Swiss Tax Perspective on Trusts

Switzerland has no trust as a legal form. It does, however, recognise foreign trusts through the Hague Convention of 1985 and Chapter 9a of the Federal Act on Private International Law. This recognition produces a distinctive tension: Swiss civil law accepts the trustee as legal owner of the trust assets and the trust patrimony as a segregated fund, but the trust itself possesses no legal personality and cannot be classified under any of the categories through which Swiss tax law identifies its subjects of taxation.

The result is a structural gap that compels Swiss tax law to develop its own unique approach — one that draws on, but is not reducible to, the established frameworks for fiduciary arrangements, collective investment schemes, and the piercing of the corporate veil. This article examines how Swiss law navigates the divide between legal ownership and economic ownership in the trust context, tracing the consequences across wealth tax, income tax, cantonal donation and inheritance tax, and the real estate gains tax.

1. Civil Law Standpoint

Swiss domestic civil law does not provide for the trust as a legal form. Unlike common law jurisdictions, where the trust emerged from courts of equity as a distinct institution, Swiss law has no equivalent mechanism by which legal ownership of assets is held by one person (the trustee) for the benefit of another (the beneficiary) outside of the well-established categories of foundations, collective funds and contractual fiduciary relationships. The trust is fundamentally a fiduciary relationship, but one that differs from the Swiss concept of fiduciary arrangements in two critical respects: first, it is constituted by a unilateral act rather than by contract; and second, it creates an autonomous, segregated patrimony whose existence and identity are independent of the persons involved — the settlor loses control upon constitution, and the trustee can be replaced without affecting the trust’s continuity.

Despite the absence of a domestic trust law, Switzerland has since 1 July 2007 recognised foreign trusts through two complementary legal instruments: the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, and Chapter 9a of the Federal Act on Private International Law.

1.1 The Hague Convention Framework

The Convention defines a trust as a legal relationship created during life or on death by a settlor when assets are placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose. It identifies three defining characteristics: the trust assets constitute a separate fund and are not part of the trustee’s own estate; title to the trust assets stands in the name of the trustee; and the trustee has the power and duty to manage, employ, or dispose of the assets in accordance with the trust terms and the special duties imposed upon him by law. Importantly, the Convention clarifies that the reservation by the settlor of certain rights and powers, and the fact that the trustee may himself be a beneficiary, are not necessarily inconsistent with the existence of a trust.

Recognition by a contracting state implies, as a minimum, that the trust property constitutes a separate fund, that the trustee may sue and be sued in his capacity as trustee, and that he may appear or act in this capacity before notaries or other officials. Where the governing law so provides, recognition further implies that personal creditors of the trustee have no recourse against the trust assets, that these assets do not form part of the trustee’s estate upon insolvency or bankruptcy, and that they do not fall within the trustee’s matrimonial property or personal estate upon death.

The Convention also provides for the recovery of trust assets in case of breach, subject to the rights of third-party holders being determined by the conflict-of-laws rules of the forum. However, it preserves the application of mandatory rules of the forum state, including those relating to the protection of minors, matrimonial property effects, succession rights (notably forced heirship), the transfer of title and security interests, and creditor protection in insolvency. Crucially, nothing in the Convention prejudices the powers of states in fiscal matters — a provision of particular relevance for the tax treatment discussed later.

1.2 Swiss Private International Law

The Swiss legislator incorporated the Hague Convention into its private international law framework by inserting Chapter 9a into the Federal Act on Private International Law. The relevant provisions define a trust by reference to the Convention’s definition of voluntarily created trusts, but with a notable extension: they apply irrespective of whether the trust is evidenced in writing. This expansion means that Swiss private international law recognises trusts with a broader scope than the Convention itself requires, covering also trusts constituted by oral declaration so long as proof of their existence can be established.

The legislation also governs jurisdiction, providing primacy to the choice of forum contained in the trust deed, with default venues at the defendant’s domicile or habitual residence, at the seat of the trust, or at the location of an establishment. The seat of a trust is located at the place of administration as designated in the trust terms, or, failing such designation, at the place where the trust is in fact administered.

1.3 Publicity and Protection of Third Parties

Swiss law addresses the publicity of trust relationships in relation to property registers. Where trust assets are registered in the trustee’s name in the land register, ships register, or aircraft register, reference to the trust relationship can be made by adding a notation. Trust relationships affecting intellectual property rights registered in Switzerland are similarly to be recorded on request. Crucially, a trust relationship that is not noted or recorded is not enforceable against third parties acting in good faith. This provision was designed to reconcile the trust’s asset-segregation effect with Swiss principles of publicity in property law.

1.4 Legal Ownership by the Trustee

A central consequence of recognition is that Swiss civil law accepts the trustee as the legal owner of the trust assets. Under both the common law conception and the Swiss recognition framework, it is the trustee alone who holds formal ownership of the trust patrimony. The beneficiary’s equitable interest does not, in Swiss terms, amount to a real right over the trust property; rather, it is a purely personal right exercisable against the trust, as represented by the trustee.

The recognition of the trust as a distinct patrimony — a separate fund — does not, however, create a new legal person. The trust itself has no legal personality; it cannot hold rights or incur obligations in its own name. Formally, all obligations are borne by the trustee, though economically they may be attributed to the trust patrimony.

This point bears directly on the tax characterisation of trusts. A trust relationship can under no circumstances be assimilated to a foreign legal person, because the trust lacks legal personality. Nor can it be treated as a foreign commercial partnership or community of persons without legal personality, which targets only entities whose members are united by an associative link.

The result is a distinctive duality at the heart of the Swiss treatment of trusts. From a civil law perspective, the trust is fully recognised: the trustee is legal owner, the trust assets form a separate patrimony protected from the trustee’s personal creditors in insolvency, and the trust relationship can be publicised in relevant registers. Yet the trust itself has no legal personality and cannot be classified under any of the categories through which Swiss tax law identifies its subjects of taxation — a gap that compels Swiss tax law to develop its own unique approach.

2. Economic Ownership in Swiss Tax Law

Swiss tax law is, as a rule, anchored in legal ownership. It treats legal entities as autonomous taxpayers with a contributive capacity distinct from that of their members, and it does not contain any statutory basis for attributing the income or assets of a legal entity directly to the persons standing behind it independently of a distribution. There is no equivalent to the US “check-the-box” regime allowing taxpayers to elect transparency, nor does the Swiss domestic system provide for CFC-type rules that would look through a legal entity to tax its shareholder on the entity’s undistributed profits. The concept of economic ownership — so central to many other tax systems — thus occupies only a marginal place in the Swiss framework.

This general principle is, however, subject to a small number of narrowly circumscribed exceptions, each grounded either in specific statutory provisions or in judge-made doctrine developed under strict conditions. Three such exceptions are of particular relevance for the analysis of trusts: the fiduciary arrangement, the transparency regime applicable to collective investment schemes that directly own real estate, and the piercing of the corporate or entity veil.

2.1 Fiduciary Arrangements

The fiduciary arrangement represents a narrow and strictly regulated exception to the general principle of taxation based on legal ownership. Its recognition allows economic ownership to override legal title, but only when rigorous formal, substantive, and arm’s-length requirements are satisfied. The trust, while superficially similar in that a trustee holds legal title for the benefit of others, is conceptually distinct from the Swiss fiduciary relationship and is subject to its own set of tax rules.

In the context of corporate income tax, fiduciary arrangements are closely linked to the rules on hidden profit distributions. Where commissions forwarded by a Swiss fiduciary to a foreign entity appear disproportionate and fail the arm’s-length test, the tax authorities may re-characterise the forwarded amounts as hidden profit distributions. Case law has established, for instance, that forwarding 99% of net commissions as a fee to a Liechtenstein entity could not be justified, since such a fee would never have been agreed with an independent third party.

The Swiss fiduciary relationship rests on a contractual basis — a mandate — and requires the fiduciary’s acceptance. By contrast, a trust can be created by unilateral act of the settlor, and the trustee’s consent is not a necessary condition for its creation. After the trust is established, it is essentially a legal relationship between the trustee and the beneficiaries, not a contractual relationship between the settlor and the trustee. The trustee’s primary obligation is to preserve the interests of the beneficiaries, not those of the settlor.

Because the trust does not fit within the framework of a fiduciary arrangement, the conditions for tax recognition of a fiduciary relationship — which would allow the assets to be attributed to the principal rather than the legal holder — cannot simply be transposed to trusts. The trust occupies its own distinct space in Swiss tax law, where the “transparency” applied follows a different reasoning altogether: it is not the recognition of a fiduciary mandate, but rather the consequence of the fact that Swiss tax law cannot attribute tax subjectivity to the trust itself, and therefore must attribute the trust’s assets and income to either the settlor or the beneficiaries depending on the type of trust.

That said, the rules on fiduciary arrangements remain relevant in the trust context in one specific area: the refund of withholding tax. In the case of an irrevocable fixed interest trust, the beneficiary may claim a refund of Swiss withholding tax by analogy with the rules governing fiduciary relationships, provided that the trustee can demonstrate the existence of the trust relationship by producing the trust deed.

2.2 Transparency of Collective Investment Schemes

A second, and structurally more elaborate, exception to the general primacy of legal ownership is found in the regime governing collective investment schemes under the Federal Act on Collective Investment Schemes. This regime illustrates that Swiss tax law can, in defined circumstances, look through a legal entity or arrangement and attribute income and assets directly to the economic beneficiaries — albeit under tightly regulated conditions that are far removed from the discretionary flexibility of common law trusts.

Under the so-called fiduciary solution, the assets held in an open-ended collective investment scheme — whether structured as a contractual investment fund, a SICAV, or a limited partnership for collective investment — are attributed to the investors for direct tax purposes. The collective scheme itself is not treated as a separate taxable subject for income or profit tax; instead, income and capital are imputed to the investors in proportion to their participation. This principle of fiscal transparency means there is no double economic taxation: the scheme does not pay income or profit tax, and the investors are taxed directly on the income generated by the fund’s assets.

This transparency principle is, however, subject to a significant carve-out when the collective investment scheme directly owns real estate. In that case, the scheme ceases to be transparent for the real estate income component and instead becomes a taxable entity in its own right. The taxable profit is determined according to ordinary corporate tax rules, though the applicable federal tax rate is reduced to 4.25% of net profit (as opposed to the standard 8.5% rate for ordinary legal entities) — a concession reflecting the scheme’s intermediate position between full transparency and full corporate taxation.

Importantly, the direct real estate exception does not destroy transparency entirely; it merely suspends it for the real estate income component. Income from units in collective investment schemes with direct real estate ownership is taxable at the investor level only insofar as the total revenues of the scheme exceed the income from the directly held real estate. In other words, to avoid double economic taxation, the portion of distributions attributable to real estate income that has already been taxed at the fund level is excluded from the investor’s taxable income.

A further point of doctrinal debate concerns the treatment of capital gains on directly held real estate. The tax administration takes the position that capital gains realised on the sale of directly owned real estate form part of the scheme’s taxable profit. Part of the academic literature, however, argues that capital gains should not be treated as income in this context, since the scheme is fundamentally transparent and private capital gains on real estate are not taxable under federal law. According to this view, the exception for real estate income was introduced merely to simplify taxation and should be interpreted restrictively.

From the perspective of this article, the collective investment scheme regime is significant because it demonstrates that Swiss tax law does recognise a form of economic ownership for tax purposes — namely, the investor’s economic interest in the fund’s assets — and gives it priority over the legal form. The fund manager holds legal title to the assets, yet for tax purposes the assets and income are attributed to the investors. This transparency is structurally analogous to the treatment one might expect for a common law trust. The key difference, however, is that the transparency of collective investment schemes is grounded in explicit statutory provisions and closely regulated by the supervisory framework. It cannot be extended by analogy to trusts or other arrangements that fall outside the statutory framework.

2.3 Piercing the Corporate Veil

Beyond the specific statutory exceptions of fiduciary arrangements and collective investment schemes, Swiss tax law recognises a more general — albeit narrowly circumscribed — mechanism through which the tax authorities may disregard the formal legal structure of an entity and tax its assets and income directly at the level of the person standing behind it. This mechanism is commonly referred to as the piercing of the corporate veil and finds its doctrinal basis in the theory of tax evasion.

The starting point is the fundamental principle that Swiss tax law recognises the legal form validly conferred upon an entity by private or public law. Legal entities are treated as autonomous taxpayers with a contributive capacity distinct from that of their members. Swiss tax law does not contain any statutory basis for attributing the profits of a legal entity directly to its shareholder independently of a distribution. Nor does the law offer taxpayers the option of electing transparency for an entity that is validly incorporated as a legal person.

However, the tax authorities will deny the autonomous status of a legal entity if it was created solely for the purpose of tax evasion, provided well-established conditions are met. According to the Federal Supreme Court’s constant jurisprudence, the tax authority may set aside the legal form and tax according to economic reality only if three cumulative conditions are satisfied: first, the legal form chosen by the taxpayer is unusual, inadequate, or abnormal (the objective element); second, the arrangement was adopted solely for the purpose of avoiding tax that would otherwise be due (the subjective element); and third, the arrangement would effectively lead to a material tax saving if accepted by the tax authority (the effectiveness element).

The decisive indicators allowing the tax authority to look through a validly incorporated entity are those reflecting a patrimonial and organisational confusion between the entity and the holder of its interests, or between two sister entities. A key corollary is that only the tax authority may invoke the piercing of the corporate veil; the taxpayer cannot rely on it to its own advantage.

The application of this doctrine to foundations — the entity type to which a trust is most closely analogous in the Swiss tax analysis — provides particularly instructive guidance for the trust context. The Federal Supreme Court has held that tax authorities may find the nullity of a family foundation as a preliminary matter where the foundation fails to comply with the requirements of civil law. The paradigmatic example is the case where the founder retains the same power of disposition over the foundation’s assets as over his own personal property, such that the separation of the founder’s wealth into two distinct pools is not enforceable against the tax authorities.

Even where a foundation is validly constituted under civil law and its status as an autonomous legal subject is not in question, the tax authorities retain the ability to verify whether its autonomy can be justified from a fiscal perspective. A taxation “by transparency” may therefore occur where the construction is unusual, inappropriate, or abnormal, and is aimed exclusively at achieving a tax saving — in other words, a classic case of tax evasion.

For trusts, the piercing of the veil operates somewhat differently from the corporate or foundation context. Since the trust already does not enjoy an autonomous tax status in the same way as a legal entity, the question is not so much about piercing the veil of the trust itself, but rather about whether the particular categorisation of a trust — and the resulting attribution of income and assets to a specific person — correctly reflects economic reality. Where, for instance, a trust is structured as irrevocable and discretionary but the settlor in fact retains a degree of control or powers that are functionally equivalent to ownership, the tax authorities may look through the formal structure and attribute the trust’s income and assets to the settlor.

It should be noted that the academic literature has also expressed criticism towards certain applications of economic substance analysis in Swiss tax law, underscoring the principle that the piercing of the corporate veil remains an exceptional remedy, subject to strict conditions, and that it cannot be applied as a matter of routine.

For trusts, the practical consequence is that the piercing doctrine functions as a safety net. Where the formal trust structure does not correspond to the underlying economic reality — particularly where the settlor maintains de facto dominion over the trust assets despite the formal designation of the trust as irrevocable and discretionary — the tax authorities retain the power to disregard the formal structure and attribute income and wealth directly to the person who, in economic substance, controls and benefits from the arrangement.

3. Wealth Tax Consequences on Trusts

Swiss wealth tax is levied exclusively at the cantonal and communal level and applies only to natural persons. Its object is the taxpayer’s total net wealth, defined as the excess of assets over liabilities. The tax is conceived as a subjective tax that takes into account the individual’s economic capacity, requiring that both assets and debts be considered in the assessment.

A foundational principle of the Swiss wealth tax is that the attribution of assets to a given taxpayer follows, as a general rule, civil law ownership. This principle is, however, subject to certain exceptions — most notably in the case of usufruct, where the full value of the usufruct asset is assigned to the usufructuary rather than to the bare owner, and in the case of genuine fiduciary relationships, where the assets held by the fiduciary are attributed not to the formal owner but to the beneficial principal.

Since a trust has no legal personality under Swiss law and cannot itself be a subject of taxation, and since the trustee — despite being the formal legal owner — has no economic entitlement to the trust assets, the wealth tax treatment necessarily turns on whether, and to whom, the trust patrimony can be fiscally attributed. The administrative practice and academic literature distinguish three scenarios according to the type of trust involved.

3.1 Revocable Trust

Where the settlor has not definitively divested himself of the trust patrimony — whether because the trust is expressly revocable or because the settlor retains sufficient powers of influence (such as the right to revoke the trustee, to modify the trust deed, to veto investment decisions, or to receive distributions of capital or income) — the trust is treated fiscally as a revocable trust regardless of its formal designation. In such cases, no effective transfer of economic ownership has occurred; the trust patrimony and its yields remain attributed to the settlor for wealth tax purposes, and he must declare them accordingly at his place of domicile.

The administrative practice provides a non-exhaustive catalogue of indicia — drawn by analogy from case law on family foundations — to determine whether a trust is genuinely irrevocable, including whether the settlor benefits from distributions, whether he can replace the trustee or protector, whether he can designate new beneficiaries, or whether he retains any veto power over the trustee’s decisions. A positive answer to any one of these questions tends to classify the trust as revocable for tax purposes.

3.2 Irrevocable Fixed Interest Trust

In an irrevocable fixed interest trust, both the identity of the beneficiaries and the scope of their entitlements are determined by the trust deed. The trustee possesses no discretion as to the allocation of income or capital, and the beneficiary holds an enforceable legal claim — not a mere expectancy — against the trust. The beneficiary’s position is assimilated to that of a usufructuary. Consequently, the trust patrimony is attributed to the beneficiary (or beneficiaries, proportionally) for wealth tax purposes. Where the precise share attributable to a given beneficiary cannot be determined, the income received may be capitalised to arrive at a taxable wealth value.

3.3 Irrevocable Discretionary Trust

The irrevocable discretionary trust presents the most complex — and doctrinally controversial — situation. In a discretionary trust, the trust deed typically describes only abstract classes of potential beneficiaries, and the trustee alone decides if, when, and to whom distributions are made. Beneficiaries hold no enforceable claim; their position amounts to a mere expectancy. Under the general principles of Swiss wealth tax, pure expectancies do not qualify as taxable assets, as they do not constitute a legally realisable claim to monetary rights. Simultaneously, the settlor — having irrevocably divested himself of the trust patrimony — can no longer be regarded as the owner for tax purposes either. The logical consequence is that the trust patrimony cannot be attributed to anyone, and therefore remains free of wealth tax entirely.

The literature acknowledges that this result is systemically uncomfortable. Precisely to mitigate this outcome, administrative practice introduces a significant qualification: where the settlor was domiciled in Switzerland at the time of the trust’s creation, the trust is treated as revocable for tax purposes notwithstanding its legal irrevocability. The rationale is that, in the absence of any enrichment of another identifiable tax subject, the settlor cannot be considered to have suffered a genuine impoverishment, and the patrimony and its yields therefore remain attributed to him.

Only where the settlor was domiciled abroad at the time the trust was established — and the trust is genuinely irrevocable and discretionary — does the patrimony escape wealth taxation altogether, since it can be attributed neither to the settlor nor to the beneficiaries.

This differentiated treatment based on the settlor’s domicile at the time of creation has attracted criticism as being, at the very least, questionable from a tax-systematic perspective. The result is that two otherwise identical irrevocable discretionary trusts receive fundamentally different wealth tax treatment depending solely on whether the settlor was resident in Switzerland or abroad when the trust was established — a distinction that has no basis in the trust’s legal structure but is driven by the pragmatic desire to preserve a domestic tax base.

In summary, the wealth tax treatment of trusts in Switzerland is entirely a function of fiscal attribution: assets are taxed in the hands of whichever person can be identified as their economic holder. For revocable trusts, this is the settlor; for irrevocable fixed interest trusts, the beneficiaries; and for irrevocable discretionary trusts, in principle no one — unless the settlor was Swiss-domiciled at creation, in which case he remains the deemed holder. The trust itself, lacking legal personality, is never a wealth tax subject, and the trustee, despite formal legal ownership, is never taxed on trust assets.

4. Income Tax Exemption for Donations and Inheritances

4.1 The General Principle

Swiss income tax law, both at the federal and cantonal level, exempts from income tax all wealth transfers arising from inheritance, legacy, donation, or marital property settlement.

This exemption is noteworthy from a theoretical standpoint. Under the net wealth accretion theory, which forms the conceptual backbone of the Swiss income tax, an inheritance or donation clearly increases the taxpayer’s net wealth without any consideration being given, and should therefore logically constitute taxable income. However, most tax systems — including Switzerland’s — have not followed this logic to its conclusion. Instead, they exempt such gratuitous transfers from income tax while subjecting them to separate wealth transfer taxes (inheritance and gift taxes) at the cantonal level.

An essential clarification is that the exemption covers only the operation of transferring wealth, not an ongoing source of revenue. The taxpayer who receives an inheritance or donation is exempt from income tax on the capital transferred, but from the moment of the transfer onward, any income generated by those assets is fully taxable as the new holder’s income. Conversely, the exempt nature of the transfer also means the recipient cannot deduct costs incurred in obtaining the inheritance.

A fundamental principle — of direct relevance for trusts — is that the same economic flow cannot be taxed simultaneously as income and as a donation or inheritance; the two are mutually exclusive. This harmonised notion of income indirectly limits the scope of cantonal inheritance and gift taxes: those taxes can only capture what is actually exempt from income tax.

According to Federal Supreme Court case law, a donation in the tax sense requires the presence of donative intent — the subjective intention to make a gratuitous transfer. This intention is considered present when the transferor does not act with the will to receive a consideration in return. When donative intent is established, a fiscal symmetry applies: the donation cannot be deducted from the donor’s taxable income, but it is exempt from income tax for the recipient.

Importantly, older case law held that the donation exemption was essentially limited to cases where the donor is a natural person. Legal entities pursuing economic purposes — even when making gratuitous transfers — are not considered to be motivated by donative intent; their beneficiaries therefore cannot invoke the exemption. This principle has obvious relevance for the characterisation of distributions from trusts, foundations, and similar entities.

4.2 Application to Trusts: The Critical Distinction

The income tax treatment of distributions from a trust to Swiss-resident beneficiaries depends on the type of trust and, consequently, on whether the trust patrimony is fiscally attributed to the beneficiary. Under the general income clause, all distributions from a trust constitute in principle taxable income for the beneficiary, unless they qualify as a tax-exempt donation. Whether the donation exemption applies turns on the nature of the trust and the character of the distribution.

Because the revocable trust is treated as fiscally transparent and the patrimony remains attributed to the settlor, a distribution from a revocable trust to a beneficiary constitutes a donation from the settlor. It is accordingly exempt from income tax and subject instead to cantonal donation tax.

Conversely, the creation of an irrevocable fixed interest trust itself constitutes a donation from the settlor to the beneficiary, to whom the trust patrimony is fiscally attributed. Ongoing distributions of trust income are taxable as income of the beneficiary. However, since the patrimony is attributed to the beneficiary, distributions of initial trust capital qualify as tax-exempt donations, and distributions of capital gains — provided the assets form part of the beneficiary’s private wealth — benefit from the private capital gains exemption. If the beneficiary cannot demonstrate that a particular distribution represents capital or a capital gain rather than income, the entire distribution is treated as taxable income. The Circular further notes that, given the trust’s nature as a durable entity, capital is deemed distributable only after all accumulated income has been distributed.

The patrimony of an irrevocable discretionary trust and its yields remain attributed to the settlor, provided they are domiciled in Switzerland. Distributions to beneficiaries are therefore treated as donations from the settlor, following the same logic as for a revocable trust. However, the situation changes if the settlor is domiciled abroad during the creation of the trust. The trust patrimony is therefore attributed to neither the settlor nor the beneficiaries. Distributions can be taxed only at the moment of actual payment or the acquisition of a firm entitlement. They constitute in principle taxable income under the general income clause. However, the beneficiary may demonstrate that all or part of a distribution represents initial trust capital — which was already treated as a donation at the time of settlement — in which case that portion is exempt from income tax. Because the trust patrimony is not fiscally attributed to the beneficiary, the private capital gains exemption cannot be invoked: any gains distributed are taxable as income. Here too, the principle applies that capital is deemed distributable only after all trust income has been distributed.

In all cases, the general reservations regarding tax evasion and abuse remain applicable: where the formal structure does not reflect economic reality, the tax authorities may re-characterise the arrangement accordingly.

5. Donation and Inheritance Tax

In Switzerland, inheritance and donation taxes are levied exclusively at the cantonal (and sometimes communal) level. The Confederation does not impose any tax on successions or donations. This cantonal sovereignty produces a highly fragmented landscape, where the rules governing taxable transfers, exemptions, rates, and procedures vary significantly from one canton to another.

5.1 Scope of Application

Two cantons — Schwyz and Obwalden — impose no inheritance or donation tax whatsoever. Lucerne levies an inheritance tax but does not tax donations as such; donations made within the five years preceding the donor’s death are, however, recaptured and taxed as part of the succession. All other 23 cantons levy both a cantonal inheritance tax and a cantonal donation tax. In certain cantons, communes are additionally empowered to levy their own inheritance and donation taxes or to participate in the cantonal tax proceeds.

According to established Federal Supreme Court practice on intercantonal double taxation, the canton competent to levy inheritance tax on movable assets is the canton of the deceased’s last domicile. For immovable property, it is the canton where the real estate is situated. The same principles apply to donation tax: movable property is taxed in the canton of domicile of the donor, while immovable property is taxed in the canton where it is located. These situs rules are of particular relevance in the context of trusts holding Swiss real estate or distributing assets to Swiss-resident beneficiaries.

Cantonal inheritance taxes generally apply to every gratuitous transfer of assets arising from a succession, whether through legal succession or by testamentary or contractual disposition (wills, inheritance contracts, legacies, and gifts on death). The tax also captures transfers to foundations, insurance proceeds payable on death (to the extent they are not already subject to income tax), and advances on inheritance.

As for donation tax, most cantons rely on the definition of donation found in the Swiss Code of Obligations: a donation is any disposition during life by which a person transfers all or part of their assets to another person without corresponding consideration. Transfers motivated by the fulfilment of a moral duty, as well as the renunciation of a right before it has been acquired, do not constitute donations. Mixed donations — where the beneficiary provides partial consideration — are taxed only on the gratuitous portion. Cantons also assimilate to donations a range of transfers such as the endowment of foundations, the establishment or discharge of usufruct rights, the gratuitous remission of debts, and transfers made through mixed-value transactions where the consideration is manifestly disproportionate.

This broad cantonal definition of donation is relevant in a trust context. When a settlor transfers assets to a trust during their lifetime, the transfer could potentially be characterised as a donation for cantonal tax purposes — particularly where the settlor irrevocably parts with the assets in favour of identified or identifiable beneficiaries. Similarly, distributions from a trust to beneficiaries during the trust’s life will typically fall under the cantonal donation tax, while distributions triggered by the death of the settlor or another person may be assimilated to inheritances.

5.2 Exemptions Based on Kinship

The most significant feature of the cantonal inheritance and donation tax landscape — and the one most consequential for trust planning — is the broad exemption granted to close family members.

The surviving spouse (or registered partner) is exempt from inheritance and donation tax in all cantons that levy such taxes. Direct descendants (children, grandchildren, great-grandchildren, including adopted children) are likewise exempt in the large majority of cantons; the few cantons that do not fully exempt them grant substantial deductions. Many cantons extend the exemption to parents and, in some cases, to siblings, stepchildren, foster children, and long-term cohabiting partners, though with varying conditions and deduction thresholds.

For beneficiaries who are unrelated to the settlor (or to the person treated as the donor or testator for tax purposes), the applicable rates can be substantial, and only modest tax-free thresholds apply.

While the cantonal rate structures differ significantly, they share a common pattern: the tax burden increases with the remoteness of the kinship between the donor or deceased and the beneficiary. Most cantons also build in progressivity based on the value of the transfer. Several cantons apply a purely proportional rate scaled by kinship, while others combine kinship-based rates with value-based progressivity. In some cantons, the rates for unrelated persons can reach up to 40–50% of the transferred value.

Where cantons apply the same schedules to inheritance and donation taxes, which is the general rule, the rate applicable to a trust distribution will depend on how the transfer is characterised (donation versus inheritance) and on the relationship between the settlor and the beneficiary, as determined under the applicable cantonal rules.

5.3 Implications for Trusts

The cantonal character of Switzerland’s inheritance and donation tax regime creates both opportunities and complexities for trusts. The qualification of a trust distribution — as a donation by the settlor, an inheritance from the settlor, or a distribution from a distinct legal entity — depends on the cantonal rules applicable in the canton of domicile of the beneficiary (for movable property) or the situs of the real estate (for immovable property).

In practice, the transfer of assets by the settlor to an irrevocable discretionary trust is typically treated as a donation from the settlor to the beneficiaries at the time of distribution (not at the time of settlement). The applicable cantonal tax rate will then depend on the degree of kinship between the settlor and the beneficiary. Where the beneficiaries are the settlor’s spouse and children — as is commonly the case in family trust structures — the broad cantonal exemptions for close family members mean that the distribution may escape cantonal donation tax entirely or be subject to only very modest taxation, depending on the canton involved.

However, for trust structures with unrelated or remotely related beneficiaries, or for distributions to beneficiaries domiciled in cantons with narrower exemptions, cantonal donation or inheritance tax can represent a significant cost. Moreover, the procedural requirements — including the obligation for the donor or recipient to declare the transfer within prescribed deadlines — must be carefully observed to avoid penalties for late filing.

6. Cantonal Real Estate Gains Tax

The cantonal real estate gains tax introduces yet another layer of complexity when Swiss real property is held through a trust. The Confederation does not levy any special tax on real estate gains; rather, federal law mandates that every canton impose such a tax. The cantons retain considerable latitude in the design of this tax — some follow a monistic system (where all real estate gains are subjected to a single special tax), others a dualistic system (where gains on business property are taxed through ordinary income or profit taxes while gains on private property are subject to the special real estate gains tax) — but the fundamental principles discussed below apply across all systems.

6.1 The Principle

The taxable event for the real estate gains tax requires three cumulative elements: the existence of a gain, an immovable property, and an alienation. As a matter of principle, the taxpayer liable for the real estate gains tax is the person registered in the Land Register as the civil law owner of the property. Any act that transfers civil law ownership of an immovable, whether by private law transaction or public law decision, and which is recorded in the Land Register, constitutes an alienation for the purpose of this tax.

When Swiss real property is transferred to a trust, the trustee is registered in the Land Register as the new owner. This registration constitutes a change of civil law ownership and therefore amounts, prima facie, to an alienation. The same logic applies in reverse: when the trustee distributes the property to a beneficiary, the Land Register inscription changes again, and a further alienation occurs.

It bears noting that Swiss real estate gains tax law captures not only civil law transfers but also so-called economic transfers, defined as durable shifts in the economic power of disposal over immovable property without a formal change at the Land Register. This broad concept reinforces the principle that the transfer of real property into or out of a trust will be captured by the real estate gains tax system, whether characterised as a civil law or an economic transfer.

6.2 The Tax Deferral

Despite the principle that every alienation of immovable property triggers the real estate gains tax, Swiss law carves out an important exception for gratuitous transfers. Federal law provides mandatory tax deferral for transfers arising from inheritance, advance on inheritance, and donation. All cantons implement this deferral, subject to certain cantonal variations.

This is a crucial mechanism for trust-related transactions. Where the transfer of Swiss real property into or out of a trust qualifies as a donation or an inheritance under the applicable criteria — as would typically be the case for a revocable trust settled for succession planning purposes, or for distributions to beneficiaries following the settlor’s death — the real estate gains tax is not triggered at the time of transfer. Instead, the taxation is deferred until the next taxable alienation.

While these transfers are in substance gratuitous and would not, strictly speaking, fall under the concept of an onerous alienation, their express inclusion in the deferral provisions serves a critical purpose: it obliges the cantons to treat these transfers not as exempt events that reset the tax base, but as deferrals that preserve the latent gain for future taxation. This distinction — deferral rather than outright exemption — is fundamental to understanding the long-term fiscal consequences.

The tax deferral mechanism has significant long-term consequences for the eventual calculation of the real estate gain. When taxation is deferred — whether on account of donation, inheritance, or any other qualifying event — the acquisition cost carried forward to the next taxable alienation is not the current market value at the time of the deferred transfer, but rather the original acquisition cost from the last taxable alienation. In other words, the gain that accrued during the ownership period covered by the deferral is preserved and will be taxed when the property is ultimately sold at arm’s length.

A tax deferral does not constitute a tax exemption that would lead to an immediate release from liability; rather, the latent tax burden is carried over to the acquiring party. At the moment the deferral ceases — namely, upon the next taxable alienation — the gain is computed using the values from the last taxable transaction, and the tax rules and rates applicable at that later date govern the assessment.

In a trust context, this means the following: if a settlor transfers Swiss real property to a trust as a donation (tax deferred), and the trustee subsequently sells that property to a third-party buyer, the taxable real estate gain will be calculated as the difference between the sale price and the original acquisition cost of the settlor (or even an earlier predecessor, if multiple deferrals have occurred in chain). The entire appreciation over what may be a very long period becomes taxable in a single event. This can result in a substantial gain and, depending on the canton, a correspondingly high tax burden — though nearly all cantons provide reductions for long holding periods that can mitigate this effect.

Practitioners must also be mindful of the duration-of-ownership rules. In cantons that penalise short-term gains with surcharges, the holding period calculation in the context of a tax deferral chain will typically start from the last taxable acquisition, not from the most recent deferred transfer. This means that a trust that has held property for many years after a deferred transfer from the settlor may benefit from favourable long-holding reductions upon an eventual sale.

In summary, while the transfer of Swiss real estate to or from a trust will generally be treated as a transfer of legal ownership triggering the cantonal real estate gains tax, a gratuitous transfer that qualifies as a donation or inheritance benefits from a mandatory tax deferral. This deferral, however, does not eliminate the latent gain: it preserves the original acquisition cost as the basis for future gain calculation, potentially resulting in a larger taxable gain at the point of an eventual arm’s-length sale. Careful planning is therefore required to anticipate and manage these long-term fiscal consequences.

Conclusion

The Swiss treatment of trusts reveals a legal system that has pragmatically — if not always elegantly — adapted its existing categories to accommodate an institution it never created. At every level of taxation, the same fundamental challenge recurs: the trust holds assets through a trustee who is the legal owner, yet the trust itself cannot bear tax obligations. Swiss tax law resolves this by looking through the trust to attribute income and wealth to the settlor or the beneficiaries, depending on the type of trust and the degree of control retained by the settlor. This approach borrows the logic of the fiduciary framework without adopting its conditions, echoes the transparency of collective investment schemes without resting on the same statutory basis, and reserves the piercing of the corporate veil as a corrective where formal structures diverge from economic reality.

The consequences are far-reaching and differentiated. What emerges is not a unified trust tax regime but a mosaic of rules, each anchored in its own statutory logic, that together define the fiscal landscape for trusts with a Swiss nexus. For practitioners, the key lesson is that the tax treatment of any trust arrangement cannot be assessed in the abstract; it depends on the precise interplay of the trust’s legal characteristics, the domicile of the parties involved, the nature of the assets held, and the canton in which the relevant tax consequences materialise. In this interplay between legal ownership and economic attribution, Swiss tax law finds its own distinctive — and still evolving — path.