Taxation of dividends in Switzerland – a comprehensive guide

As an investor in Switzerland, understanding the taxation of dividends is essential. While dividends are a key component of your return on equity investments, they are subject to income tax and can significantly reduce your net earnings.

That is why it is important to factor the tax treatment of dividends into your personal investment planning. Switzerland offers a favourable environment in an international comparison, as private capital gains are not subject to income tax. Attempts to change this—such as the "99% Initiative" proposed in 2021, which sought to introduce additional taxation on capital income, including dividends—were decisively rejected by Swiss voters.

Nevertheless, dividend taxation remains a topic of political debate and is subject to ongoing developments, particularly in the context of tax reforms. As an investor, it is crucial to stay informed about current regulations and proactively adjust your tax strategy.

Fundamentals of dividend taxation in Switzerland

As a shareholder, you receive dividends as profit distributions from companies. In Switzerland, these distributions are considered taxable income, similar to interest earned on your bank account. It is important to distinguish between the two: while dividend income is taxable, private capital gains from share sales remain tax-free.

Dividend taxation also varies depending on whether the dividends are domestic or foreign:

• Swiss dividends: A withholding tax of 35% is deducted at source by the distributing company. This tax acts as a safeguard and is fully refunded to you when you correctly declare the dividends in your tax return.

• Foreign dividends: These are subject to a withholding tax in the country of origin, typically ranging from 15% to 35%. Thanks to double taxation agreements (DTAs) that Switzerland has signed with many countries, you can request a partial refund or credit for these foreign withholding taxes. Understanding these agreements can help significantly reduce your tax burden.

A special tax advantage applies to distributions from capital contribution reserves (CCR). Swiss companies are allowed to distribute up to 50% of their dividends from these reserves, making this portion tax-free for investors. You can identify such tax-free distributions on your statement, where they are clearly marked. However, even these tax-free distributions must be fully declared in your tax return.

Current tax rates for dividends in Switzerland

As a Swiss resident, your dividend income is subject to the federal tax system, where the federal government, cantons, and municipalities each impose their own income taxes. As a result, your overall tax burden can vary significantly depending on your place of residence.

The federal government levies a maximum income tax rate of 11.5%, but this rate only applies to very high incomes (around 783,000 CHF for single individuals). The largest portion of your tax burden comes from cantonal and municipal taxes. The combined marginal tax rate (federal, cantonal, and municipal) ranges from approximately 22% to 45%, depending on the canton:

• 22–25% in low-tax cantons such as Zug or Schwyz

• About 39.8% in Zurich

• Around 40.5% in Basel-Stadt

• Approximately 41.2% in Bern

• Up to 45% in high-tax cantons such as Geneva

Important to note: Your dividends are not taxed separately but rather added to your overall taxable income and taxed progressively. A high dividend payout can therefore also increase the tax burden on your other sources of income.

Partial taxation for qualified participations

If you hold at least 10% of a company’s shares (qualified participation), you benefit from tax relief:

• At the federal level, only 70% of the dividend is taxable.

• At the cantonal level, at least 50% of the dividend is taxable.

As a private investor without a qualified participation, you must pay tax on the entire dividend amount.

Additional: Cantonal wealth tax

In addition to income tax, you should also consider the cantonal wealth tax, which applies to your shares and securities. The tax rates vary significantly between cantons:

• Zurich: approximately 0.18% per year

• Geneva: approximately 0.48% per year

• Zug: only 0.06% per year

For larger portfolios, wealth tax can become a significant factor, although for most dividend investors, it remains less relevant than income tax.

How to correctly declare dividends in your tax return

Properly declaring your dividends is crucial to ensuring a full refund of withholding tax. Here are the key steps:

1. Prepare your documents
Gather all relevant documents, such as annual tax statements from your bank, securities account statements, and proof of foreign withholding taxes. Many banks provide clear tax summaries that you can use directly.

2. Complete the securities register
In the securities register of your tax return, list all shares, funds, or ETFs you hold. For each position, provide the name, ISIN or securities number, quantity, year-end value, and gross dividend received.

3. Declare withholding and source tax
Enter the 35% Swiss withholding tax separately to claim a refund. For foreign dividends, use the DA-1 form to reclaim or offset a portion of the source tax.

4. Include sold securities
Remember to declare dividends from shares or funds you sold during the year. This ensures you claim all potential tax refunds.

5. Meet the deadlines
Make sure to declare all dividend income and attach the required supporting documents. Small amounts are often overlooked, which may lead to inquiries from the tax authorities.

6. Avoid common mistakes
Ensure you declare all dividend income and attach the required supporting documents. Even small amounts are often overlooked, leading to queries from the tax authorities.

A thorough preparation and complete declaration not only make your tax return easier but also ensure that you take full advantage of all the tax benefits available to you.

Tips for optimising dividend taxation

Although dividends are taxable in Switzerland, as an investor, you can influence the amount of tax you pay by understanding certain tax mechanisms:

Withholding tax and foreign tax relief

For Swiss dividends, the 35% withholding tax is fully refundable if declared correctly. For foreign dividends, using double taxation agreements allows you to reclaim a portion of the tax.

Tax-free distributions

Look out for dividend payments from capital contribution reserves (KER). Under certain conditions, these distributions are tax-free. However, to benefit from the exemption, you must still declare them fully in your tax return.

Investment horizon strategy

When making long-term investment decisions, keep in mind that private capital gains from share sales are tax-free in Switzerland, whereas dividend income is taxable.

Use of tax-advantaged pension schemes

Investments within pillar 3a are exempt from income and wealth tax during the savings phase. This provides tax benefits on both dividend income and capital gains. Taxation only occurs upon withdrawal, at a reduced rate.

Conclusion: Make the most of dividend taxation

Dividend taxation has a significant impact on the real returns of your investments. As an investor in Switzerland, you should declare your dividend income precisely and take advantage of available tax refunds. By considering tax aspects in your investment decisions, you can improve your long-term financial outcomes.