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Switzerland Germany Double Taxation Treaty

Switzerland-Germany Double Taxation Treaty

Updated on Tuesday 10th September 2019

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Switzerland-Germany-Double-Taxation-TreatySwiss double taxation treaties

Switzerland has signed double taxation agreements with over 100 countries and approximately half of them are modernized according to the Organization for Economic Co-operation and Development (OECD) model. The common provision of all double tax treaties Switzerland has concluded is that non-residents may apply for a partial or total tax refund with the Swiss cantonal tax authorities.

 

Another advantage for foreign investors from countries that have not signed any tax agreement with Switzerland is that they can ask for tax deductions in their home countries, deductions that can be obtained as tax credits in Switzerland. For other information about the advantages of doing business here, you may address to our lawyers in Switzerland.

 

Double taxation agreement between Switzerland and Germany

 

In 2011, the two countries have updated the provisions included in the Swiss-German double tax treaty. Among the most important provisions of the double tax agreement is the new threshold for the tax exemption on the distribution of dividends, that was lowered from 20% to 10%, meaning a recipient must own at least 10% of the voting power within a German or a Swiss company distributing the dividends in order to benefit from the tax exemption.

However, the recipient must own the 10% participation for an uninterrupted period of 12 months. Also, if the holding period does not satisfy the 12 months period, a 15% withholding tax on dividends will be levied with the possibility of reclaim after the required period of time has elapsed.

Considering the changes brought to the Swiss dividend declaration requirements that have changed, it is advisable to verify the new reclaim procedures with a law firm in Switzerland. The new Germany-Switzerland double taxation agreement also stipulates that dividends from German real estate companies, investment funds and investment companies will be taxed with a 15% withholding tax.

 

What should one know on the Swiss-German double tax treaty?

 
The double taxation agreement signed between Switzerland and Germany provides the legal framework under which the tax residents of the two countries (natural persons and legal entities) will be taxed when obtaining taxable income on the territories of these jurisdictions. Some of the basic information on the double tax treaty signed between Switzerland and Germany are presented below: 
 
  • Switzerland and Germany have signed a treaty for the avoidance of double taxation in 1976;
  • the double tax treaty was revised at the end of 2011, adding new regulations on the taxation system;
  • the taxation on investments is imposed with a tax rate ranging from 19% to 34% (depending on the economic sector);
  • the taxation of income obtained from capital and investment is charged with a withholding tax of 26,375%;
  • a German subsidiary in Switzerland is imposed with a 0% tax on dividends;
  • royalties and interest also benefit from a 0% withholding tax.  

 

Who can benefit from the provisions of the Swiss-German tax treaty? 

 
There is a wide range of entities that can benefit from the provisions of the double tax treaty signed by Germany and Switzerland. This type of treaty was created with the purpose of avoiding the double taxation of the same income obtained by a taxpayer who performs taxable activities in two different jurisdictions. 
 
Even though the treaties create a suitable taxation environment, it is necessary to know that each of the contracting state has the right to establish its own tax system, as this must be conducted following each country’s national tax legislation. Some of the most common types of entities that can obtain relevant tax advantages are the following: 
 
  • the tax residents of the two countries that have agreed upon a double tax treaty;
  • natural persons who have a permanent residency both in Germany and Switzerland;
  • companies developing import activities in Switzerland or Germany;
  • companies or groups of companies operating through subsidiaries in a foreign country;
  • persons who are citizens of a country and who are employed on a short-term basis in the other country. 

 

What does the OECD model promote? 

 
The double tax treaty signed by Switzerland and Germany is based on the OECD model. The OECD model is created in such a way that it can promote an easier way of developing trading relations between countries across the world; its provisions stipulate that another purpose of a tax agreement is to assist in the expansion of economies and lead to progress. 
 
Other double tax treaties that were signed in Switzerland follow the model established by the United Nations; our team of Swiss lawyers can advise on the main differences that can be found between the two tax models, but it is necessary to know that the OECD model is focused on export of capital and economic progress, while the UN model promotes the economic development as well, but it also aims at political cooperation between any two contracting states. 
 

What are the regulations concerning a permanent establishment in Switzerland?

 
A German business can conduct its operations in Switzerland through a permanent establishment. The term defines a physical place for doing business, which can refer to establishments such as: branch offices, factories, quarries for the extraction of natural resources and many more, which can be detailed by our team of lawyers in Switzerland
 
The double tax treaty stipulates that once a foreign business has set up a permanent establishment in the other contracting state, the taxation of the entity will be done in the other state. This means that once a German business operates in Switzerland through a permanent establishment, it will be taxed in Switzerland, but the taxation will be done taking into consideration only the company’s income obtained in this country (the same regulation applies for Swiss businesses operating in Germany). 
 
The double tax treaties signed in this country, including the one with Germany, provide a clear understanding on the term permanent establishment. In most cases, the term is defined as stipulated by the OECD model, which also includes a building site, a construction project, but only as long as the company’s operations are carried in the respective location for a period of minimum twelve months. 
 

Exchange of information between Switzerland and Germany

 

The treaty for the avoidance of double taxation signed by Switzerland and Germany prescribes provisions on the exchange of tax information, as stipulated by the requirements of the Organization of Economic Cooperation and Development (OECD).The double taxation agreement states that the exchange of information must take place for all the taxes covered by the treaty. However, the information may be communicated only at the request of the tax authorities in Switzerland or Germany.

For complete information about the double tax agreement with Germany, please refer to our attorneys in SwitzerlandOur team of Swiss lawyers can present more details on other regulations addressed to specific business sectors (the treaty includes provisions regarding the taxation of income obtained from shipping or aviation, for example).