Taxation of Dividends, Interest and Royalties in Switzerland
In Switzerland, the tax treatment of dividends, interest and royalties constitutes a specialisation area requiring thorough mastery of Swiss legislation. Our law firm possesses the necessary expertise to navigate this complex system which combines federal direct tax, cantonal and municipal taxes, as well as double taxation treaties. The Swiss tax regime presents notable particularities, notably with the anticipatory tax (withholding tax) of 35% levied at source on certain income from movable capital. Understanding the mechanisms for reduction or refund of this tax, as well as the possibilities for legal tax optimisation, represents a considerable advantage for investors and companies operating in Switzerland.
The Dividend Taxation Regime in Switzerland
In Switzerland, dividends are subject to a multi-level taxation system. At the federal level, dividends are subject to anticipatory tax of 35%, levied directly at source. This deduction constitutes a guarantee for the tax administration, but is not definitive for Swiss residents who may request its refund under certain conditions.
For natural persons resident in Switzerland, dividends are integrated into taxable income. However, since the corporate tax reform II, a substantial relief has been introduced in the form of partial taxation. Thus, when participations represent at least 10% of the share capital or registered capital of a company, dividends are only taxed at:
- 70% at the federal level
- Between 50% and 70% at the cantonal level, depending on the canton
For Swiss legal entities, the system is different. Companies holding at least 10% of the capital of another company, or participations with a fair market value of at least CHF 1 million, may benefit from the participation deduction. This mechanism avoids triple economic taxation by reducing corporate profit tax proportionally to the ratio between the net income from participations and total net profit.
Cantonal Specificities in Dividend Taxation
Switzerland being a federal state, each canton has tax autonomy that gives rise to notable differences in the treatment of dividends:
- Certain cantons such as Zug or Schwyz offer particularly advantageous tax rates
- Other cantons offer more generous allowances on the taxable dividend base
- Progressive tax scales vary considerably from one canton to another
For foreign investors, the anticipatory tax of 35% may be partially or totally refunded depending on the double taxation treaties (DTTs) concluded between Switzerland and their country of residence. Our law firm regularly assists international clients in these refund procedures which require in-depth knowledge of the applicable treaties and specific administrative formalities.
Taxation of Interest in Switzerland
The tax treatment of interest in Switzerland presents distinctive features from that of dividends. Contrary to a widespread idea, not all interest is subject to anticipatory tax. Only interest from client deposits with Swiss banks, bonds of Swiss debtors and certain collective investment schemes is subject to this 35% tax.
For natural persons resident in Switzerland, interest received is fully taxable as movable asset income, without benefiting from partial taxation as dividends do.
Interest Exempt from Anticipatory Tax
Several categories of interest escape anticipatory tax, notably:
- Interest on mortgage loans
- Interest on loans between non-banking companies
- Interest paid by foreign debtors
- Interest on foreign bonds, even held in a Swiss bank deposit
For companies, interest paid generally constitutes deductible expenses from taxable profit, subject to thin capitalisation rules and arm's length interest rates. The FTA publishes annual circulars setting admissible interest rates for intragroup loans.
Tax Treatment of Royalties in Switzerland
Royalties represent remuneration paid for the use or concession of copyright, patents, trademarks, designs, models, plans, formulas or secret processes. In Switzerland, the tax treatment of royalties presents advantageous specificities that contribute to the country's attractiveness for companies holding intangible assets.
Unlike dividends and certain interest, royalties paid by a Swiss debtor to a Swiss or foreign beneficiary are not subject to anticipatory tax of 35%. This absence of withholding tax at source constitutes a major asset of the Swiss tax system in an international context.
Royalties and the Patent Box
For Swiss companies, royalties received are integrated into taxable profit. However, several cantons have introduced favourable tax regimes for income from intellectual property, notably in the form of a patent box. This regime, introduced in the framework of the TRAF tax reform, allows reduced taxation of income from patents and comparable rights. The relief rate may reach up to 90% depending on the canton.
Calculation Example: Dividend Taxation for an Individual Shareholder
| Step | Without Partial Taxation (participation < 10%) | With Partial Taxation (participation ≥ 10%) |
|---|---|---|
| Gross dividend | CHF 100,000 | CHF 100,000 |
| Anticipatory tax withheld (35%) | – CHF 35,000 | – CHF 35,000 |
| Net dividend received | CHF 65,000 | CHF 65,000 |
| Taxable amount as income (FITA) | CHF 100,000 (100%) | CHF 70,000 (70%) |
| Income tax (marginal rate 30% e.g.) | CHF 30,000 | CHF 21,000 |
| Refund of anticipatory tax | + CHF 35,000 | + CHF 35,000 |
| Net tax burden | CHF 30,000 | CHF 21,000 |
Summary: Tax Treatment of Dividends, Interest and Royalties
| Type of Income | Anticipatory Tax | Natural Person (income) | Legal Entity (profit) |
|---|---|---|---|
| Dividends from Swiss shares | 35% | 100% or 70% (participation ≥ 10%) | Participation deduction (≥ 10%) |
| Interest on Swiss bonds | 35% | 100% of income | Fully taxable |
| Interest on Swiss bank accounts | 35% | 100% of income | Fully taxable |
| Interest on inter-company loans | 0% (no AT) | 100% of income | Taxable, deductible for debtor |
| Patent / licence royalties | 0% (no AT) | 100% of income | Patent box possible (up to –90%) |
Frequently Asked Questions about Dividend Taxation in Switzerland
What is partial dividend taxation and to whom does it apply?
Since the corporate tax reform II, dividends from participations of at least 10% of capital are only taxed at 70% at the federal level (FITA) and between 50 and 70% at the cantonal level depending on the canton. This partial taxation applies to natural persons holding a qualifying participation in their private or commercial assets. It aims to mitigate economic double taxation: company profits are first taxed under corporate profit tax, then dividends at the shareholder level.
Do I pay anticipatory tax on dividends from foreign shares held in Switzerland?
No. The Swiss anticipatory tax only applies to dividends paid by Swiss companies. Dividends from foreign shares may however be subject to withholding tax at source in the country of issuance. These withholdings may be partially recovered via the double taxation treaties that Switzerland has concluded with more than 100 countries.
Are licence royalties subject to anticipatory tax in Switzerland?
No, royalties paid by Swiss companies are not subject to anticipatory tax, unlike dividends and certain interest. This is a major competitive advantage for Switzerland for companies holding intellectual property assets. Moreover, since the TRAF reform, cantons may grant a tax reduction of up to 90% on patent income via the patent box.
How does the participation deduction work for a Swiss holding company?
A Swiss holding company that receives dividends from a subsidiary of which it holds at least 10% of capital (or whose fair market value exceeds CHF 1 million) benefits from the participation deduction. Corporate profit tax is reduced proportionally to the ratio between the net income from participations and total net profit. In practice, if the holding generates 90% of its income via eligible dividends, its tax is reduced by 90%, making the tax burden quasi-nil on these revenues.
How can PBM Avocats optimise the taxation of my dividends in Geneva or Lausanne?
Our firm analyses the structure of your participation and your dividend income to identify the most favourable regime: partial taxation, participation deduction, patent box. We advise you on the structuring of distributions (timing, amounts, legal forms) and assist you in anticipatory tax refund procedures or relief under the applicable double taxation treaties.