In Switzerland, dividends, which represent a significant proportion of a company's capital income, are subject to the tax on dividends.withholding tax. Understanding how this income is taxed is essential to optimizing your tax situation and declaring it correctly at the end of the year.
This article will guide you through the various aspects of dividend taxation in Switzerland, covering tax rates, possible exceptions and the procedures for reclaiming withholding tax, both in Switzerland and abroad.outside of Switzerland.
Withholding tax
Withholding tax in Switzerland is a deduction from the taxpayer's income. source applied to certain income, including dividends, interest, lottery winnings and insurance benefits. This tax is set at a rate of 35% and is collected directly by Confederation before income is paid to beneficiaries.
Purpose of withholding tax
The main purpose of withholding tax is to serve as a means of control mechanism to encourage taxpayers to declare their income correctly at the time of the tax return. In fact, this tax acts as a means of fight against fraud tax, by encouraging taxpayers to declare not only income subject to withholding tax, but also the assets from which this income is derived.
When taxpayers comply with their tax obligations by declaring these amounts, they can apply for the total reimbursement withholding tax.
Withholding tax on dividends
Dividends paid by Swiss companies to their shareholders are subject to withholding tax. This includes dividends fromcommon shares as well as income from participation certificates.
Dividend taxation method
In Switzerland, dividends paid to shareholders are subject to a withholding tax of 35%, deducted directly from the dividend. at the sourceIn other words, before the dividend is paid to the beneficiary. For example, if a gross dividend of CHF 1,000 is declared, only CHF 650 will actually be paid to the shareholder, the remaining CHF 350 being withheld by the tax authorities.
Dividend repayment in Switzerland
Once the dividends are declared on the annual tax return, taxpayers resident in Switzerland can usually recover the all withholding tax. This reimbursement is made through a reduction in the direct tax due, or in the form of a direct reimbursement by the tax authorities.
Repayment of foreign dividends
The foreign investors can also reclaim all or part of the withholding tax deducted from Swiss dividends, depending on the double taxation agreements in force between Switzerland and their country of residence. To obtain a refund, investors must generally follow a procedure involving the submission of forms to the Swiss tax authorities and the presentation of proof of tax residence in their country.
However, for small amounts or in situations where the administrative procedures are complex, it may not be economically worthwhile to repay in full.
Check whether your country of residence has a double taxation agreement with Switzerland..
In the absence of a double taxation agreement
Without a double taxation agreement, foreign investors cannot in principle not recover withholding tax on Swiss dividends. The standard rate of 35% deducted at source applies in full, with no possibility of refund, as no bilateral agreement provides for a mechanism to avoid double taxation.
It should also be noted that this is all the more problematic if the investor's country of residence also taxes these dividends (which is generally the case), resulting in a "double taxation". double taxation : first in Switzerland via withholding tax, then in the country of residence via theincome tax. This can represent a significant tax disadvantage for investors.
Securities income VS capital gains
It is also important to distinguish between income from securities (such as dividends and interest) and capital gains (such as stock market capital gains), as they are treated differently for tax purposes.
Income from securities
Dividends Dividends from shares or similar securities are considered income and are therefore subject to income tax. As mentioned above, this income is also subject to withholding tax.
Interests Interest on bonds and other financial instruments is also considered taxable income, with withholding tax deducted when generated in Switzerland.
Capital gains
Stock market capital gains Capital gains realized through the sale of securities, such as shares, are generally tax-exempt for individuals in Switzerland. This means that, subject to certain conditions, gains obtained through the resale of securities are not subject to income tax.
Exemption for individuals To qualify for this exemption, gains must be derived from an activity that is considered private, and not professional. Private investors, who buy and sell securities in the course of managing their own assets, are not subject to tax on these gains.
Frequently Asked Questions
What is withholding tax in Switzerland?
Withholding tax is a 35% withholding tax applied to dividends, interest and certain other types of income from capital. Once the income has been declared, this tax can be recovered by Swiss residents.
How can I reclaim withholding tax on my dividends?
To reclaim the withholding tax, you will need to declare the gross dividends on your tax return. The tax authorities will will reimburse then the withholding tax deducted (if resident and if there is a double taxation agreement in your country).
Are capital gains taxed in Switzerland?
Capital gains, such as capital gains obtained through the sale of securities, are generally tax-exempt for private individuals in Switzerland. However, if the tax authorities consider that you are engaged in professional securities trading, these gains may be taxed as income.
What happens if there is no double taxation agreement between Switzerland and my country of residence?
In the absence of a double taxation agreement, you generally cannot reclaim Swiss withholding tax, and will be taxed twice: in Switzerland and in your country of residence.
Do I have to declare foreign dividends on my Swiss tax return?
Yes, foreign dividends must be declared on your Swiss tax return. You can also reclaim all or part of thewithholding tax levied abroad, depending on the double taxation agreements between Switzerland and the foreign country.
