Tax on distribution of profits

In Switzerland, the withholding tax is a form of federal tax designed to tax income generated by profit distributions.
Regulated by the Federal Withholding Tax Act (LIA), it applies to Swiss and foreign companies with a branch in Switzerland that pay dividends to their shareholders.
In this first chapter, we examine the characteristics of this tax and its importance for the Swiss economy.

Who is affected by the dividend tax?

All Swiss companies are subject to tax on the distribution of profits, but the tax rate varies according to the type of company.
Limited liability companies (Sàrl), public limited companies (SA), limited partnerships (SNC) and partnerships limited by shares (SCA) are all concerned.
However, SNCs are not subject to this tax, as they are not considered as separate tax entities.
Profits made by SNCs are taxed directly on the beneficiaries of the profits.

How is dividend tax calculated?

Dividend tax is calculated on the basis of a company’s distributable profit.
This is determined by deducting deductible expenses from the company’s sales.
The distributable profit is then subject to corporate income tax at the applicable rate.
Once the income tax has been calculated, the company must determine the amount of dividends to be paid to shareholders.
It must then withhold income tax at the applicable rate before paying the dividends.
The rate of dividend tax varies according to the situation of the company and the shareholder.
Foreign shareholders are also subject to dividend tax, but the rate may be reduced under a double taxation agreement between Switzerland and their country of residence.
In addition, dividends received by companies are not subject to tax on the distribution of profits.
Companies can deduct dividends received from their taxable profits, thereby reducing their tax burden.

Advantageous tax regimes for Swiss companies

Swiss companies can benefit from advantageous tax regimes to reduce their tax burden on dividends.
Among the most common tax regimes are the holding company tax regime and the participation deduction.

The holding company tax regime enables Swiss companies to hold stakes in foreign companies and benefit from a favorable tax rate on dividends received.
In addition, holding companies can deduct certain expenses from their taxable income, further reducing their tax burden.

The participation deduction is another advantageous tax regime for Swiss companies that hold a significant stake in another company.
This scheme enables companies to reduce their tax burden on dividends received according to the percentage of shareholding held.
To benefit from the participation reduction, the company must hold at least 10% of the share capital of the issuing company for at least one year.
This measure was introduced to encourage long-term investment and facilitate mergers and acquisitions.
It enables companies to reduce their tax burden on dividends received, thereby increasing their investment capacity.

However, these advantageous tax schemes are subject to certain limits and conditions, and must be applied for by companies in order to benefit from them.
In fact, the participation deduction is not automatic and must be applied for by the company in order to benefit from this tax advantage.

A federal tax applied to companies

In conclusion, the profit distribution tax in Switzerland is a federal tax applied to companies that distribute dividends to their shareholders.
Both Swiss companies and foreign companies with branches in Switzerland are subject to this tax, which is designed to tax income generated by profit distributions.
Companies can benefit from advantageous tax regimes, such as the holding company tax regime and the participation deduction, to reduce their tax burden on dividends.
However, these schemes are subject to certain limits and conditions, and must be applied for by companies in order to benefit from them.
As a pillar of the Swiss economy, the tax on profit distribution plays a crucial role in maintaining tax fairness and financing public infrastructure.