How does the 35% Verrechnungssteuer withholding tax on Swiss dividends work?

The Verrechnungssteuer is one of Switzerland's most distinctive tax features — a 35% withholding rate that is simultaneously a compliance enforcement mechanism and a withholding tax on investment income.

Why 35% is the rate The 35% rate is deliberately high relative to the income tax that would be due on dividends. The intention is: if you declare the dividend income in your personal tax return and claim the credit, the 35% is simply an advance payment. If you fail to declare, you forfeit the 35% permanently — paying a de facto 35% tax with no credit. This creates a strong incentive for Swiss residents to declare all investment income.

Company obligations when paying a dividend Step 1: The shareholders' meeting (AGM or GV) passes a resolution to distribute dividends from the annual profit, specifying the amount per share and the payment date.

Step 2: The company calculates the gross dividend, the 35% to withhold, and the net payable to shareholders. Example: gross CHF 100,000 → withhold CHF 35,000 → pay shareholder CHF 65,000.

Step 3: Within 30 days of the actual payment date (not the resolution date), the company must both file Form 102 with the ESTV AND remit the CHF 35,000 to the ESTV. Late remittance triggers 5% annual interest from day 31.

Step 4: Issue confirmation of payment and withholding to the shareholder for their tax return.

Swiss resident individuals — full credit A Swiss resident individual shareholder: 1. Receives CHF 65,000 net from the company 2. In their annual Steuererklärung, declares CHF 100,000 gross dividend income 3. Income tax is assessed on CHF 100,000 (or CHF 70,000 if partial taxation for 10%+ shareholding applies) 4. The CHF 35,000 withheld is credited against the total income tax assessed 5. If income tax on the dividend is less than CHF 35,000 (possible for low-income earners), the excess is refunded

Partial taxation for qualifying shareholders For individuals owning at least 10% of a Swiss AG or GmbH, partial taxation (Teilbesteuerung) applies: only 70% of the dividend is subject to federal income tax. Cantons provide 60–70% partial inclusion depending on the canton. This significantly reduces the effective income tax on dividends from owner-managed companies.

Non-resident shareholders — treaty refund claims Foreign shareholders resident in countries with a double tax treaty with Switzerland (most major countries) can claim a refund of the excess withholding above the treaty rate: - Treaty rate typically 5% for qualifying corporate shareholders (10%+ holding) and 15% for individuals - Refund = 35% withheld minus the treaty rate - Claim filed with the ESTV using Form 25 or treaty-specific forms - Processing time: 3–12+ months depending on country

For countries without a treaty, the full 35% is the final withholding tax on dividends received from Switzerland.

Meldeverfahren — notification procedure For qualifying inter-company dividends within Swiss groups (parent holds 20%+ of subsidiary, both Swiss-resident), an alternative 'notification procedure' (Meldeverfahren) is available. Instead of physically withholding and remitting 35%, the paying company notifies the ESTV via Form 106. No cash movement required — better for cash flow. Requires prior ESTV authorisation.