Dividend Tax in Switzerland
Dividend Tax in SwitzerlandUpdated on Thursday 19th March 2020
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Swiss taxes are collected on a three tier system – federal, cantonal and local levels. Dividends and interests are subject to a 35% withholding tax that can be deducted in full in Switzerland. Our team of Swiss lawyers can provide an extensive presentation on the taxes that can be imposed to local and foreign businessmen and in-depth advice on the manner in which the dividend tax is applied here; investors can also request assistance on the overall taxation system available in this country.
What is a dividend in Switzerland?
- • a business registered in Switzerland as a public limited company must distribute 5% of its annual net profit to the general reserves;
- • this means that this type of company will need to calculate the value of the dividends after distributing 5% of its net profit to the general reserves;
- • the value of the dividend for a public limited company will be decided based on the remaining net profit, but also on the provisions stipulated in the company’s articles of association;
- • as a general rule, although the company’s board can establish a specific value for each distributed dividend, the trend in Switzerland is to have a constant value, regardless of the financial results of the company;
- • income obtained from dividends is considered an income tax, and it is taxed accordingly.
What types of dividends are taxed in Switzerland?
Deduction on incoming dividend payments in Switzerland
All legal entities are subject to the corporate tax in Switzerland except for non-profitable organizations. In order to avoid double or in some cases multiple taxations, companies making profits 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 the dividend tax deduction, shareholders must have at least 10% participation at the capital of the company or the value of the participation must exceed on the stock market CHF 1,000,000. At cantonal and local levels, the tax deduction on dividends is applied following the same rules, except the income of the participation holding, which must be at least two thirds and must come from long-term investments. The holding company is required not to conduct any business operations in Switzerland.
Foreign withholding tax (WHT) 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; it can also be provided as a reduction from the income obtained from the respective dividends. At cantonal level the sum that cannot be returned for the foreign withholding tax will be obtained a residual tax for the Swiss company.
Deductibility of dividend expenses in Switzerland
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 to income (Gewinnsteuerwerte). The same procedure is applied at cantonal level as well, except for holding companies, where almost all incomes are exempt from taxation. When distributing dividends in Switzerland, the withholding tax is applied to the paying entity; our team of lawyers can provide further information regarding other matters concerning the Swiss dividend.
In the case of holding companies in Switzerland, they can qualify for the holding company tax privilege as long as certain conditions apply. For example, this is applicable when the holding company has at least two thirds of its assets invested in subsidiaries. The holding company tax privilege is also available when the holding company obtains at least two thirds of its annual income from dividends. Our law firm in Switzerland can offer further information on the legislation addressed to holding companies registered here.
Who can apply for a tax relief in Switzerland?
Are there any regulations concerning parent companies in Switzerland?
If you want to set up a business and need details about taxation on dividends you can contact our law firm in Switzerland. Our attorneys can provide information on other types of taxes in Switzerland available for companies, such as the corporate tax, the value added tax, or the taxes imposed on the income of an employee.