New Perspectives:
Swiss Withholding Tax compared to the LDF

Following similar regulations in other parts of the EU, the UK has signed an agreement with Switzerland on 6th October 2011, introducing a withholding tax for all Swiss bank accounts with a UK beneficiary. This remarkably changes the situation for wealth owners with assets in Switzerland. From the perspective of a Swiss bank, the traditional banking secrecy remains intact. The situation for some of the clients however might become more complex as soon as the agreement will be in effect in 2013. A withholding tax will be automatically deducted and anonymously passed to the UK tax authority HM Revenue and Customs (HMRC) however this agreement is no formal disclosure. As it leaves fundamental questions open, the agreement doesn’t provide a sustainable or comprehensive solution for developing wealth sustainable.

Download the Chart LDF vs. Withholding Tax as a pdf.

UK/Swiss Withholding Tax Liechtenstein Disclosure Facility (LDF)
What it is Based on the EU savings agreement, the contract between UK and Switzerland regulates the anonymous deduction of a withholding tax on Swiss bank accounts of UK account holders. The LDF agreement between UK and Liechtenstein outlines a disclosure process for internationally diversified assets that includes immunity from criminal prosecution.
Which assets are affected? All assets held in Swiss bank accounts by UK related beneficiaries. This includes:

  • accounts in own name
  • through structures
  • insurance wrappers
 Worldwide assets of UK related beneficiaries in need of regularisation. This includes:

  • accounts in own name
  • through structures
  • insurance wrappers
Relevant dates Only UK account holders who had/have a Swiss bank account on 31 December 2010 and still have it on 31 May 2013 will be subject to the provisions. For newly opened bank accounts the agreement has special provisions. Persons who have a beneficial interest in relevant property on 1 August 2009 or thereafter (until 5 March 2016).
What you have to do to start? The tax will be automatically deducted by the Swiss bank starting on or after 31 May 2013. The bank then forwards the money anonymously to the HMRC.
  • The client must create a relationship with a Liechtenstein financial institution – a so called “footprint” – to qualify.
  • Then the client can start disclosure to HMRC through a UK advisor.
What is resolved? Securing the status quo of assets held in bank accounts in Switzerland. Regaining full control over globally diversified assets through gaining tax-compliance in a calculable process. 
Rate of Tax
  • For past liabilities: 19 to 34%.
  • For future investment income and gains: 27 to 48% each year.
  • Taxation of income / capital gains with the individual tax rate of the respective tax payer from 1999 to 2009, or
  • A single composite rate of 40% tax for all income, profits and gains and which will cover all UK taxes but with no reliefs or other deductions to be allowed (this might be attractive for clients with IHT liabilities for the last 10 years).
Rate of penalty n/a
  • Normally 10% for 1999 to 2009 based on the tax payable.
  • 20% – 30% from 2009 based on the tax payable.
Privacy and risk?
  • From the perspective of the Swiss bank, the client stays anonymous.
  • The Swiss shares with UK government information on undisclosed asset outflows.
  • No tax-compliance assured.
  • Giving up anonymity by making the disclosure to HMRC.
  • Protecting privacy with “no naming and shaming”.
  • Reducing risk effectively in becoming tax compliant.
Treatment of non-doms
  • To avoid withholding tax, non-doms have to deliver proof of compliance to HMRC via a tax adviser.
  • Special conditions apply for the one-off charge as well as for 2013 and on.
  • Non-doms may use the LDF to resolve tax matters with HMRC and to become tax-compliant.