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Dividend Tax in Switzerland

Updated on Friday 11th December 2020

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Dividend-Tax-in-Switzerland.jpgThe Swiss dividend tax is one of the taxes established in Switzerland by the Swiss Confederation, the cantons and the municipalities. The country is sometimes referred to as a tax heaven and there are many foreign investors, entrepreneurs and companies who choose to invest in Switzerland. Our team of specialists in company registration in Switzerland can provide in-depth information regarding the taxation system applicable to companies developing taxable activities in this country. 
 

Withholding taxes in Switzerland

Just like any other European country, Switzerland imposes several taxes on the income of natural persons and companies. The taxes are levied in accordance with the type of income earned by taxpayers and their residency. However, the particularity of the Swiss taxation system resides in the fact that it is applies on a three-tiered level, meaning federal, cantonal and municipal levels.
 
The withholding tax is one of the most important levies imposed by the Swiss tax authorities and it implies the taxation of the following types of incomes:
 
  • - dividends,
  • - interests,
  • - royalties.
 
Both individuals and companies issuing and receiving dividends from, respectively in Switzerland are subject to the withholding tax. The standard rate of this tax is 35%, however, due to Switzerland’s double tax treaties, exceptions from the levy of the dividend tax at this rate are often met. These exceptions apply because the same tax is applied in most countries around the world and the same income could be subject to same tax twice.
 
When it comes to Switzerland, companies and individuals seeking to avoid double taxation can be requested to report or notify the tax authorities here with respect of the fraction of the dividends tax in excess of the residual withholding tax. A credit or refund for the tax that remains outside the dividends received under the double tax treaty can be available.
 
An important thing about the dividend tax in Switzerland is that many of the double tax treaties the country has signed contain provisions about the full relief of the withholding tax if the dividends are paid to the government.
 
A particularity of the withholding taxes paid in Switzerland the exemptions available for businesses apply to those registered as corporate bodies, therefore partnerships do not fall under the dividend tax deduction or reduction scope.
 
If you want to open a company in Switzerland and need guidance on to choose best legal form from a taxation point of view, you can rely on our representatives’ advice.
 

Dividends in Switzerland 

 
After the company completes its financial year and the profit is calculated, the shareholders are entitled to a share in the annual profit. A portion of the net profit, the dividend, is then distributed to the company's shareholders. The Swiss dividend is allocated at a fixed amount per share. Some of the most important aspects regarding Swiss dividends are mentioned below: 
 
  • although the standard tax base for the taxation of dividends is imposed at a rate of 35%, foreign companies can benefit from reduced (and even exempt) dividend tax if they are the beneficiaries of the EU Parent – Subsidiary Directive;
  • Switzerland is not a member of the European Union (EU), but EU companies performing taxable activities here can benefit from the above mentioned regulation;
  • in the case of foreign companies (based in EU), the 0% withholding tax is applicable in the situation in which the parent company owns at least 25% of the capital of its Swiss subsidiary;
  • under the provisions of the double taxation treaties signed by Switzerland, foreign companies can be entitled to withholding taxes on dividends imposed at the rates of 0% or 5%. 
 

Assessment and determination of dividends in Switzerland 

 
The law stipulates that public limited liability companies in Switzerland must distribute 5% of their reported net profits per year to the general reserves, if the general reserves have not reached 20% of the paid-up share capital. Moreover, the net profit is subject to other provisions established by the company. These lead to the reduction of the assessment base for the dividend amount.
 
The dividend is determined only after all the appropriate allocations have been made according to the applicable laws and the company’s articles of association. The exact value of the dividend is established during the general meeting of shareholders; the procedure is completed through the vote of the shareholders. 
 
In the case of Swiss-based businesses, the local legislation stipulates that the company’s representatives can apply for tax deductions on the dividends, but only in the situation in which the shareholders own a percentage of 10% participation on the company’s capital. The same right is available in the case in which the company’s participation on the stock market is above CHF 1,000,000. Our team of consultants in company formation in Switzerland can offer more details regarding these regulations. 
 

Federal withholding tax in Switzerland 

 
The dividend tax is part of the Swiss withholding tax. The law stipulates that dividends in Switzerland are subject to a 35% withholding tax. A company’s shareholder must declare the dividend as income tax. The gross dividend represents the dividend before the deduction of the withholding tax and the net dividend is what remains after the withholding tax has been deducted. The amount of the gross dividend increases the taxable income.
 
The Board decides the amount of the profit that should remain within the company. There is no fixed minimum or maximum percentage of the net profit that can be distributed as dividends, it can be anywhere between 0 and 100%. However, companies try to impose a constant dividend policy in Switzerland. The goal is to keep the value of the dividend the same as in previous years, regardless of the current financial results.
 

Reduced rates of the dividend tax in Switzerland

 
While the standard rate of the Swiss dividend tax is 35%, the following reduced rates are available under the country’s double tax treaties:
 
  • - the lowest rate is 0% and it is applicable to treaties with states like Bulgaria, Belgium, Columbia and the Czech Republic,
  • - a 5% rate is also available under double tax conventions with countries like Canada, China, Croatia, South Korea, the USA,
  • - a 10% rate is applicable under the double tax agreements with Indonesia, Jamaica, Peru, Pakistan and Thailand,
  • - a 15% rate is applicable under Switzerland’s double tax treaties with France (under specific regulations).
 
Other rates are available under special agreements reached with a few countries.
 
It should be noted that upon the establishment of the reduced rates of the dividend tax under Switzerland’s double taxation agreements depend on the taxes imposed in both signatory states.
 
If you need information on the Swiss taxation system, you can rely on our accountants.
 

Switzerland and EU Parent-Subsidiary Directive

 
Switzerland and the European Union have several agreements, among which some provide for favorable taxation rules available for Swiss companies and EU-resident businesses.
 
One of these rules refers to the Swiss dividend tax paid by a subsidiary registered here to its parent company registered in an EU member state. The dividends are subject to a 0% tax rate provided that a notification is sent to the tax authorities in both countries and the following conditions are met:
 
  • - the EU company holds at least 25% of the subsidiary’s capital for a minimum period of 2 years,
  • - both companies pay the corporate tax in their home countries.
 
Similar rules apply to the payment of interest and royalties, and more information on them can be provided by our Swiss company formation officers.
 
Also, if you are interested in setting up a subsidiary company in Switzerland, we can assist.
 

What are the main regulations on dividends for Swiss holding companies? 

 
In the case of Swiss businesses that are set up as holding companies, the regulations concerning the taxation of dividends stipulate that such companies can obtain full deductions on the expenses associated with the dividends. The Swiss holding company regime is applicable when the company owns at least two thirds of the assets as investments in other subsidiaries. At the same time, the policy concerning holding companies stipulates that at least two thirds of their income must derive from dividends.  
 

The dividend tax applied to natural persons in Switzerland

Swiss citizens and residents are subject to tax assessment procedures and must pay the personal income tax at progressive rates. However, they can have various sources they earn money from and they are also entitled to dividend payments.
 
In the case of natural persons, the dividends obtained from investments in Swiss or foreign companies are taxed at the standard rate of 35%. Just like in the case of companies, the tax can be credited if they are reported in full and correctly.
 
Foreign citizens with dividend incomes in Switzerland must report with the Swiss Tax Administration and the authorities in their home countries in order to avoid double taxation.
 
Please contact our team of consultants in company formation in Switzerland for more information related to the Swiss dividend tax; our representatives can also advice on other taxes that are available for local businesses. We can also provide our clients with complete solutions for opening a company in Switzerland.
 

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