Double Tax Treaties in Switzerland
Double Tax Treaties in SwitzerlandUpdated on Thursday 19th March 2020
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Switzerland is one of the many countries concluding double taxation treaties in order to avoid taxes on incomes and capital that could be applied twice to individuals or companies. Most Swiss double taxation agreements (DTAs) comply with the OECD Model Tax Convention on Income and Capital enabled in 2009 by the Federal Council.
Purposes of double taxation agreements in Switzerland
Switzerland has concluded double tax treaties with more than 80 countries. The core purpose of double taxation treaties is the partial or total refund of taxes paid by individuals or foreign companies in Switzerland. If no treaties have been concluded foreign entities withholding taxes are applied in foreign countries and the companies will benefit from tax credit with the Swiss authorities. Royalties and profits made by a Swiss branch that are sent back to the parent company in another country are not subject to any withholding taxes and are not conditioned by any double taxation treaty. Double taxation agreements in Switzerland are also meant to encourage foreign investment.
Countries that have double tax treaties with Switzerland
As mentioned above, Switzerland has double taxation treaties with over 80 countries. Some of these countries are:
- - In Europe: Austria, Belgium, The United Kingdom, Germany, France, Greece, Hungary, Ireland, Italy, Romania, Finland, Denmark and Spain;
- - In Asia: China, Japan, Taiwan, Thailand, India and Indonesia;
- - In South America: Venezuela, Argentina, Chile and Mexico.
Switzerland also signed double tax treaties with Russia, Turkey, the United States, Australia and several African countries.
Treaty abuse in Switzerland
If double taxation treaties have been breached, Switzerland has the right to consider it an abuse and act accordingly. Under Swiss laws in order to abuse a tax treaty one of the following conditions must be breached:
- - The company must have a balanced debt/equity ratio;
- - A company must not have great interest rates on contracted loans;
- - The company must pay less than 50% of its turnover to non-residents;
- - At least 25% of the company’s income must be paid in dividends;
If either one of these conditions is not met the withholding taxes will not be refunded.
Swiss companies exempt from cantonal taxes and repatriating profits to German, Italian, French and Belgian companies are also exempt from withholding taxes on dividends, royalties or interests, disregarding double taxation agreements.