Withholding tax is an essential component of the Swiss tax system that affects numerous income streams from capital assets. This tax is levied directly at source and plays a crucial role in ensuring tax honesty and transparency. Withholding tax primarily affects companies that pay out interest, dividends or insurance benefits, as well as the recipients of this income. The CFO is responsible for tax planning, liquidity management and compliance with regulations relating to withholding tax.
What is withholding tax?
Withholding tax is a tax levied by the federal government that is collected directly at source on certain income from movable capital assets. This income includes interest and dividends from bank accounts, bonds and shares, winnings from Swiss lotteries as well as certain payouts from life insurance policies and annuities.
Withholding tax rates:
- Capital income and lottery winnings: 35%
- Life annuities and pensions: 15%
- Other insurance benefits: 8%
This tax is withheld by the paying agent, such as banks or insurance companies, and remitted to the tax authorities. Withholding tax thus makes tax evasion more difficult, as the income is reported to the tax authorities.
Withholding tax was introduced in Switzerland in 1943 to increase transparency in the tax system and combat tax evasion. It originally applied mainly to interest income and dividends, but over the years it was expanded to include lottery winnings and certain insurance benefits.
The introduction of this tax was part of a broader reform of the Swiss tax system aimed at promoting tax honesty and ensuring that all individuals and companies meet their tax obligations. Regular adjustments and extensions of the scope have helped maintain its effectiveness and respond to new financial products and types of income.
Scope of withholding tax for companies
Withholding tax affects various types of income that companies can generate. The most important types of income subject to withholding tax include capital income, lottery winnings and certain insurance benefits.
Income subject to withholding tax
Capital income: This includes interest and dividends resulting from bank accounts, bonds and shares. This income is a significant source of revenue for many companies and is subject to withholding tax.
Lottery winnings: Winnings from Swiss lotteries and similar events are also subject to withholding tax. Although this is less relevant for companies, they should still be aware of this regulation.
Certain insurance benefits: Payouts from life insurance policies and annuities that companies use as part of their financial strategy are also subject to withholding tax.
Tax rates and differences
The withholding tax rates vary depending on the type of income:
- Capital income and lottery winnings: This income is taxed at 35%. This is the highest tax rate within withholding tax and particularly affects interest and dividends that companies receive from their financial investments.
- Life annuities and pensions: This income is subject to a tax rate of 15%. Companies that offer or receive such benefits must take this rate into account.
- Other insurance benefits: A tax rate of 8% applies to this type of income. This includes certain payouts from life insurance policies that companies can use as part of their long-term financial planning.
By understanding the specific tax rates and the income that is subject to withholding tax, companies can better plan their tax obligations and adjust their financial strategies accordingly.
Purpose and function of withholding tax
Withholding tax pursues several central objectives and fulfills important functions within the Swiss tax system. These include curbing tax evasion and the obligation to declare income and capital gains.
Curbing tax evasion
A key objective of withholding tax is to reduce tax evasion. By levying the tax directly at source, it is ensured that income from capital assets is reported to the tax authorities. This makes it significantly more difficult to hide such income from the tax authorities. Withholding tax therefore creates greater transparency and helps ensure that all taxable income is correctly declared.
Obligation to declare income and capital gains
Withholding tax also serves as an incentive for taxpayers to declare their income and capital gains in full and correctly. Companies and individuals that generate income from capital assets are obliged to declare this income in their tax returns. In this context, the tax identification number plays an important role, as it enables the clear assignment of taxpayers and simplifies the administration of tax data. Withholding tax is initially withheld and can be reclaimed under certain conditions. To obtain a refund, the relevant income must be declared in the tax return and provided with the corresponding tax identification number. This mechanism promotes tax honesty and ensures that taxpayers report their income comprehensively and correctly.
By combining these two functions, withholding tax makes a significant contribution to the integrity and efficiency of the Swiss tax system. Companies must be aware of the importance of this tax and ensure that they meet their tax obligations accordingly.
Tax liability in relation to withholding tax
Tax liability for withholding tax affects both domestic debtors and recipients of income from capital assets. It is important to understand who is liable to pay tax and what obligations these parties have.
Who is liable to pay tax?
Tax liability for withholding tax lies primarily with the domestic debtors of the taxable benefit. These are usually companies that pay out interest, dividends or insurance benefits. These companies must withhold the withholding tax directly at source and remit it to the Federal Tax Administration. Recipients of the taxable income are generally not directly liable to pay tax, but they have the option of reclaiming the tax withheld under certain conditions.
Obligations of domestic debtors
Domestic debtors, i.e. companies that pay out income, have several obligations in connection with withholding tax:
- Withholding the tax: Withholding tax must be deducted directly at source. This means that the company deducts the tax from the income to be paid out.
- Remittance of the tax: The tax withheld must be remitted to the Federal Tax Administration. This is usually done on a quarterly basis.
- Reporting: Companies must report the amount of tax withheld and remitted as well as details of the recipients to the tax administration. This serves transparency and traceability of tax payments.
Self-assessment and payment of the tax
Withholding tax is based on the principle of self-assessment. This means that the taxable companies themselves are responsible for the correct calculation, withholding and remittance of the tax. They must ensure that all relevant income is recorded and that the corresponding tax amounts are calculated correctly.
Withholding tax is generally remitted on a quarterly basis. Companies must complete the relevant forms and transfer the tax amounts to the Federal Tax Administration. In the event of errors or irregularities in the calculation or remittance of the tax, sanctions or additional payments may be imposed.
By complying with these obligations, domestic debtors contribute to the proper collection and administration of withholding tax. This is crucial for the integrity of the tax system and for ensuring fair and transparent taxation.
Settlement of withholding tax for companies
Electronic settlement via the ePortal
Electronic settlement of withholding tax via the ePortal of the Federal Tax Administration offers companies an efficient and secure way to meet their tax obligations. Various forms are used for this:
- Withholding tax on monetary benefits (Form 102): Companies that pay out monetary benefits such as bonuses or dividends must settle these using Form 102. This form records the amount of the payments made and the withholding tax withheld, which is remitted to the tax authorities.
- Withholding tax on income from domestic shares (Form 103): For income from domestic shares, participation certificates and profit-sharing certificates, companies use Form 103. This form allows the correct recording and settlement of the withholding tax due on this income.
- Other relevant forms: In addition to Forms 102 and 103, there are other forms that are used for specific settlements. Companies should familiarize themselves with the relevant forms to ensure that all taxable income is correctly recorded and reported.
User management and business overview in the ePortal
The ePortal offers extensive functions for user management and business overview:
- User management: Companies can manage user rights, add new users and adjust existing user rights. This is particularly important to ensure that only authorized persons have access to sensitive tax data.
- Business overview: In the business overview, companies can view all submitted applications and settlements. This overview makes it easier to track tax returns and refund applications and supports compliance with tax obligations.
Registration and use of the ePortal
To settle withholding tax electronically, companies must register on the website of the Federal Tax Administration. After registration, they receive access to the ePortal, where they can complete and submit the relevant forms online. The ePortal offers a user-friendly interface that simplifies the settlement process and ensures that all necessary information is recorded correctly and completely.
By using the ePortal, companies can fulfill their withholding tax obligations efficiently and securely, saving time and minimizing errors.
Refund of withholding tax for companies
Requirements for a refund
Companies can apply for a refund of withholding tax under certain conditions. This applies in particular to legal entities domiciled in Switzerland. To obtain a refund, the relevant income must be declared in the tax return. In addition, all relevant evidence and documents must be submitted to prove the legitimacy of the claim.
Refund process
The process of refunding withholding tax can be handled electronically via the ePortal of the Federal Tax Administration. The following forms are relevant:
- Electronic partial refund (Form 21): This form is used to apply for a partial refund of withholding tax. It is particularly useful for companies that require a refund during the current tax year.
- Electronic refund (Forms 25 / 85): These forms are intended for the full refund of withholding tax. Form 25 is generally used for domestic refunds, while Form 85 is used for certain special refund claims.
Deadlines and important notes
It is crucial to observe the deadlines for applying for a refund. The refund application must be submitted within three years after the end of the calendar year in which the taxable benefit became due. If this deadline is missed, the entitlement to a refund expires.
Important notes for the refund of withholding tax:
- Make sure that all relevant income is declared in the tax return.
- Have all required evidence and documents ready to substantiate your claims.
- Use the ePortal of the Federal Tax Administration to submit applications electronically, which speeds up the process and reduces the error rate.
By carefully following these steps and notes, companies can ensure that they successfully assert their refund claims and benefit financially.
Withholding tax and international aspects for companies
Double taxation agreements and their impact
Switzerland has concluded double taxation agreements (DTAs) with many countries to avoid the double taxation of income. These agreements also have a considerable impact on withholding tax. A DTA can reduce the withholding tax rate on dividends, interest and royalties. This means that companies from the contracting states are, under certain conditions, entitled to a partial or full refund of withholding tax.
The most important points that a DTA can influence:
- Reduced tax rates: DTAs often set lower tax rates than national tax rates. For example, the tax rate on dividends can be reduced from 35% to 15% or even to 0%, depending on the provisions of the agreement.
- Refund entitlements: Through the DTA, companies may have the right to reclaim the difference between the higher national tax rate and the lower rate set out in the agreement.
Refund options for companies domiciled abroad
Companies domiciled abroad that generate income in Switzerland can, under certain conditions, apply for a refund of withholding tax. This is particularly the case when a DTA exists between Switzerland and the company’s country of domicile.
The most important steps for foreign companies to obtain a refund of withholding tax:
- Proof of residence: The company must prove that it is tax resident in its country of domicile. This is usually done by means of a residence certificate issued by the competent tax authority.
- Application for refund: The application must be submitted to the Federal Tax Administration. Specific forms are available for this, which may vary depending on the type of income.
- Observe deadlines: Deadlines also apply to foreign companies. The refund application must be submitted within three years after the end of the calendar year in which the taxable benefit became due.
By making use of the refund options and applying the DTAs, foreign companies can significantly reduce their tax burden. It is important to know the specific provisions and requirements of the DTAs in detail and to submit the relevant applications correctly and on time.
Exceptions and restrictions on refunds
Exceptions to refunds
In certain cases, a refund of withholding tax is excluded. This mainly concerns situations in which tax avoidance or false information plays a role.
- Tax avoidance and false information: If there is suspicion that the refund of withholding tax has been obtained through tax avoidance or false information, the refund will be refused. This serves to protect tax revenue and the integrity of the tax system.
- Violations of bilateral or multilateral agreements: Companies that violate the provisions of bilateral or multilateral tax agreements are not entitled to a refund.
Restrictions on refunds
In addition to exceptions, there are also specific restrictions that must be observed when refunding withholding tax.
- Specific conditions and evidence: Certain conditions must be met and corresponding evidence provided for withholding tax to be refunded. These include the proper declaration of income in the tax return and the submission of residence certificates for foreign companies.
By knowing these exceptions and restrictions in detail, companies can ensure that they correctly assert their claims and avoid unintended consequences. It is advisable to carefully review all relevant documents and strictly comply with legal requirements in order to avoid problems when refunding withholding tax.