Dividend distribution tax in Switzerland

In Switzerland, the dividend distribution tax is levied on companies distributing dividends to their shareholders, often referred to as the dividend tax. Swiss legislation mandates that companies pay this tax to ensure that income from these distributions is taxed. The dividend distribution tax is a federal tax governed by the Federal Act on Withholding Tax (LIA), which also regulates other indirect taxes such as taxes on interest and capital gains. This tax applies to Swiss companies and foreign companies with a branch in Switzerland. However, foreign companies may be exempt from the dividend tax if there is a double taxation treaty between their home country and Switzerland.

Types of companies subject to dividend tax

All Swiss companies are subject to the dividend tax, but the rate varies depending on the type of company. Limited liability companies (GmbH) and public limited companies (AG) are the most common forms in Switzerland and are both subject to this tax. Simple partnerships (KG) and limited partnerships with shares (KGaA) are also subject to it. However, general partnerships (OHG) are not, as they are not considered separate taxable entities; profits are directly taxed on the beneficiaries.

Calculating dividend tax

The calculation of dividend tax is based on a company’s distributable profit, determined by deducting deductible expenses from the company’s revenue. The distributable profit is then subject to corporate income tax at the applicable rate. After calculating the corporate income tax, the company determines the amount of dividends to be distributed to shareholders. Once this amount is determined, the company must withhold the dividend distribution tax at the applicable rate before paying out dividends to shareholders. The tax rate varies depending on the company’s and the shareholder’s circumstances. Foreign shareholders are also subject to the dividend tax, but the rate can be reduced under a double taxation treaty between Switzerland and their country of residence. Additionally, dividends received by companies are not subject to the dividend distribution tax. Companies can deduct dividends received from their taxable profit, reducing their overall tax burden.

Beneficial tax regimes for Swiss companies

Swiss companies can benefit from favorable tax regimes that help reduce their tax burden on dividends. Common beneficial regimes include the holding company regime and participation relief. The holding company regime allows Swiss companies to hold shares in foreign companies and benefit from a favorable tax rate on dividends received. Moreover, they can deduct certain expenses from their taxable income, further reducing their tax burden.

Participation relief

Participation relief is a beneficial tax regime for companies holding a significant stake in another company. This regime allows companies to reduce their tax burden on dividends received based on the percentage of participation held. To qualify for participation relief, a company must hold at least 10% of the issuing company’s share capital for at least one year. The participation relief was introduced to encourage long-term investments and facilitate mergers and acquisitions. It allows companies to reduce their tax burden on dividends received, enhancing their investment capacity. However, participation relief is subject to certain limits and conditions and must be claimed by the company; it is not automatically granted.