The Swiss pension system offers several savings opportunities, but when an individual who is tax-resident in Italy decides to close a pension or savings arrangement held in Switzerland, the Italian tax implications can come as a surprise. While the rules and the 5% preferential tax treatment applicable to the first and second pillars (AHV and BVG/LPP) are relatively well established, the situation is significantly different for private pension provision, particularly the third pillar 3b (unrestricted individual pension provision).
In Italy, withdrawals from the Swiss third pillar 3b are classified as investment income arising from life insurance or capitalisation contracts and are subject to a 26% substitute tax on the gain component only. If the policy is surrendered at a loss, the amount received is not subject to taxation.
The Italian Revenue Agency's Regional Directorate for Lombardy has addressed this specific arrangement in Ruling No. 904-614/2026, providing clarification on the tax obligations of Italian taxpayers.
What Is the Third Pillar 3b and How Does It Differ from Pillar 3a?
The third pillar 3b represents unrestricted individual pension provision, without the strict restrictions associated with conventional supplementary pension arrangements under pillar 3a.
While pillar 3a refers to restricted individual pension provision, pillar 3b generally operates as a private capitalisation life insurance contract or a mixed insurance policy if it also includes death risk coverage. The policyholder entrusts their savings to a Swiss insurer with the aim of receiving them back, together with any accumulated returns, at a specified maturity date.
From an Italian tax perspective, this flexibility determines how the proceeds are classified: they are not considered pension income, but rather investment income under Article 44(1)(g-quater) of the Italian Consolidated Income Tax Act (TUIR).
To better understand the distinction between this arrangement and Switzerland's mandatory pension schemes, we invite you to read our overview of cross-border workers between Italy and Switzerland and the Swiss pension system.
How Is Tax Calculated When the Policy Is Surrendered?
Tax applies exclusively to the positive difference between the total capital received upon surrender and the total premiums paid over the years.
Under Article 45(4) of the TUIR, the taxable base, where applicable, consists solely of the actual gain generated by the policy.
If the proceeds are received directly from abroad without the involvement of a financial intermediary resident in Italy, the taxpayer must generally declare the taxable gain and apply a 26% substitute tax in their Italian tax return, pursuant to Article 26-ter of Presidential Decree No. 600/1973 and Article 18 of the TUIR.
Alternatively, ordinary IRPEF taxation may be available where the taxpayer wishes to claim a tax credit for withholding taxes already paid in Switzerland, subject to the applicable conditions.
What Happens If the Policy Is Surrendered at a Loss? The Practical Example Examined in the Ruling
The case examined by the Italian Revenue Agency in 2026 concerned an employee who had paid a total of CHF 12,600.00 into a third-pillar 3b arrangement between 2019 and 2025.
Due to the contractual terms or market fluctuations, the amount actually received upon early surrender in 2025 was CHF 6,371.10, representing a substantial loss compared with the capital invested.
The Italian Revenue Agency endorsed the solution proposed by the taxpayer: if the amount received upon surrender is lower than the premiums paid, no investment income has been generated and the proceeds are therefore not subject to Italian taxation.
Reporting Obligations and Tax Transparency
Even when an investment generates no taxable income, the foreign policy may still need to be reported in the Italian tax return.
As long as the foreign-held arrangement remains active, individuals who are tax-resident in Italy are generally required to complete Section RW of their tax return to comply with foreign financial asset reporting obligations.
Because pillar 3b is a form of unrestricted private pension provision, the exemptions that may apply to mandatory pension schemes or to certain unredeemed BVG/LPP vested benefits accounts do not automatically apply.
Failure to complete this section, or submitting it incorrectly, may result in formal challenges and penalties calculated in proportion to the value of the assets concerned.
To take a preventive approach, we recommend reading our guide on how to avoid tax audits.
Conclusion: Why Individual Assessment Matters
The Swiss pension system requires each contract to be examined carefully. As the recent tax ruling illustrates, the unrestricted nature of third-pillar 3b arrangements means that they follow tax rules that differ substantially from those applicable to pillar 3a or BVG/LPP withdrawals.
Anyone holding foreign arrangements should plan each step carefully to avoid double taxation or errors in tax compliance, particularly when returning to Italy or approaching retirement.
In this regard, we also invite you to read our articles on transnational workers and applying for a pension.
Studio Barbara Antonini has been assisting cross-border workers and employees with international interests for more than twenty years.
If you are planning to surrender a Swiss pension or savings arrangement or need to file an Italian tax return involving foreign assets, our team can review your documentation and help you apply the most appropriate and tax-efficient treatment available under the applicable legislation.
Book an initial, no-obligation consultation with Studio Barbara Antonini to review your foreign pension arrangements.
Frequently Asked Questions (FAQs)
Can withdrawals from the Swiss third pillar 3b be taxed at 5%?
No. The 5% substitute tax applies exclusively to qualifying pension benefits from the first pillar (AHV) and second pillar (BVG/LPP). The third pillar 3b is treated as a private life insurance or capitalisation policy and is subject to a 26% tax on any taxable gain.
If I surrender my third-pillar 3b policy at a loss, can I offset the loss against other income?
No. For Italian tax purposes, the proceeds are classified as investment income under Article 44 of the TUIR, rather than as other income, such as capital gains arising from the sale of shares or corporate interests.
Consequently, a negative difference between the premiums paid and the capital received does not generate a tax loss that can be offset against other income in the Italian Modello Redditi. The transaction is simply not subject to tax.
Must I declare my third-pillar 3b arrangement if I have not surrendered it?
Yes. If you are tax-resident in Italy, the value of the Swiss third-pillar 3b policy or account must generally be reported annually in Section RW for foreign asset monitoring purposes, regardless of whether you made any withdrawals or disposals during the tax year.
