Relief from Withholding Tax on Intragroup Dividends

Withholding Tax on Dividends

Dividend distributions to shareholders are subject to a 35% withholding tax. This applies not only to “ordinary” dividends but also to so-called hidden profit distributions to shareholders resulting from transactions other than under arm’s length conditions. Shareholders can subsequently apply for a full or partial refund of the withholding tax. However, if the direct shareholders of a Swiss company are foreign corporate entities, it may be possible, under certain conditions, to notify the withholding tax instead of paying it.

Efficient Cash Flow Within the Group

By notifying the withholding tax rather than paying (followed by a subsequent refund), the dividend can be paid in full directly to the foreign corporate entity without retention of taxes, which significantly simplifies and enhances cash flow efficiency within the group. This also applies to hidden profit distributions, whereby respective withholding tax does not need to be paid, avoiding an actual outflow of funds.

Prior Approval Required

Such a notification instead of a payment is only applicable if prior approval has been obtained. This approval is valid for five years and can subsequently be extended for additional five-year periods. Since hidden profit distributions are usually unintentional and are often detected in the course of a tax audit, it is advisable to already have an approval for notification (instead of paying) the withholding tax under such circumstances.

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