Switzerland withholding tax reform: will it be maintained?
24 Sep , 2022 - Fiduciaria Lago
On Sunday 25 September 2022, the Swiss withholding tax reform will be voted on.
How withholding tax works in Switzerland today
As a rule, bond purchasers receive interest on their bank deposits, and the Confederation levies a withholding tax of 35 percent on this interest. This tax is then refunded if the person domiciled in Switzerland declares this interest in his tax return.
Although most investors are entitled to a full or partial refund of the tax, this refund procedure involves an administrative effort and a temporary drain on the investor's liquidity.
Because of these disadvantages, private investors and Swiss groups avoid issuing bonds in Switzerland, to keep their securities competitive. The preference instead falls on foreign countries preferably not subject to withholding tax.
What could change if it were abolished
The withholding tax applicable to bond interest would be levied on newly issued Swiss bonds or investments in bond funds. This tax would also be abolished on interest accrued on the bank accounts of legal entities and foreign investors.
Individuals residing in Switzerland would continue to be subject to the tax.
This tax represents an obstacle for the Swiss debt capital market which is therefore underdeveloped and takes away value and possible jobs in the sector, which are instead developed abroad.
The objective of the federal executive with this withholding tax reform is to allow companies to start procuring capital again in Switzerland and to allow the country to regain its attractiveness towards Swiss and foreign investors. A dual purpose therefore, in the short and long term, which would represent an advantage for both investors and the country's economy.