Taxation and accounting in Switzerland of dividends, interest, and royalties
Dividends, interest, and royalties are key sources of passive income for Swiss companies, especially in the financial, technology, and holding sectors. However, they are not treated uniformly: each type is subject to specific accounting and tax rules at both the federal and cantonal levels.
Here is a clear and structured overview of how these three income categories are treated in Switzerland.
Dividends
Accounting
Dividends received by a Swiss company are recorded as financial income. They must be recorded on the date the distribution is formally approved, typically at the general meeting convened by the board of another company.
If the financial year closes before this date, a transitory asset (receivable) may be recorded if the event is deemed subsequent but known.
Taxation
- Withholding tax:
Dividends distributed by Swiss companies are subject to 35% withholding tax at source. If the recipient is a Swiss resident company fulfilling its tax obligations, it may request full and immediate reimbursement via the notification procedure. - Corporate income tax:
Dividends are generally taxable in Switzerland. However, a partial exemption applies for qualifying participations (holding at least 10% or market value ≥ CHF 1 million), under the participation deduction regime. - Foreign dividends:
Usually subject to foreign withholding tax, but Switzerland has double taxation treaties (DTAs) allowing a tax credit or partial refund, depending on the specific agreement.
Interest
Accounting
Interest received is recognized on an accrual basis, meaning it must be accounted for as it is earned, regardless of when it is actually received.
Taxation
- Withholding tax (on interest from Swiss debtors):
Certain types of interest, especially from Swiss bonds or fiduciary deposits, are subject to 35% withholding tax. This does not automatically apply to all intercompany loans. Swiss recipient companies can claim full reimbursement via Form 25. - Corporate income tax:
Interest income is fully taxable as ordinary income. - Foreign interest:
May be subject to foreign withholding tax, usually reducible through DTAs signed by Switzerland.
Royalties
Accounting
Royalties are revenues received by a Swiss company in exchange for the use of intellectual property rights (such as patents, software, trademarks, licenses, etc.).
They are recorded as operating income or other operating income, depending on their nature and frequency.
Taxation
- Withholding tax:
Royalties are generally not subject to Swiss withholding tax, except in certain specific cases. However, outbound royalties (paid by a Swiss company to a foreign recipient) may be subject to foreign withholding tax, unless reduced or exempted by a DTA. - Corporate income tax:
Royalties received are considered fully taxable ordinary income and must be included in the corporate tax return. - Cross-border royalties:
DTAs often limit the withholding tax rate in the source country (commonly to 0%, 5%, or 10%). Switzerland also allows foreign tax credit relief.
Practical Considerations
Tax Documentation
Swiss companies must be able to demonstrate:
- The exact nature of passive income (contracts, statutes, minutes of general meetings)
- The source of the income and any withholding tax applied abroad
- The compliance of withholding rates with applicable DTAs
Tax Audits
The Swiss Federal Tax Administration (FTA) may request detailed information on the origin of passive income, especially if it comes from offshore structures or involves transfer pricing (particularly relevant for intra-group royalties).
In Switzerland, companies can earn dividends, interest, and royalties under generally favorable tax conditions. However, proper handling requires a clear understanding of accounting principles and withholding tax mechanisms, both domestic and international.
Accurate accounting and rigorous management of these incomes help optimize the tax burden while ensuring full legal compliance.
For more complex or high-stakes cross-border situations, it is strongly recommended to seek advice from a tax expert or specialized Swiss corporate services provider, such as My Swiss Company SA.