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

The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Australia’s conservative opposition will repeal controversial tax agent reporting rules if elected in the country’s May general election
Gift this article