Currently Switzerland generally does not impose a withholding tax on interest under domestic law. However, exceptions apply to interest derived from deposits with Swiss banks, bonds, and bond-like loans, which currently are subject to a 35% withholding tax at the Swiss Federal level. And interest paid to a nonresident on receivables secured by Swiss real estate is subject to a tax at source. The aforementioned 35% withholding tax and the tax at source which apply under domestic law may be reduced under a tax treaty.
On August 15, 2022 on the website of the Swiss Federal Department of Finance a press release was published in which it is announced that the Swiss Federal council recommends to abolish the 35% withholding tax to be withheld over domestic bonds that are issued on or after January 1, 2023.
According to the press release Switzerland is coming under increasing pressure in the international tax competition. By reforming its withholding tax, Switzerland will increase its attractiveness as a residency location and remain competitive. The reform will bring financing operations back to Switzerland. Also jobs and training positions will be created and tax revenue will be generated. Therefore the Swiss Federal Council recommends the Federal Law on Withholding Tax to be amended. The Swiss Federal Council presented its arguments at a media conference that took place on August 15, 2022. On September 25, 2022 the Swiss electorate will vote on the reform proposal.
As explained above, the Swiss federal government currently levies a withholding tax of 35 percent on interest income from bonds. In order to avoid this hurdle many Swiss domestic companies issue their bonds abroad, thus contributing to the loss of (Swiss) jobs and tax revenue. The Confederation, cantons and communes, as well as often public-sector companies such as hospitals, issue their bonds domestically and thus have to accept higher financing costs. The proposed reform that will be submitted to the electorate to vote on aims to eliminate the aforementioned negative impacts.
The reform provides for the exemption from withholding tax of bonds that will be issued in Switzerland from 1 January 2023. Interest income from bonds already outstanding will remain taxed. It is also planned to abolish the trading stamp duty on Swiss bonds, so that it will become more attractive to acquire these bonds from a Swiss securities dealer. A referendum was launched against the project. The referendum committee believes that the reform will lead to excessive tax losses and increase tax crime.
You can find the full press release, inclusive the arguments made by the Swiss Federal Coouncil, here on the website of the Swiss Federal Department of Finance. The press release is available in the French, German and Italian language.
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