Dividends in Switzerland: Distribution to resident and non-resident shareholders of a Swiss LLC or a Swiss corporation

Here is how dividends are generally distributed to shareholders residing in Switzerland and abroad:

1. Determination of profits: The company first calculates its net profit, which is the result of its activities after deduction of expenses, taxes and other charges. A part of this profit must be allocated to legal or statutory reserves. The free reserves can be distributed to the partners of a limited liability company or to the shareholders of a public limited company.

2. Decision to distribute: The decision is generally made based on the recommendations of the board of directors or the board of managers and may be subject to certain legal or statutory restrictions. At the annual general meeting, the shareholders or partners decide on the distribution of profits in the form of dividends.

3. Dividend per share: Once the decision to distribute is made, the dividend per share is calculated by dividing the total amount of dividends to be distributed by the total number of shares outstanding. For example, if the company decides to distribute a dividend of CHF 10’000 and there are 1’000 shares outstanding, the dividend per share will be CHF 10. Every Swiss corporation or Swiss limited liability company is obliged to submit the official tax form for the distribution of dividends to the tax authorities within 30 days after the approval of the annual account.

4. Dividend payment: Dividends are generally paid to shareholders in cash. Shareholders receive their share of dividends based on the number of shares they own. For example, if a shareholder owns 100 shares and the dividend per share is CHF 10, he/she will receive a gross payment of CHF 1,000.

5. Withholding tax on dividends: In Switzerland, the dividend is subject to a withholding tax of 35% according to art. 4 al. 1 let. b LIA. The shareholder will therefore receive a net payment of CHF 650 and CHF 350 will be paid to the tax authorities. If the shareholder is an individual resident in Switzerland, he will get back CHF 350 by declaring his dividend in his tax return. If the shareholder is a legal entity, the company must apply to the tax authorities in Switzerland for the recovery of the withholding tax within 3 years. And if certain conditions are met (Swiss intra-group), the company can declare the dividend in its tax return.

For shareholders residing abroad, the recovery of withholding tax may be subject to specific international tax regulations. Here are some important points to consider:

– Double Tax Treaties (DTAs): Switzerland has signed tax treaties with many countries to avoid double taxation, which may reduce or completely eliminate withholding tax in some cases.
– Claiming a refund of withholding tax: Shareholders residing abroad may be able to claim a partial or full refund of the withholding tax levied by Switzerland, depending on the tax agreements in force between the countries. Foreign legal entities can benefit from the international intra-group declaration procedure according to the applicable DTAs or under the Swiss-EU EAR Agreement (formerly Art. 15 of the Agreement on the taxation of savings income AFisE), provided that the conditions are met such as having a preponderant shareholding in the Swiss company.
– Tax declaration in the country of residence: Shareholders residing abroad must generally declare dividends received in their country of residence and comply with the applicable tax laws.

It is important to note that tax regulations and international agreements may vary from country to country, and it is recommended to consult a tax expert, a specialized Swiss fiduciary or a financial advisor for advice specific to your particular situation.

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