Dividend Tax in Switzerland

Updated on Thursday 19th March 2020

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Dividend-Tax-in-Switzerland 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?

Under the definition of the country’s legislation, the dividend is seen as a portion of the company’s annual profit. The dividend represents the share of the net profit to which a shareholder is entitled to. The value of the dividend is calculated at a fixed value for each share the investors own.

The payment of dividends in Switzerland is performed after the end of the financial year, when the company evaluates its expenses and incomes, in order to establish the overall value of the annual profit. Our team of Swiss lawyers can provide more information on other characteristics of the dividend. According to the Swiss law, the following regulations concerning dividends are applicable:

• 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?

As dividends can be obtained from numerous sources, the taxation of this type of income can vary. Multiple factors are taken into consideration and our team of lawyers in Switzerland can provide an extensive presentation on the matter, but it is important to know that the following types of dividends can be taxed here: dividends from foreign investments, dividends from qualifying participations and dividends from local investments.

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?

As we presented up until now, the taxation of dividends can be exempted in a wide range of situations. Foreign shareholders must know that they can benefit from a tax relief regarding the taxation of dividends; for example, foreign investors who are residents in Switzerland can request for a reclaim of the withholding tax on dividends.

In the case of foreign businessmen residing in other countries, they can benefit from a relief as long as there is a double tax treaty signed between Switzerland and the respective countries where the businessmen are tax residents. The provisions of the tax savings agreements signed by Switzerland with the EU countries are also applicable.

Are there any regulations concerning parent companies in Switzerland?

Yes, Switzerland provides an attractive tax system related to the taxation of dividends for foreign companies that have expanded their activity in this country. Although Switzerland is not a member state of the European Union (EU), it has signed tax treaties that provide similar tax benefits as the ones available at the level of the EU.

Thus, foreign companies can benefit from similar advantages as the ones prescribed under the EU Parent – Subsidiary Directive. This means that the taxation of cross-border dividends can benefit from a full exemption, under specific conditions. In this particular case, the parent company needs to hold at least 25% of the capital of the company registered 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.