A new report by Watson has suggested that families and individuals in Switzerland are trying to find new ways to pay less tax. One of the illegal methods involves so-called “letterbox apartments” - where people in low-tax areas advertise fake apartments that can be used by those trying to avoid higher rates.

Swiss taxes vary hugely across the country

As the Swiss tax system is controlled at the federal, cantonal and local levels, rates paid on salaries can vary hugely across the country. For instance, someone with an income of 80.000 francs a year living in Enges, Canton Neuchâtel pays approximately 17.000 francs a year in tax. In Baar, Canton Zug, the same person would only have to pay 5.000 francs.

As a result, Watson noted that many people are tempted into trying to change their address to a low-tax area to save money, without actually having to move there as areas of Switzerland with the lowest taxes are often the most unaffordable places to live. Therefore, the newspaper found that many residents of low-tax towns and cities are starting to offer a novel and very illegal solution.

Fake rooms rented out in Zug for tax evasion

What happens is that a listing for an apartment to rent is posted on the internet, promising a room in a low-tax town for a very low price. In theory, a person would be able to rent out the room, declare their residency in the low-tax area while keeping their real residence as a “holiday home”, and benefit from lower taxes when it's time to fill in the tax return.

Listings seen by Watson offer a “change of residence to a tax haven” with some overtly saying that they simply want to rent out a letterbox, not an actual room. The listings tend to become more common around the end of the year as the tax season approaches. Speaking to the newspaper, online house finders Homegate said that the listings are not permitted and should be deleted automatically, but they still continue to pop up online.

Letterbox apartments are highly illegal, notes Swiss expert

Naturally, the letterbox apartments are highly illegal. KPMG tax expert Philipp Zünd told Watson that “just renting a mailbox is clear tax evasion” and can mean serious consequences for both the person who rents the property and those who post the listing. He made the point that even for the residents of high-tax areas like Neuchâtel, the "legal and financial hurdles" make a “letterbox apartment” in Zug not worth it.

Is getting a small apartment in Zug worth it for the taxes?

When asked about whether renting a real apartment in Zug for tax purposes is worth it and allowed, Zünd noted that there is a “legal grey area.” “It is not forbidden to declare an apartment in Zurich as a holiday apartment and to rent a new apartment in the tax-efficient Zug”, he noted.

However, he explained that those who try the trick have to prove that they are indeed a resident of the new canton - by their children going to local schools, re-registering bank accounts and other official commitments to the new address and shopping regularly in the local area - or else face fines and back taxation. 

Therefore, Zünd noted that “if our customers want to change their domicile, we strongly advise them to actually move there. Otherwise, the risk of severe punitive taxes is great.” Instead of resorting to letterbox flats, he concluded that there are a number of legal and easier ways to reduce tax bills, ranging from tax deductions on home renovations to paying into a third-pillar pension plan.

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