Dividend Tax in Switzerland
A dividend tax in Switzerland is a tax which has been developed by the Swiss Confederation and is implemented in all cantons and municipalities. Due to its low tax rates and requirements, Switzerland is often referred to as a tax haven for foreign investors.
One a company ends its fiscal year and all profits, losses and revenue are calculated, shareholders are then able to share in the annual profit. Dividends, which are parts of the net profit, are then shared amongst company shareholders. In Switzerland, dividends are allocated at a fixed amount.
Assessment and determination of dividends
Swiss law requires public limited companies to distribute 5% of their profits each year to general reserves in order to fill the required 20% capital. Additionally, profits are subjected to other terms dependant on the company. This means that in some cases there is a reduction of the assessment bases for dividends.
Dividend amounts are determined after all allocations and other provisions have been made against the required regulations and laws as well as the articles of association. Also, a general meeting of shareholders is required to determine dividend amounts.
Federal withholding tax
The Swiss withholding tax also governs the dividend tax and Swiss laws require dividends to be taxed at a rate of 35%, which is also the withholding tax.
Company shareholders are required to declare their dividend as income for tax reasons. In tax terms, the gross dividend is what the dividend amount is before tax is deducted, and the net dividend is what is left over of the dividend after tax has been taken out. The overall size of the gross dividend dictates the taxable income, so, a higher dividend will mean a higher taxable income.
The main deciders of the companies profit are the board of directors. These directors are in charge of deciding how much of the profit remains within the business. This decision has no minimum or maximum amount, it also doesn’t need to meet a required dividend size, it can be any size. Although most companies in Switzerland create a dividend policy which creates more stability.
The main goal and more stable option are to choose to keep the dividend amounts the same every year regardless of financial outcomes.
Please feel free to contact our consultants for more information on Swiss dividend tax or company formation information.