Dividend withholding tax is a crucial aspect of investment income that many individuals and international investors must contend with. Whether you are a Swiss resident or an overseas investor holding shares in Swiss companies, understanding how dividend withholding tax works—and more importantly, how you can reclaim it—is essential for optimizing your net returns.
This blog provides a comprehensive overview of Switzerland’s dividend withholding tax system, its implications for different types of investors, and the procedures for reclaiming overpaid or refundable tax amounts.
What Is Dividend Withholding Tax?
Dividend withholding tax is a tax levied at the source on dividend payments made by companies to shareholders. In Switzerland, this tax is administered by the Federal Tax Administration (FTA) and is typically applied at a rate of 35% on dividend distributions.
The withholding mechanism ensures that tax is collected upfront and acts as a deterrent against tax evasion. The company paying the dividend is responsible for deducting the tax before the dividend is disbursed to shareholders.
Who Is Subject to Swiss Withholding Tax?
The withholding tax applies to:
- Swiss residents: Individuals or entities residing in Switzerland who receive dividends from Swiss companies.
- Foreign investors: Non-residents who hold shares in Swiss corporations and receive dividends from these investments.
While the tax is withheld at the same rate for both groups, the process for reclaiming it can vary significantly depending on your residency status and whether a double taxation treaty (DTT) applies.
Why Is Withholding Tax Deducted?
Switzerland implements withholding tax as a collection mechanism to ensure income from movable capital, such as dividends, is declared properly. The tax is meant to be provisional—Swiss residents can usually reclaim most or all of it upon filing their annual tax return, while foreign investors may apply for a refund depending on their treaty rights.
Reclaiming Withholding Tax for Swiss Residents
For Swiss residents, reclaiming withholding tax is a relatively straightforward process:
1. File Your Annual Tax Return
You must declare the gross amount of dividends received (i.e., before the 35% tax deduction) on your Swiss tax return.
2. Declare Withholding Tax
Include the amount of tax withheld as a reclaimable item. The FTA will credit the amount toward your overall tax bill.
3. Receive Refund or Offset
If the withheld tax exceeds your total tax liability, the balance will be refunded to your bank account or deducted from your overall tax owed.
Ensure that you attach or retain relevant dividend statements (e.g., bank statements, corporate notices) as proof of the income and tax withheld.
Reclaiming Withholding Tax for Foreign Residents
For non-residents, reclaiming Swiss withholding tax is more complex and depends on the existence of a tax treaty between Switzerland and your country of residence.
1. Check for Double Taxation Agreement (DTA)
Switzerland has tax treaties with many countries, allowing for partial or full refunds of the 35% withholding tax. These treaties typically reduce the effective rate to between 15% and 0%.
2. File Form 86 (Request for Reimbursement)
Foreign investors must submit Form 86 (Diverse Anträge) or Form 85 (specific for individuals) to the Swiss Federal Tax Administration along with necessary documentation, including:
- Proof of tax residence (e.g., certificate from your local tax authority)
- Dividend vouchers or bank confirmation of received income
- Copy of your passport or ID
- Proof of beneficial ownership of the shares
3. Observe Time Limits
The refund claim must typically be submitted within three years following the end of the calendar year in which the dividend was paid.
4. Processing and Refund
The refund process may take several weeks to a few months. The Swiss tax authorities may contact you for additional information or clarification.
Common Issues and How to Avoid Them
- Incomplete Documentation: Ensure all required papers are submitted, including certified residence confirmation.
- Missing Deadlines: Submit claims within the statutory timeframe to avoid forfeiting your right to a refund.
- Incorrect Forms: Use the correct forms for your investor type—individual or institutional—and country of residence.
- Ownership Requirements: Be prepared to demonstrate that you are the beneficial owner of the dividend income.
Example: U.S. Investor Reclaiming Swiss Withholding Tax
Under the Switzerland–U.S. tax treaty, the withholding tax rate on dividends can be reduced from 35% to 15% for qualifying investors. The investor would therefore be eligible to reclaim 20% of the tax withheld.
To reclaim it, the U.S. taxpayer submits Form 86 along with IRS Form 6166 (proof of U.S. tax residency), dividend statements, and other required documentation.
Are There Alternatives to Reclaiming?
In some cases, tax credits may be claimed in your home country for foreign tax paid. This helps to offset double taxation even if you don’t submit a refund request to the Swiss tax authorities. Consult a tax professional to assess the most advantageous approach for your situation.
Digital Submissions and Assistance
Some countries have enabled partial digital filing or online tracking of tax refund claims. In Switzerland, however, physical submission of the refund form is still generally required. You may want to engage a tax consultant to streamline the process, especially if multiple jurisdictions are involved.
Conclusion
Understanding and managing dividend withholding tax is essential for any investor with Swiss income sources. While the 35% withholding may seem steep, mechanisms exist to recover part or all of it, especially when treaty benefits apply. Whether you’re a Swiss resident or a foreign national, ensuring you follow proper procedures and submit the right documentation can significantly improve your net investment return.
As always, seek the help of an international tax advisor if you’re unsure of your obligations or rights under Switzerland’s withholding tax rules.
