Switzerland edges closer to reforming withholding taxes

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Switzerland edges closer to reforming withholding taxes

Sponsored by

Sponsored_Firms_deloitte.png
intl-updates-small.jpg

In the course of its March 8 2019 meeting, Switzerland's Federal Council took note of an expert board's report and its recommendations for reforming Swiss withholding taxes (WHTs).

The report aims to strengthen the Swiss debt capital market and securing tax compliance. It rests on two main pillars:

  1. The abolishment of WHTs on interest paid to Swiss corporate and to foreign investors; and

  2. he introduction of a paying agent model and expansion of the WHT regime to include income that Swiss resident individual investors receive from foreign investments.

The WHT regime in Switzerland currently follows the debtor principle. This sees the Swiss payer of interest or dividends deduct a WHT of 35%. This is then deposited with the Swiss Federal Tax Administration, and 65% of the net amount is then credited to the investor.

Abolishment of WHTs on interest paid to Swiss corporate and to foreign investors

Interest paid to Swiss corporate and to foreign investors will no longer be subject to the Swiss WHT. This measure would make it more attractive for investors to purchase Swiss bonds and for Swiss companies to perform cash pooling and treasury functions domestically.

Introduction of paying agent principle

For payments that fall under the paying agent system for a Swiss resident individual investor, as listed below, the Swiss paying agents (i.e. the Swiss banks), would deduct the WHT and deposit it with the Swiss Federal Tax Administration, which in principle is similar to how the US withholding agent regime works.

The following types of income fall under the paying agent system:

  • Interest from Swiss and foreign bonds;

  • Dividends from foreign stocks or similar equity instruments; and

  • Interest from domestic bank accounts.

Under the report, the following will remain subject to the debtor principle:

  • Dividends from Swiss stocks and similar equity instruments;

  • Domestic lottery wins; and

  • Domestic insurance benefits.

Indirect investments will generally be treated as direct investments. This means that their income will fall under the paying agent principle, except for the share of income allocable to dividends from Swiss stocks and similar equity instruments.

The suggestions by the expert board report addresses a long-standing backlog of reforms, and an urgent concern of capital market participants.

Many aspects of the proposal are undoubtedly appealing and support the intended objective. However, the suggested reform lacks any positive features for wealthy Swiss resident individuals who already declare all of their investments and related income.

Furthermore, the planned 35% WHT on foreign dividend and interest income, coupled with liquidity implications around year-end, would be a clear disadvantage.

more across site & shared bottom lb ros

More from across our site

Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Shapley would be the fourth person to hold the job this year; in other news, UK tax advisory firm MHA raised fewer funds than expected from its London IPO
The US needs to be involved in pillar one for there to be more international acceptance of the project, Michael Masciangelo says
The UK regulator is investigating EY’s auditing of the national postal service as it relates to the high-profile Horizon scandal, which saw hundreds wrongfully convicted
The directive will extend cooperation and information exchange around pillar two, according to the Council of the EU
Audit engagement partner Christopher Voogd has also been hit with a £32,500 charge over the firm’s work with Stirling Water Seafield Finance
China’s largest overhaul of its tax administration system in 24 years, featuring enhanced enforcement powers, is underway, says Abe Zhao of FenXun Partners
However, the US president increased tariffs on imported Chinese goods to 125%; in other news, UK tax firm MHA expects to raise £102m from its London listing
A mere three firms accounted for more than 90% of top-up taxes paid, according to research from Deloitte
Taxpayers with Brazilian operations should revisit their withholding positions in light of updated US guidance, writes Rafael Benevides, senior tax counsel at Meta
Gift this article