Dividends in Switzerland: Definition
In Switzerland, dividends are a means of compensating a Swiss company's shareholders. They differ from a salary in that they can take many forms and can also provide certain benefits in comparison.
Dividends vs. Salary
Benefits of dividends
Dividends are generally more advantageous for shareholders, especially in terms of taxation. Salaries are generally taxed more heavily than dividends.
In addition, dividends are not subject to social security charges. social security charges, which increases the amount received by shareholders.
Salary benefits
Even so, salaries offer a number of advantages over dividends. Salaries offer greater security, since they provide regular and therefore more stable pay. What's more, unlike dividends, they offer social security benefits such as AHV or IV.
The Different Types of Dividends
Cash Dividends
As the name suggests, this is an amount paid to shareholders in cash..
This is the most common type of dividend paid by Swiss companies, with over CHF 53 billion paid in cash dividends in 2024 according to the Swiss Performance Index (SPI).
Stock Dividends
A shareholder can also receive additional shares, without receiving cash. This allows a company to keep its cash in order to continue developing the company.
Shareholders can also benefit if the value of the the action increases. However, the opposite situation is also possible, if the share loses value. These types of dividends can therefore bring security, but also a certain amount of risk.
Dividends in Kind
This type of dividend is less common than stock and cash dividends, but is also a possibility. This type of remuneration takes the form of goods and/or services, called "active."
A company that produces wine or chocolate, for example, can offer its products to its shareholders; they will therefore be considered assets.
Why Choose Dividends?
While attractive salaries are attractive, dividends are a clearer indication of the financial stability of a company. In turn, this makes a company more attractive to current and future investors.
Giving stock dividends allows Swiss companies to keep their funds for the future like the finance of new projects, while rewarding shareholders by increasing their stake in the company. Indeed, expanding companies often need to reinvest their money in order to grow.
Why Don't Some Companies Pay Dividends?
Some companies do not give out dividends to their shareholders. There are usually several reasons for this decision.
Financial Instability
Not paying dividends can be potentially negative and can be a sign of a company in financial difficulty, although this is not always the case. However, a company in difficulty is more likely to keep its money in order to recover.
Growing Company
Indeed, if a company is growing fast, as is the case in many IT companies, instead of distributing profits to shareholders, it will reuse all its money to build up its business. developing even more. It does this, for example, by hiring more staff or improving its products.
Rules and Conditions
In Switzerland, dividends are subject to a number of conditions and are strictly regulated by the Swiss Code of Obligations (CO). In particular, art. 675 sets out important rules concerning the payment of dividends:
- No interest on share capital: Shareholders cannot receive interest simply because they own shares.
- Dividends are paid solely from profits and reserves set aside for this purpose:The company can only distribute dividends if it has made a profit (balance sheet profit) or if it has set aside money specifically for this purpose (earmarked reserves).
- Legal obligations take precedence: Before setting the amount of dividends, the company must first set aside part of its profits in mandatory reserves and, if it so wishes, in additional reserves.
In Switzerland, therefore, directors can only receive a share of profits if the company is financially stable. On the other hand, shareholders are priority; a dividend of at least 5 % must first be paid to shareholders before giving a share of profits to directors.
Dividend Payment Stages
1. Determine Profit
As stipulated by Swiss law, a company must first determine whether a profit has been made if it wishes to distribute dividends, unless it has reserves set aside specifically for this purpose.
2. General Meeting
Dividends can only be paid after a general meeting. During this process, the various shareholders divide the profit into dividends, which are then paid out to the shareholders.
3. Dividend Registration
Once dividends have been distributed among shareholders, these payments must be recorded in the accounts. In effect, dividends are seen as short term debt , which reduces available capital.
4. Taxation of Dividends
In Switzerland, dividends are taxable in the same way as shares in profits or interest on assets, i.e. they are treated as income. A shareholder will therefore also have to pay income tax and withholding tax (35%).
Frequently Asked Questions
What is a dividend in Switzerland?
In Switzerland, dividends are a means of paying the shareholders of a Swiss company. They differ from salaries in that they can take several forms and offer certain tax advantages over salaries.
What are the advantages of dividends over salaries?
Dividends are generally more tax-efficient than salaries. In fact, salaries are more heavily taxed and subject to social security charges, whereas dividends are not normally subject to social security charges, which increases the amount received by shareholders.
What are the advantages of salaries over dividends?
Salaries offer greater security through regular, stable payments. What's more, unlike dividends, salaries are covered by social security schemes such as AVS and AI.
What are the different types of dividends?
There are several types of dividend: cash, stock and in-kind. Each type has its own specific features and benefits for shareholders.
What is a cash dividend?
A cash dividend is an amount of money paid directly to shareholders. It is the most common type of dividend in Switzerland, with over 53 billion Swiss francs in cash dividends paid out in 2024.
