Withholding tax

In Switzerland, withholding tax is levied on capital income such as interest, dividends and capital gains.
Financial institutions and companies are responsible for collecting this tax.
This measure ensures tax equality between taxpayers, whether resident or non-resident in Switzerland.
Withholding tax is governed by cantonal legislation, and each canton is free to set its own tax rate.
The amount deducted can be offset against the taxpayer’s income tax liability.
If the withholding tax is higher than the income tax due, the excess may be refunded to the taxpayer.

Withholding tax is a transit tax

Withholding tax is often seen as a temporary measure in Switzerland.
Investors who invest in Swiss shares or have bank accounts in Switzerland are subject to withholding tax until they reach a certain investment threshold.
Once this threshold has been reached, investors can then claim a refund of the withholding tax deducted from their investments.

The aim of the withholding tax is to encourage foreign investors to invest in Switzerland, while ensuring that taxes are paid on the income generated by these investments.
It also enables the Swiss tax authorities to collect taxes on income from foreign sources without having to request additional information from investors.

Conditions for the introduction of withholding tax

In Switzerland, withholding tax is subject to the conditions laid down in the Federal Withholding Tax Act (LIA).
In concrete terms, withholding tax is levied on capital income such as interest, dividends and commissions, provided they meet certain criteria.

Firstly, the income must be paid to a natural or legal person domiciled in Switzerland or with a permanent establishment there.
Secondly, it must derive from a Swiss source, i.e. a person or entity domiciled or having a permanent establishment in Switzerland.
Finally, the income must be taxable at federal level.

However, certain categories of capital income are exempt from withholding tax, such as interest on mortgages, insurance indemnities and interest on savings accounts up to a certain amount.

With regard to dividends, withholding tax is levied when the dividend is distributed by a Swiss company, irrespective of the nationality of the beneficiary shareholder.
The withholding tax rate on dividends is 35%, except in certain specific cases provided for by law, where a reduced rate may apply.

In short, the conditions governing the application of withholding tax are defined by the Federal Withholding Tax Act.
This tax is levied on capital income subject to certain conditions, such as interest, dividends and commissions.
Certain categories of capital income are exempt from withholding tax, while the withholding tax rate on dividends is 35%, unless otherwise stipulated by law.

Calculation of dividend withholding tax

In Switzerland, dividend withholding tax is calculated in two stages.
First, the withholding tax rate is applied to the gross amount of dividends received.
Secondly, the amount of withholding tax thus calculated is deducted from the gross amount of dividends received.
It is important to note that the withholding tax rate may vary depending on the canton where the capital income is paid, as indicated on the page dedicated to tax rates.

The amount of withholding tax is therefore calculated by multiplying the withholding tax rate by the gross amount of dividends received.
For example, if a company pays dividends of CHF 100,000 gross to a shareholder resident in a canton where the withholding tax rate is 30%, the withholding tax deducted at source will be CHF 30,000.
The dividend recipient will therefore receive a net amount of CHF 70,000.
This net amount must be declared on his income tax return, and he can deduct the amount of withholding tax already deducted from his income tax liability.

It is important to note that taxpayers can benefit from a refund of part of the withholding tax on dividends received, when the amount of withholding tax deducted at source exceeds the amount of income tax due.
The terms of this refund may vary from canton to canton.

Taxpayers are advised to fully understand the tax rules in force in Switzerland to avoid errors in tax declaration or payment.
It is also important to note that deadlines for refunding withholding tax vary from canton to canton, and can take several months.

Finally, taxpayers are advised to call on the services of a chartered accountant or tax advisor to help them manage their income tax return and advance dividend tax, in particular to take advantage of the special tax regimes provided by law.

Special tax regimes for dividend withholding tax

Special dividend withholding tax regimes in Switzerland can offer significant advantages to dividend recipients.
In particular, participation and double taxation regimes can reduce the amount of withholding tax deducted at source.

The participation tax regime enables beneficiaries of qualifying participations to reduce the rate of withholding tax on dividends.
Qualifying holdings are holdings of at least 10% of the share capital of a Swiss or foreign company.
To benefit from this regime, the beneficiary must meet certain conditions, such as being domiciled in Switzerland and having held the shareholding for at least one year.

The double taxation system allows beneficiaries resident in a country with which Switzerland has signed a double taxation agreement to reduce the amount of withholding tax deducted at source.
In this case, the beneficiary may request a partial or total refund of the withholding tax.
This system is particularly advantageous for foreign dividend recipients who are not subject to income tax in Switzerland, but who must pay income tax in their country of residence.

It is important to note that special tax regimes for dividend withholding tax are subject to specific conditions, which vary from canton to canton in Switzerland.
Dividend recipients and Swiss companies should therefore find out about the tax regimes applicable in their canton in order to benefit from these tax advantages.

Dividend withholding tax tips for Swiss companies

Swiss companies should manage dividend withholding tax efficiently to minimize tax and administrative costs.
To this end, they can consider the following tips:

First and foremost, companies must ensure that dividends paid are correctly recorded in their accounts.
This will enable them to determine the exact amount of withholding tax due.

Secondly, they need to ensure that the details of dividend recipients are up to date and correct.
This will prevent them from deducting too much or too little withholding tax.

Companies can also optimize withholding tax management by making use of special tax regimes.
For example, the shareholding tax regime enables beneficiaries of qualifying shareholdings to reduce the rate of withholding tax.
Companies can also benefit from the double taxation system if they have foreign shareholders.

Finally, companies must ensure that withholding tax returns are correctly completed and filed on time.
They must also be able to respond to requests for information from the tax authorities in the event of an audit.

By following this advice, Swiss companies will be able to manage dividend withholding tax efficiently and minimize tax and administrative costs.

How double taxation agreements work

In Switzerland, double taxation agreements are tax treaties concluded between two countries to prevent taxpayers from being taxed twice on the same income.
They enable foreign residents to benefit from a refund or exemption from withholding tax levied on their investments in Switzerland.
This is made possible by a non-discrimination clause, which stipulates that foreign residents must not be treated less favorably than Swiss residents in tax matters.

The way in which withholding tax operates in relation to double taxation agreements can vary from country to country.
Some countries may require foreign investors to apply to the Swiss tax authorities for a refund of the withholding tax, while other countries may allow investors to deduct the withholding tax from their taxes in their own country.

It is important for investors to find out about the tax provisions in their country of residence and in Switzerland before making investments.
This will enable them to benefit from all possible tax advantages, including those relating to withholding tax.

In short, withholding tax is a key element of the Swiss tax system.
It ensures a degree of tax equality between taxpayers, while encouraging foreign investors to invest in Switzerland.
Swiss investors and companies must understand the applicable tax rules and comply with tax obligations in their own country to benefit from dividend withholding tax.
Double taxation agreements may also have an impact on the operation of withholding tax in Switzerland.
Foreign residents can benefit from favorable tax provisions thanks to these treaties, but the way in which they are applied can vary from country to country.
It is therefore important to find out beforehand to avoid any tax problems.