Hi all

If a company (in this case my own) pays me dividends, it's subject to a withholding tax of 35 per cent. However they should be fully refundable to swiss residents: (see below, an excerpt from many pages)

Withholding tax is reimbursed by way of cash refunds (corporate tax payers) or as a credit against income tax payable (individual tax payers).

Now does this mean that if I pay 40 000 francs per year in income tax (as if), and receive a dividend of 100 000 francs (one can dream), I'll only have to fork out 5000 francs, as the company that pays the dividends will already have paid 35 000 to the tax authority?

Must be a stupid question and I should understand written english that much, but I'm just that dense - sorry ...

I would say yes IF those 40'000 thousand francs are calculated on the basis of your total income (i.e. salary plus dividend gross of tax plus whatever else income you have).

As I understand it, it works like this:

Withholding tax is by way of an estimate of your tax liability on the amount being paid to you. When you complete your tax return and show your income, including the gross dividend, the tax office will take into account the amount you have pre-paid by way of the withheld amount in the total calculation of your tax liability.

"Withholding tax is reimbursed " does not state all or fully reimbursed. The amount refunded will depend on your tax liability. The company is not actually 'paying your taxes'. It is, as the name suggests, withholding an amount that should cover your tax liability - usually generously more than the final amount.

If you are running a business, don't you have an account and/or tax adviser to answer this with specific values applicable to your situation?

Thanks for the answers.

I have a treuhand, but he has a nasty habit of avoiding clear cut answers. Also if this is explained here, other people might benefit as well. My silly brain learns by the way of examples, so please bear with me.

Simplified scenario:
Salary fr100 000
dividend fr100 000
Total income tax at fr100 000= 15 %
Total income tax at fr200 000= 20 %

With the figures above, I would end up paying 20%* 200 000 = fr 40 000 in taxes. However because fr 35 000 has already been withheld from the dividends, I'd only have to pay fr 5000 at the end of the year. Right, wrong?

If this is the case, the optimization of dividends/salary would depend on the extra costs of salary (pensions, insurance etc) vs. the corporate tax rate.

On those figures: right! And if you are paying a Truehand and don't get clear-cut answers, maybe it's time to find a new one. Of course you can't sue me if I'm wrong...

Wrong. You still pay 40,000 - 5,000 directly and you only receive 65,000 net from the company....

That's what I meant as well, I think. I only pay 5000 more, as I've already paid 35k and they've been credited against my income tax payable.

Thats my understanding of it as well.

The system isn't really meant to deal with people making large investment income - which isn't a problem since in general most foreigners making under 120k/yr (who hence the income witholding tax applies) have relatively little in the way of investment income.

As a matter of fact doesn't the dividend count as income if you are a swiss resident and bump you over 120k, thus oficially you need to file - though I am sure they are more than happy to keep the 35% "who own's you?" tax if you say nothing!

A

Actually I just got off the phone with one of the kind tax advisors of canton of Zug, and he could tell me that dividends woujld not bump me into the 120k+ club. However they will raise my tax rate accordingly (e.g 110k salary, 20k dividends, both taxed at 130k).

So taxed at a Quellensteuer rate for 130k?

Did you get the dividends through a Swiss bank and was the 35% witholding tax applied - so now you would get some of that back? You must have to fill in a form, no?

I have no idea how that'll work in practise as I will receive the dividends from my own company - I'll be wiser at the end of the year I suppose.

Being the owner of the company, you will be taxed twice. The company must pay taxes on the profits. Then afterwards you pay income tax on the dividends.

Do some math on the alternative, which is to pay yourself a higher salary/bonus instead of a dividend. The higher salary attracts higher soc-sec contributions. But you can make a bigger tax deductible contribution to your pension plan. And you need not pay company taxes.

Much scope for tax planning here.
Also many pitfalls.
Get an expert to help you.