Tax on profit distribution

In Switzerland, the tax on profit distribution is a federal tax that applies to companies distributing dividends to their shareholders. Also known as the dividend tax, it is governed by the Federal Act on Withholding Tax (LIA), which also regulates other indirect taxes, such as interest tax and capital gains tax. This form of taxation aims to ensure that income generated by profit distributions is subject to tax. Swiss companies, as well as foreign companies with a branch in Switzerland, are subject to the profit distribution tax. However, foreign companies may be exempt from this 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, but the tax rate varies depending on the type of company. Limited liability companies (Sàrl) and public limited companies (SA) are the most common types of companies in Switzerland and both are subject to dividend tax. Simple limited partnerships (SNC) and partnership limited by shares (SCA) are also concerned. However, general partnerships (SNC) are not, as they are not considered as separate fiscal entities. The profits made by the SNC are directly taxed on the profit recipients.

Calculation of dividend tax

The calculation of the dividend tax is based on the distributable profit of a company. This is determined by deducting deductible expenses from the company’s turnover. The distributable profit is then subject to corporate income tax at the applicable tax rate. Once corporate income tax has been calculated, the company must determine the amount of dividends to pay to shareholders. Then, it must withhold the profit distribution tax at the applicable rate before paying the dividends. The rate of profit distribution tax varies depending on the situation of the company and the shareholder. Foreign shareholders are also subject to dividend tax, but the rate can be reduced under a double taxation agreement concluded between Switzerland and their country of residence. In addition, dividends received by companies are not subject to profit distribution tax. Companies can deduct dividends received from their taxable profit, reducing their tax burden.

Advantageous tax regimes for Swiss companies

In addition to the profit distribution tax, companies in Switzerland can benefit from advantageous tax regimes to reduce their tax burden on dividends. Among the most common tax regimes are the holding company tax regime and the participation reduction.
The holding company tax regime allows Swiss companies to hold stakes in foreign companies and benefit from a favorable tax rate on received dividends. In addition, they can deduct certain expenses from their taxable income, further reducing their tax burden.

Participation reduction

The participation reduction is a beneficial tax regime for Swiss companies that hold a significant stake in another company. This regime allows companies to reduce their tax burden on received dividends based on the percentage of participation held. To benefit from the participation reduction, the company must hold at least 10% of the issuing company’s share capital for at least one year. This measure was introduced to encourage long-term investments and facilitate mergers and acquisitions operations. It allows companies to reduce their tax burden on received dividends, thereby increasing their investment capacity. However, the participation reduction is subject to certain limits and conditions. It is not automatic and must be requested by the company.
In conclusion, the tax on profit distribution in Switzerland is a form of federal tax applied to companies distributing dividends to their shareholders. All Swiss companies are subject to this tax, but the tax rate varies depending on the type of company. Companies can benefit from advantageous tax regimes, such as the holding company tax regime and the participation reduction, to reduce their tax burden on dividends. However, these regimes are subject to certain limits and conditions and must be requested by the companies to benefit from them.