Fiduciary
Withholding tax
Withholding tax is a security tax designed to formally ensure that certain transactions have been correctly declared and that the tax due on them has been paid to the tax authorities.
Withholding tax, levied at source by the Confederation, applies to income from movable capital, lottery winnings, life annuities, pensions and other insurance benefits. Taxpayers domiciled in Switzerland can, under certain conditions, recover this tax, generally by offsetting it against their tax assessment.
How withholding tax works
The party liable for the tax must deduct the withholding tax from the amount of the payment it is due to make. The tax burden is therefore borne by the recipient. The payer then remits the withholding tax to the Federal Tax Administration within 30 days of the tax claim arising. The taxpayer may then request a refund under certain conditions.
Depending on whether the taxpayer is an individual or a legal entity, the refund is claimed from the cantonal tax authority or the FTA respectively.
Under Art. 13 of the Federal Act on Withholding Tax (WTA), the tax rate varies according to the type of income:
- 35% on income from movable capital (dividends, bond interest, client deposits with banks, etc.) and lottery winnings
- 15% on life annuities and pensions
- 8% on other insurance benefits
Example:
Mr X holds a savings account with a bank. In 2017, the interest amounts to CHF 5000. The bank pays him only 65% of this amount, i.e. CHF 3250. The remaining CHF 1750 (35%) is paid to the FTA by the bank. To recover his CHF 1750, the taxpayer must have correctly declared his income, including the savings account and the CHF 5000 of interest. The refund is made by offsetting it against the cantonal tax owed (or in cash if the taxpayer is exempt from tax).
Who can claim a refund of withholding tax?
Not all taxpayers in Switzerland can claim a refund of withholding tax. To be entitled to do so, the following conditions must be met:
- Individual domiciled in Switzerland who is compliant with their tax obligations
- Or legal entity whose registered office is in Switzerland and which is compliant with its tax obligations
Furthermore, foreign companies from a country that has not concluded a double taxation agreement with Switzerland cannot claim a refund of withholding tax. It then becomes a final cost.
To obtain a refund of this tax, an individual must submit a refund request together with their tax return in the canton where they are domiciled at the end of the calendar year in which the taxable benefit fell due.
For legal entities, the request is made to the FTA using an official form. The refund request must in principle be submitted at the earliest after the end of the calendar year in which the withholding tax concerned fell due, and at the latest within the following 3 years.
Would you like to know more about withholding tax and the tax and administrative procedures that go with it? Contact our tax lawyers, who will review your file and give you recommendations. They can also take care of all these procedures on your behalf.
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