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May 12, 2021

Swiss Federal Council issues official Dispatch on revised withholding tax reform

The Swiss Government launched a public consultation on withholding tax reform on 1 April 2020; the consultation process ended on 8 July 2020.

Originally, one of the main topics of the reform was the change from the debtor to the paying agent system. Additionally, domestic legal persons and foreign investors were to be exempt from withholding tax on Swiss interest income, i.e., withholding tax was to be levied on interest payments only where the recipient was a domestic individual. Withholding tax was also to be levied on foreign interest income paid to individuals resident in Switzerland. Banks, in their capacity of paying agents, would have been responsible for processing interest payments to the recipients and levying the correct amount of withholding tax.

The public consultation responses were mostly critical of the proposed change to the paying agent system as this would have introduced a significant level of complexity and administrative burdens.

Following the end of the consultation process and revisions to the reform draft, the Swiss Federal Council issued the official Dispatch on the reform on 14 April 2021.

Pursuant to the current draft, one of the reform’s main topics is the general exemption from withholding tax on interest income from Swiss-issued bonds, i.e., an exemption irrespective of the recipient of the interest payment. However, interest received by Swiss-resident individuals on their bank balances (i.e., where Swiss banks and insurance companies hold interest-bearing accounts for their clients) would remain subject to withholding tax. Also, it is expected that there will likely be no changes with regards to dividend payments. Dividends would remain subject to withholding tax which would need to be charged by the dividend payor irrespective of the recipient's status or residence.

In addition to the proposed changes to the withholding tax regime, the Swiss securities transfer tax on domestic bonds would be repealed.

The current reform draft will now need to go through the parliamentary process before being approved. Entry into force, if the reform draft is enacted, would be in 2023 at the earliest.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Ltd., Zurich


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