Switzerland Double-Tax Treaties

Switzerland has Double Taxation Treaties with more than 50 other countries. The general effect of the treaties for non-residents from treaty countries is that they can obtain a partial or total refund of tax withheld by the Swiss paying agent. Although the full amount of withholding tax is deducted at source the difference can be re-claimed by the non resident from the Swiss tax authorities. Where there is no double taxation treaty in place withholding taxes deducted in the foreign jurisdiction on remittances paid to a Swiss entity give rise to a tax credit in Switzerland.

No withholding tax is levied on royalties paid to foreign beneficiaries. Profits repatriated abroad by the Swiss branch of a foreign company do not attract withholding taxes irrespective of any double taxation treaty.

Treaty abuse: A repayment of withholding taxes under the terms of a treaty will be denied where there has been "abuse". Abuse occurs when a foreign-controlled legal entity which is resident in Switzerland fails one of the 4 following tests:

    * The entity must have a reasonable debt/equity ratio (generally the total of all interest-bearing loans should not exceed 6 times the company's equity);
    * The entity must not pay excessive interest rates on debt (for the purposes of this test the accepted rate varies from time to time);
    * The entity must not pay more than 50% of its income as management fees, interest or royalties to non residents;
    * The entity must distribute at least 25% of the income which could be distributed as dividend.

Where any one of the 4 tests are failed the portion of withholding tax deducted and which is deemed refundable under the terms of the treaty is not refunded.

Additionally, treaty provisions do not apply to dividends, interest or royalties paid by a Swiss entity to a German, Italian, French or Belgian entity if the Swiss entity is wholly or partly exempt from cantonal tax under the tax incentives applicable to specific types of company (i.e. domiciliary, holding, auxiliary, mixed and service companies). See Offshore Legal and Tax Regime.

In October, 2004, Swiss President Joseph Deiss agreed with Japanese Finance Minister, Sadakazu Tanigaki, that informal talks would soon begin on the updating of the thirty-year-old double taxation avoidance agreement between the two nations.

The following are some of the countries which have double-tax treaties with Switzerland:

In July, 2005, representatives from the governments of Switzerland and Pakistan met in Islamabad to put their names to a new comprehensive agreement for the avoidance of double taxation.

The agreement, signed on behalf of Switzerland by Denis Feldmyer, Ambassador to Pakistan, and on behalf of Pakistan by Abdullah Yusuf, Chairman of the Central Board of Revenue, will encompass income from shipping, immovable property, interest, royalties and fees for capital gains and technical services.

Under the arrangement, business income will be taxable at the place of permanent establishment and Swiss firms will be given a tax credit in Switzerland on income earned in Pakistan.

The new agreement, initially concluded in 2002, updates the much older previous double tax avoidance agreement which dates back to 1959.

Switzerland Table of Treaty Rates

The rates shown are those of withholding taxes applied to payments made by Swiss entities or persons to non-resident entities or persons; a zero rate applies to royalties. Although Switzerland recognises the member states of the CIS as successor states to the USSR, and therefore applies its USSR Double Tax Treaty to them, they are not included in the table because the USSR treaty does not contain concessionary rates of withholding tax for dividends or interest.