Executive Summary
The Reality: Switzerland is a tax haven for many, but a paperwork minefield for Americans. The KVG system and Swiss investments do not align naturally with IRS statutes.
The Risk: Mismanaging "Pillar 3a" or buying "Swiss ETFs" can trigger punitive US taxes (PFIC) that exceed your gains.
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For the American expat, standard Swiss financial advice is essentially malpractice. What works for a German or British expat can be disastrous for a US person.
Strategy 1: The FEIE vs. FTC Decision
Most Americans default to the Foreign Earned Income Exclusion (FEIE) because it sounds attractive: "Exclude the first $120k of income." However, for high earners in high-tax cantons (Zurich, Vaud, Geneva), this is often a mistake.
Path A: FEIE (Form 2555)
- Good for: Low-tax cantons (Zug/Schwyz) or incomes under $120k.
- Con: You can't contribute to a US Roth IRA.
Path B: FTC (Form 1116)
- Good for: High-tax cantons. You dollar-for-dollar offset US tax with Swiss tax.
- Pro: Often builds up "Credit Carryovers" for future years.
Verdict: Don't auto-pilot. If you plan to return to the US or earn heavily, FTC is often the superior long-term play.
Strategy 2: The Pillar 3a Dilemma
This is the most common trap. Your Swiss colleagues tell you to open a Pillar 3a to save taxes.
The Insider Warning
The Swiss View: Lowers taxable income. Great!
The US View: The IRS often views it as a "Foreign Grantor Trust" or a non-qualified plan. It is NOT automatically tax-deductible in the US.
The Fix: Stick to "Bank 3a" solutions (Cash/Interest interest-bearing accounts). Avoid "Insurance 3a" or risky "Fund solutions" unless vetted by a CPA.
Strategy 3: The PFIC Trap (Investing)
You want to invest your Swiss savings. You buy a generic "S&P 500 ETF" through a Swiss broker (e.g., UBS or Swissquote).
STOP.
If that ETF is domiciled in Ireland, Luxembourg, or Switzerland (has an ISIN starting with IE, LU, CH), it is classified by the IRS as a Passive Foreign Investment Company (PFIC).
- The Punishment: Gains are taxed at the highest marginal income tax rate (approx 37%+) PLUS a compounding interest charge. It wipes out profit.
- The Solution: Buy individual stocks OR buy US-domiciled ETFs (using a compliant broker like Interactive Brokers).
Strategy 4: Business Owners (The GmbH)
If you are a US person opening a Swiss GmbH (LLC), you must file the "Check-the-Box" election (Form 8832) within 75 days of incorporation.
- Without Election: The GmbH is a "C-Corp" (Double Taxation on dividend and income).
- With Election: It is a "Disregarded Entity" (Flow-through). You pay tax once.
Moving a Business to Switzerland?
From "Check-the-Box" tax elections to physical corporate relocation. We connect you with the right experts.
Corporate Relocation with PrimeRelocation →Frequently Asked Questions
Can Americans open a Pillar 3a?
Yes, legally you can. Practicality is harder—many banks reject US persons due to FATCA paperwork. VIAC and Finpension have solutions, but ensure you select the "Cash Strategy" or a US-vetted portfolio to avoid PFIC issues.
Do I pay Swiss taxes if I pay US taxes?
Yes. You pay Swiss taxes first (Source Tax or Tax Return). Then you file your US return, claiming a "Credit" for the taxes already paid to Switzerland. You generally will not obtain a refund from the US, but you won't pay double.