Switzerland levies a 35% withholding tax (Verrechnungssteuer) on dividends, certain interest payments, and lottery winnings paid by Swiss companies and institutions to recipients at home and abroad. This is one of the highest withholding tax rates in Europe — but it is designed to be refunded (in full or in part) to qualifying recipients. Understanding how the Swiss withholding tax works is essential for anyone owning a Swiss company or receiving Swiss investment income, particularly when structuring holding companies or planning dividend distributions.
What the Swiss Withholding Tax Covers
The Swiss withholding tax (Verrechnungssteuer — VStG) applies to:
Dividends paid by Swiss companies Any dividend distribution from a Swiss AG or GmbH to shareholders — whether Swiss or foreign — triggers a 35% withholding obligation. The company pays 35% of the gross dividend to the Swiss Federal Tax Administration (ESTV) and remits the net 65% to the shareholder.
Interest on Swiss bonds and Swiss bank deposits Interest paid on bonds issued by Swiss entities and interest on Swiss bank deposits exceeding certain thresholds is subject to 35% withholding. This catches Swiss-source passive income for Swiss tax residents who might otherwise not declare it.
Lottery winnings above CHF 1’000
The tax does NOT apply to:
- Royalties and licence fees
- Service fees and management fees
- Interest on ordinary commercial loans between companies (in most cases)
- Capital gains distributions from Swiss collective investment schemes (subject to exceptions)
Purpose of the Tax
The Swiss withholding tax has two distinct purposes depending on the recipient:
For Swiss residents: It is a “security deposit” — an advance payment on income tax. Swiss residents who correctly declare their Swiss income in their personal tax return receive a full refund of the withheld amount. The 35% rate is intentionally high to encourage declaration. An undeclared Swiss dividend results in no refund — the 35% is retained. This is the anti-evasion mechanism.
For foreign recipients: It is a final or provisional tax depending on the applicable double tax treaty. Non-resident shareholders receive a refund (or reduced withholding) only to the extent their treaty entitlement allows.
Treaty Reductions for Foreign Shareholders
Switzerland has concluded over 100 double tax treaties that reduce the 35% withholding rate to a lower treaty rate for qualifying foreign shareholders.
| Recipient Country | Treaty Rate (Dividends) | Condition |
|---|---|---|
| Germany | 5% (>=25% corporate shareholder) / 15% (others) | Beneficial ownership required |
| USA | 5% (>=10% corporate) / 15% (others) | LOB clause applies |
| UK | 0% (>=25% corporate) / 15% (others) | — |
| Netherlands | 0% (>=25% corporate) / 15% (others) | — |
| Singapore | 5% / 15% | — |
| UAE | 0% | 2011 treaty |
| India | 5% (>=25% corporate) / 10% (others) | — |
| No treaty | 35% | No reduction |
How the refund/reduction works:
- The Swiss company withholds 35% at source and remits it to the ESTV
- The foreign shareholder applies for a refund of the difference between 35% and the treaty rate — e.g., a German corporate shareholder with >=25% stake applies to recover 30 percentage points (35% - 5% = 30%)
- The application is filed with the ESTV using ESTV Form 65 or the equivalent procedure in the shareholder’s home country under the refund procedure
Timeline: Refund applications typically take 6–18 months. This creates a cash flow cost for foreign shareholders — the withholding is paid in full, and the refund comes later.
The Participation Exemption Route: Eliminating Withholding
The Swiss-Swiss dividend withholding tax is often largely irrelevant for holding structures because the participation exemption eliminates Swiss corporate tax on qualifying dividends — and the refund mechanism fully returns the 35% to qualifying Swiss resident shareholders.
For international structures, a more important planning tool is the Swiss holding company to EU parent company route using the EU Parent-Subsidiary Directive equivalent arrangement under the Switzerland-EU bilateral agreements. Under the bilateral agreement (since 2005), dividends from a Swiss subsidiary to a qualifying EU parent company can be reduced to 0% withholding tax (subject to qualifying conditions: >=25% stake held for 2 years, genuine structure, anti-abuse compliance).
Similarly, the Switzerland-Liechtenstein treaty eliminates withholding on qualifying participations.
Swiss-Swiss Withholding: The Intercompany Dividend Rule
When a Swiss holding company distributes dividends to Swiss resident shareholders, the 35% is withheld and the shareholders claim a full refund via their Swiss income tax return. For Swiss companies receiving dividends from Swiss subsidiaries, the parent claims the refund via the Swiss corporate tax return.
For Swiss-source bank interest received by Swiss residents, the bank withholds 35% and the resident claims it back as part of their annual tax declaration.
Practical Planning Points
For newly formed Swiss holding structures:
- Ensure the treaty entitlement of the ultimate shareholder is established before the first dividend distribution
- Apply for the reduced withholding rate in advance where the treaty allows a “relief at source” procedure (available under some treaties, avoiding the need to withhold and reclaim)
- Document beneficial ownership — anti-treaty shopping rules require the actual recipient to be the beneficial owner
For crypto distributions:
- Token distributions that constitute income may be subject to withholding under certain interpretations depending on FINMA’s token classification — this requires specific advice
For liquidation distributions:
- A liquidation distribution that returns more than nominal share capital to shareholders constitutes a constructive dividend subject to 35% withholding on the excess
How to Request a Withholding Tax Refund
Foreign shareholders claiming refunds under a double tax treaty use:
- ESTV Form 65 (standard refund application) or the equivalent form for the relevant treaty
- Filed with the ESTV in Bern (not the cantonal authority — withholding tax is federal)
- Deadline: 3 years from the end of the calendar year in which the dividend was paid
Required documentation: proof of shareholding at the time of dividend, proof of residence in the treaty country, confirmation of beneficial ownership, and the Swiss company’s confirmation of the withholding deducted.
Withholding Tax and Swiss Company Formation
When setting up a Swiss company, withholding tax planning should be addressed before the first dividend distribution. Key decisions include:
- Choice of entity: Both AG and GmbH are subject to the same 35% withholding rules on dividends
- Shareholder structure: The treaty rate available depends on the shareholder’s country of residence and percentage ownership
- Holding versus operating company: Interposing a Swiss holding company can optimise the withholding position through the participation exemption
- Accounting and documentation: Proper records of dividend declarations, withholding deductions, and ESTV filings must be maintained
Frequently Asked Questions
Is the 35% withholding tax a final tax?
For Swiss residents who correctly declare the income in their Swiss tax return, the 35% is a fully refundable advance payment — the net tax liability is the ordinary income tax rate, and the 35% is credited in full. For foreign shareholders, the withholding is either final (if no treaty applies) or partially refundable under the applicable treaty rate.
Can I avoid Swiss withholding tax by using a holding company in a treaty country?
Treaty shopping — using an intermediary company in a treaty country solely to access lower treaty withholding rates, without genuine substance there — is not permitted. Swiss and OECD anti-abuse rules deny treaty benefits to intermediate companies that are conduit vehicles without genuine economic substance. A legitimate holding company in a treaty country, with real economic substance, can validly benefit from reduced treaty rates.
How long does a withholding tax refund take?
The ESTV (Swiss Federal Tax Administration) typically processes refund applications within 6–18 months of submission. Applications with complete documentation are processed faster. The deadline for filing is 3 years from the end of the calendar year in which the dividend was paid.
What is the Swiss withholding tax rate on dividends?
Switzerland levies a flat 35% Verrechnungssteuer on all dividend distributions from Swiss AG and GmbH companies. This rate applies equally to Swiss and foreign shareholders. The 35% is withheld at source by the paying company and remitted to the ESTV.
Do royalties and licence fees attract Swiss withholding tax?
No. Swiss withholding tax does not apply to royalties, licence fees, service fees, or management fees. It applies only to dividends, certain interest payments (bonds and bank deposits), and lottery winnings above CHF 1’000.
What is the withholding tax rate for UK shareholders?
Under the Switzerland-UK double tax treaty, qualifying UK corporate shareholders holding 25% or more of the Swiss company pay 0% withholding tax on dividends. Other UK shareholders pay a reduced rate of 15%, down from the standard 35%. The refund of the difference is claimed through the ESTV refund procedure.
How does the participation exemption interact with withholding tax?
The participation exemption eliminates Swiss corporate tax on qualifying dividends received by Swiss holding companies. The 35% withholding is still deducted at source but is fully refunded to qualifying Swiss corporate shareholders through the corporate tax return. This makes the withholding effectively neutral for Swiss holding structures.
Can I get reduced withholding at source instead of claiming a refund?
Some double tax treaties allow a “relief at source” procedure, where the Swiss company withholds at the treaty rate directly rather than at 35%. This must be applied for in advance with the ESTV and avoids the cash flow cost of the full withhold-and-reclaim cycle. Not all treaties include this option.
What happens to withholding tax on liquidation distributions?
A liquidation distribution that returns more than the nominal share capital to shareholders is treated as a constructive dividend. The excess over nominal capital is subject to the full 35% withholding tax, which must be remitted to the ESTV before distribution to shareholders.
Is Swiss withholding tax deductible as a foreign tax credit?
In most jurisdictions, Swiss withholding tax qualifies for a foreign tax credit on the shareholder’s domestic tax return. The credit is typically limited to the treaty rate. The excess withheld (35% minus the treaty rate) is recoverable through the ESTV refund process using Form 65.
Request a Free Assessment
Withholding tax planning is an integral part of structuring Swiss companies for international clients. We advise on dividend distribution timing, treaty analysis, refund procedures, and holding structure design to minimise withholding costs.
Morgan Hartley — Senior Corporate Lawyer & Partner Lawsupport (Morgan Hartley Consulting) Grafenauweg 4, 6300 Zug, Switzerland Phone: +41 44 51 52 592 | Email: info@lawsupport.ch
This article reflects Swiss withholding tax law and practice as of March 2026. Tax rates and treaty provisions are subject to revision. Nothing in this article constitutes legal or tax advice. Contact Lawsupport at info@lawsupport.ch for advice specific to your situation.