In Switzerland, the withholding tax is charged on income derived from capital, such as interests on bank accounts and securities, dividends, pensions and annuities, lottery winnings and shares on profits. The usual tax rate for the withholding tax is 35% for income derived from capital and lottery winnings, 15% for pensions and annuities and 8% for other insurance benefits. However, the withholding tax can be refunded if the assets and revenue they produce is declared in the tax return. Therefore, the claim for a tax refund is triggered automatically. In most cases, the refund is set off against the tax amount due in cantonal tax or is repaid.
Corporate withholding tax in Switzerland
The tax rate for the corporate withholding tax in Switzerland is 35%. If a tax relief is granted, the sum paid for the withholding tax is refunded. In the case of dividends between qualifying related companies, a notification or reporting procedure may be requested for the fraction of Swiss withholding tax exceeding the residual withholding tax. Credit for the portion of Swiss withholding tax which is not tax relieved may be available in the country of the recipient, depending on the provisions of the applicable double taxation avoidance treaty.
Interest derived from regular loan agreements is exempt from withholding tax in Switzerland. The 35% withholding tax rate is levied only on interest paid by banking institutions or legal entities qualified as banking institutions, interest on bonds an interest on bond-like loans.
Several of the double taxation avoidance treaties concluded between Switzerland and other countries contain a full relief if interest of dividends is paid to governments of the respective states, including governmental institutions and political subdivisions, central banks and pension funds.
Swiss holding companies may benefit from a reduced withholding tax rate if recipient of the dividends is a corporate body, as provided by the concluded double taxation avoidance treaties. For example, the recipient can’t be taxed as a partnership.
Interest paid on bonds with claim waiver of systematically important banks is exempt from the Swiss withholding tax rate. The exemption is restricted to bond issued by the respective institutions between 2013 and 2021. Interest of certain bail-in bonds issued by the said institutions between 2017 and 2021 is also not subject to withholding tax rate. These bonds must fulfill certain criteria in order to benefit from the withholding tax exemption.
Swiss withholding tax on dividends paid by a Swiss company subsidiary to an EU parent company may be reduced to 0% if both companies are subject to CIT and a minimum of 25% of the subsidiary’s capital is held for at least 2 years.
The withholding tax is not levied on royalties, licenses and other fees related to intellectual property payable by Swiss companies or individuals.
Withholding tax for foreign citizens in Switzerland
Foreign citizens that are residents of Switzerland and cross-border commuters have their income tax at source. The withholding tax is deducted directly from their salaries on monthly basis and the employers forward the taxes to relevant Swiss tax authorities.
However, foreign citizens that hold a Swiss C permit or who are married to a Swiss citizens or a person who holds a Swiss C permit are exempt from the withholding tax and are taxed under the statutory assessment procedure.
The level of withholding tax deductions is based on applicable rates depending on a person’s civil status, on the number of children involved and if their spouse has a job or not. Tax rates vary depending on the Swiss canton of residence.
Deductible expenses can also be applied retroactively. Certain costs can be subject of tax reassessments such as costs of continuing education and training, occupational pensions, external child care etc.
For more information regarding the withholding tax and for other types of taxes in Switzerland, contact our accountants in Switzerland.