The 35% withholding tax (Verrechnungssteuer): what it is and how to reclaim it

Anyone distributing a dividend from their GmbH or AG for the first time is often taken aback: far less than the amount resolved arrives in the shareholder’s account. The reason is the anticipatory tax (Verrechnungssteuer), a 35% deduction that the company must pay over to the Confederation. It is not a lost tax, but an advance with a precise rationale that is worth understanding before passing the resolution.

What the anticipatory tax is

The anticipatory tax is a federal tax withheld at source on certain income from movable capital. The typical cases are:

• dividends distributed by GmbHs and AGs;
• interest on certain bonds and on bank balances;
• some insurance benefits.

The ordinary rate is 35% on capital income (different percentages apply to lottery winnings and certain annuities). Its function is one of safeguard: the State withholds a share up front and returns it only to those who correctly declare the income. It is therefore a tool against evasion, not a definitive levy for those who are compliant.

Who pays over and who withholds

The obligation falls on the debtor of the benefit, that is, on the company distributing the dividend. It is the company that must:

• notify the distribution to the Federal Tax Administration;
• pay over the 35% within the prescribed deadline;
• credit the shareholder with only the net 65%.

The shareholder therefore receives less, but at the same time acquires a right to a refund of the amount withheld, provided they act transparently.

How it is reclaimed

The reclaim mechanism depends on who the beneficiary is.

Individual resident in Switzerland. They reclaim the anticipatory tax by declaring the income in the ordinary tax return. The amount withheld is credited or refunded at the time of assessment. The condition is to declare properly both the income and the related wealth element: anyone who omits the declaration loses the right to a refund.

Legal entity resident in Switzerland. The beneficiary company claims the refund from the Federal Tax Administration, recording the income in its own accounts.

Beneficiary abroad. The refund, total or partial, depends on the double taxation treaty between Switzerland and the state of residence. Often the residual tax is reduced to a treaty rate, and the excess is refundable on request.

The notification procedure: avoiding the cash outlay

For intragroup dividends and in other qualifying situations there is the notification procedure: instead of paying over the 35% and then reclaiming it, the company reports the distribution and discharges the obligation without a cash outlay. It is a valuable simplification, for example in parent-subsidiary relationships that meet certain participation thresholds, because it avoids tying up liquidity for months while awaiting a refund.

Access to the procedure requires compliance with formal conditions and precise deadlines: a procedural error can forfeit the benefit and bring back the obligation to pay, with possible interest.

Frequent errors

Some situations recur and prove costly:

• Forgetting to declare the dividend: the right to a refund is lost and the 35% becomes definitive.
• Confusing the anticipatory tax with income tax: the former is an advance, the latter is the actual burden. The dividend remains subject to partial taxation in the hands of the shareholder anyway.
• Ignoring the deadlines for the refund or for the notification procedure: they are mandatory.
• Treating the deduction as a cost of the company: it is not. It is an advance borne by the beneficiary, not a deductible charge for the distributor.

Why plan before passing the resolution

The anticipatory tax does not increase the tax burden of those who are compliant, but it weighs heavily on cash and on timing. Resolving a dividend without having assessed the notification procedure, the shareholder’s residence and any international treaties often means tying up liquidity for long months unnecessarily.

At SIH ONE we set up profit distribution in a coordinated way: we check whether the notification procedure is applicable, handle the notification and the payment within the deadlines, and see to the reclaim for resident and foreign shareholders, taking the treaties into account. That way the deduction stays what it should be: an advance, not a cost.

Want to distribute a dividend without cash surprises? Let’s plan the distribution together.