Tax Considerations
Swiss Taxes
Although Swiss residents face a 2.5% stamp tax when purchasing a Swiss annuity, nonresidents (e.g., U.S. persons) will pay no Swiss tax on purchase or liquidation of the annuity. Swiss annuities are completely exempt from Swiss taxes for everyone residing outside Switzerland. This applies to income tax, as well as inheritance and estate taxes.

Moreover, unlike other authentic Swiss franc investments (bonds, stocks, Swiss bank accounts, etc.), they are not subject to the 35% Swiss withholding tax-a definite advantage over other sound Swiss franc investments.

No Excise Tax
Unlike many other foreign annuities, Swiss annuities are not subject to the 1% U.S. excise tax on the purchase of foreign annuity and insurance premiums. This is a by-product of the adoption in 1998 of a new Swiss-U.S. Double Tax Treaty and applies to premiums paid by a U.S. citizen to an insurance company domiciled in Switzerland.

U.S. Tax Issues
Swiss and foreign fixed annuity contracts issued since January 12, 2001 are no longer tax deferred in the United States (see Internal Revenue Service regulations, "Tax Treatment of Certain Annuity Contracts.")

A Swiss fixed annuity is a debt instrument, that is, a "promise to pay a sum certain," in addition to being an insurance contract. Accordingly, the owner of a Swiss fixed annuity (as well as other foreign annuities that are seen as debt instruments) pays tax on the income that accrues, including currency gains if the annuity is denominated in a foreign currency.

Tax experts agree that as a result of the loss of tax deferral, distributions prior to age 59½, including loans against the policy, are not subject to the 10% penalty for early withdrawals. Thus, it is possible to take tax-free withdrawals from a Swiss fixed annuity whenever the policyholder chooses.

This different tax treatment for foreign annuities on the whole provides substantially more flexibility for Americans purchasing Swiss fixed annuities. Interest and dividends on U.S. annuities are tax-deferred until withdrawn while those on Swiss annuities are taxable each year as ordinary income. For U.S. annuities, all previously untaxed amounts on withdrawals, liquidations and loan proceeds are taxed as ordinary income, with premature distributions (before age 59½) assessed a 10% penalty. No such taxes or penalties apply for Swiss fixed annuities. You can decide when or how to draw money from your annuity. Loan interest is never tax-deductible for U.S. annuities and tax-deductible for Swiss annuities when the loan proceeds are used to purchase other investments (such as stocks in a Swiss bank account).

Swiss annuities can be placed in various U.S. tax-sheltered plans, including IRAs, Keogh, or corporate plans. Such plans can also be rolled over into a Swiss annuity. If you wish to put a Swiss annuity in a U.S. pension plan, the only thing required is a U.S. trustee-a bank or similar institution-and that the annuity contract be held in the U.S. by that trustee. For a minimal administration fee many banks offer "self-directed" pension plans, which can easily be used for this purpose.

The inside buildup of an annuity contract is generally deferred from U.S. income taxation until withdrawn, at which time it is taxed under the provisions of the Internal Revenue Code (IRC) section 72, including possible penalties for early withdrawal.

IRS Tax Treatment
In the United States, a Swiss annuity is not even considered to be a "foreign investment account." IRS regulations clearly exclude overseas insurance and annuities from ownership declaration on an annual 1040 tax form or on Treasury form 90-22.1.
It should be noted that Swiss insurance companies do not report annuity payments to the IRS or any other government agency; this is the policyholder's responsibility.