France and the United States.

So no, you will not be charged with tax evasion simply for opening a Swiss bank account and depositing money, as long as you follow regulations and report the amount of your account holdings to the IRS. While the Swiss banking system has long held international notoriety for tax evasion, those days are coming to an end.

There are still many benefits to opening a Swiss bank account. Now that secrecy is no longer a strong benefit, it’s time to shift focus to other benefits such as low financial risk and 100% coverage of assets.

You can rest assured that in the case of another world war or natural disaster or financial crisis, your assets will be safely protected within the Swiss banking system.

Read also: The Ultimate Guide to Swiss Banks