Taxes in Switzerland are collected at federal, cantonal and local level. Dividends and interests are subject to a 35% withholding tax that can be deducted in full in Switzerland.
Switzerland’s corporate taxation system usually leads to double taxation. All legal entities are subject to the corporate tax in Switzerland except for non-profitable organization. In order to avoid double or in some cases multiple taxations companies making profit from dividends or capital gains are allowed to apply for tax deductions. Foreign companies with a registered office in Switzerland together with Swiss companies are allowed to apply for tax relief. To benefit from dividend tax deduction shareholders must have at least 10% participation of the capital of the company or the value of the participation must exceed on the stock market 1,000,000 CHF.
At cantonal and local level the tax deduction on dividend is applied the same, except the income of the participation holding must be at least two thirds and must come from long-term investments. The holding company is required not to conduct any business operation in Switzerland.
If the dividends issued by a company in Switzerland are subject to foreign withholding taxes that cannot be totally deducted, the deduction they will benefit from will be a lump-sum or a reduction from the income made by those dividends in Switzerland. At cantonal level the sum that cannot be returned for the foreign withholding tax will be obtained a residual tax for the Swiss company.
Interests and administrative expenses benefit from tax refunding in Switzerland if they do not exceed the safe haven limit imposes by the Swiss authorities. As dividends affect a company’s profits but also the earnings made on the dividends, the participation deduction will be made according to the expenses. Swiss holding companies without any other source of income will benefit from dividend expenses deduction of up to 100%. The interest expenses on incomes made from dividends will correspond to the tax applied for income (Gewinnsteuerwerte). The same procedure is applied at cantonal level as well, except for holding companies where almost all incomes are exempt from taxation.