Swiss Withholding Tax
Swiss Withholding Tax (Verrechnungssteuer)
Switzerland levies a federal withholding tax, called Verrechnungssteuer, primarily on investment income such as dividends, interest from certain bonds, and fund distributions. It serves both as a revenue source and as a compliance mechanism to ensure income reporting. Relief or refund is available for eligible Swiss residents and foreign investors under treaties and procedures.
1. Scope & Taxable Payments
Swiss withholding tax applies to specific categories of income sourced in Switzerland. It is levied at the level of the payer and withheld at source.
Dividends
Distributions by Swiss corporations (AG, GmbH) are subject to withholding tax, whether in cash or kind. This includes hidden profit distributions and certain deemed dividends.
Interest
Interest from Swiss bonds and similar collective debt instruments can be subject to withholding. Ordinary commercial loans between independent parties are generally exempt.
Distributions by Funds
Swiss investment funds distributing income are subject to withholding, except for distributions of capital gains which are exempt.
2. Standard Rate
- The standard Swiss withholding tax rate is 35%.
- The tax is withheld by the Swiss paying agent and remitted to the Federal Tax Administration (FTA).
3. Relief & Refunds
Relief depends on the residence of the recipient and the applicable legal framework.
Domestic Beneficiaries
Swiss residents can reclaim the full withholding tax by declaring the income in their tax return, provided they are the beneficial owner and comply with reporting obligations.
Treaty Relief for Non-Residents
- Switzerland has an extensive treaty network that reduces withholding rates, often to 15% or lower for dividends.
- Qualifying corporate shareholders may benefit from a full exemption (0%) under certain treaties or EU agreements.
- Relief is granted either by refund procedure (using official forms, e.g., Form 82) or in some cases at source.
4. Compliance & Procedures
- Swiss companies must withhold and remit tax within 30 days after the taxable event.
- Refund claims by non-residents must usually be filed within a statutory deadline (typically 3 years).
- Documentation includes proof of residence, beneficial ownership, and tax forms endorsed by the foreign tax authority.
5. Practical Planning Aspects
- Ensure holding structures qualify under treaty/EU rules to avoid cash leakage.
- Monitor anti-abuse provisions (beneficial ownership, limitation-on-benefits, anti-avoidance).
- Consider timing of distributions and coordination with corporate income tax planning.