Profit distribution tax

In Switzerland, the profit distribution tax is a form of tax applied to companies distributing dividends to their shareholders. This tax is also known as the dividend tax. Swiss legislation requires companies to pay a tax on profit distributions to ensure that the income from these distributions is taxed. The profit distribution tax is a federal tax and is governed by the Federal Act on Withholding Tax (LIA). This law also regulates other indirect taxes such as interest tax and capital gains tax. The profit distribution tax applies to Swiss companies as well as foreign companies with a branch in Switzerland. However, it should be noted that foreign companies may be exempt from dividend tax if they benefit from a double taxation treaty between their country of origin and Switzerland.

Types of companies subject to dividend tax

All Swiss companies are subject to dividend tax. However, the tax rate varies depending on the type of company. Limited liability companies (Sàrl) and joint-stock companies (SA) are the most common forms of companies in Switzerland and are both subject to dividend tax. Simple limited partnerships (SNC) and partnerships limited by shares (SCA) are also subject to it. However, general partnerships (SNC) are not, as they are not considered separate tax entities. Profits are therefore taxed directly on the profit beneficiaries.

Calculation of dividend tax

The calculation of the dividend tax is based on the distributable profit of a company, determined by deducting deductible expenses from the company’s turnover. The distributable profit is then subject to corporate profit tax at the applicable tax rate. After calculating the corporate profit tax, the company must determine the amount of dividends to be distributed to shareholders. Once the dividend amount is determined, the company must withhold the profit distribution tax at the applicable rate before paying out the dividends to shareholders. The rate of the profit distribution tax varies depending on the company’s and shareholder’s situation. Foreign shareholders are also subject to dividend tax, but the rate may be reduced under a double taxation agreement between Switzerland and their country of residence. Additionally, dividends received by companies are not subject to profit distribution tax. Companies can deduct the dividends received from their taxable profit, reducing their overall tax burden.

Advantageous tax regimes for Swiss companies

In Switzerland, companies can also benefit from advantageous tax regimes that allow them to reduce their tax burden on dividends. Among the most common tax regimes are the tax regime for holding companies and the participation deduction. The tax regime for holding companies allows Swiss companies to hold shares in foreign companies and benefit from an advantageous tax rate on the dividends received. In addition, they can deduct certain expenses from their taxable income, further reducing their tax burden.

Participation deduction

In Switzerland, the participation deduction is an advantageous tax regime for companies holding a significant stake in another company. This regime allows companies to reduce their tax burden on dividends received based on the percentage of participation held. To benefit from the participation deduction, the company must hold at least 10% of the share capital of the issuing company for at least one year. The participation deduction was introduced to encourage long-term investments and to facilitate mergers and acquisitions operations. It allows companies to reduce their tax burden on dividends received, thereby increasing their investment capacity. However, the participation deduction is subject to certain limits and conditions. Finally, it should be noted that the participation deduction is not automatic and must be requested by the company.

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PBM Avocats in Geneva

Boulevard Georges-Favon 26

1204 Genève

T. : +41 22 348 32 35