Withholding tax and dividends abroad

Are you a shareholder who owns foreign stocks? Then you are probably someone who has to deal with foreign dividends – and the corresponding withholding tax in your tax returns.

Dividends that accrue abroad are usually subject to withholding tax. In the end, the only thing deposited in the relevant bank account is the difference between the gross dividend and the foreign withholding tax (WHT).

At the same time, all dividends in Switzerland are subject to income tax, and must be declared. Swiss tax authorities require private investors to declare the gross dividend, i.e. declare the full amount, without taking into account/deducting the withholding tax already paid abroad. For certain trading accounts (e.g. at Saxobank Switzerland), the dividend report only shows the net value; in such cases, the gross income must be manually offset. This gross income is also used as the tax base in Switzerland – so, at first glance, it can look as though double taxation is taking place here.

Thanks to numerous double taxation agreements (DTA) between Switzerland and other countries, there is no double taxation in most cases – as long as the declaration in the tax return is correct. To avoid this type of double taxation, it is important to enter the dividends correctly in your private tax return.

A simple example – used below – shows how exactly the reduction/exclusion of double taxation works. In addition, we show a concrete example, drawn from practice.

It is also possible to claim the remaining CHF 15 directly from the American authorities. In this case, the dividend of CHF 100 would be fully taxed in Switzerland. However, this route is significantly more complex, and experience shows that it is only worthwhile if the sums involved are very large. The reason: to request the return of this part. Mr. Schweizer must contact the American authorities directly, fill in the appropriate American forms, and so on. Alternatively, there is the possibility of contacting the bank abroad, and asking them for support. Such support is usually chargeable – whereby the costs for small investment sums are disproportionately high, and in extreme cases can even exceed the recoverable amount. And then there is the personal workload, which worsens the cost-benefit ratio once again. For these reasons, in practice, the remaining withholding tax amount is often waived.

As can be seen in the table (all information anonymised): a private investor received a total of CHF 2731.42 in dividends in a single tax year. The foreign withholding tax paid is CHF 466.63. Of this amount, CHF 302.69 is credited to domestic income tax in Switzerland. The remaining CHF 163.93 could be reclaimed separately in the respective country.

You can find out how large the creditable part and the recoverable part of the foreign withholding tax are for each country on the FTA website.

It should also be noted that not all countries levy a withholding tax. Great Britain is a good example of a country which does not.

*all figures for investments under 10%.
Source: www.estv.admin.ch, State: 14.5.2020