Taxes on Dividends and Capital Gains in Switzerland Explained

The stock market can be a wild ride, so it is understandable that investors are happy when they earn returns in the form of dividends or capital gains. But it is better not to count your chickens too soon, because depending on what kind of returns you make, you may have to tax them.

Which stock market returns are taxable in Switzerland?

In Switzerland, a difference is made between returns you earn through shareholder dividends, and returns you earn through capital gains when the value of your stocks or other securities goes up.

• Yields: This category primarily includes dividends from stocks and participation certificates, and interest from bonds and other securities like shares in cooperatives. Yields normally have to be taxed.
• Capital gains: A capital gain occurs when you sell a stock or other security for a higher price than the one you originally paid for it. Private investors normally do not pay taxes on capital gains.

How are stock dividends taxed in Switzerland?

Dividends and interest payments are generally subjected to a withholding tax before they are paid out to you. The Swiss withholding tax is 35 percent, and is applied to dividends and interest payments from Swiss stocks and bonds. You can claim full reimbursement of the Swiss withholding tax after you declare your securities in your Swiss tax return.

Foreign withholding taxes deducted from dividends on foreign stocks or interest from foreign bonds can also be reclaimed either in full or in part through your Swiss tax return. The remaining portion of foreign withholding taxes can normally be reclaimed from the country which levied them. However, the process is generally difficult, and for private investors and relatively small yields, it normally is not worth the effort.

Swiss investors have to tax dividends as income. The exception: Swiss companies sometimes make repayments of capital contribution reserves. These capital contribution repayments are not the same things as dividends, and they are not subject to either withholding tax or income taxes.

You must list all of your securities in your Swiss tax returns. The sum of all your gross dividends is added to your taxable income. The gross dividend is the full dividend before the withholding tax is deducted.

Example of how dividends are taxed

You own 300 shares in a Swiss company. You receive a dividend of three Swiss francs per share. So your total gross dividend of 900 francs must be added to your income for tax purposes. Although 315 francs of that money will be deducted for the 35-percent withholding tax, you will get the 315 francs back from the tax office after your tax return has been processed.

When do I have to pay taxes on capital gains?

While the taxation of dividends is clear and straightforward, whether or not your capital gains are taxable depends on your individual situation. The deciding factor is whether the tax office categorizes you as a private investor or a commercial investor.

Private capital gains – capital gains achieved by investing your private wealth – do not have to be taxed. Capital gains from commercial investing, on the other hand, are considered taxable income.

So whether or not you have to pay taxes on your capital gains depends on whether you are categorized as a commercial or a private investor. The criteria are not black and white. Even an investor who only invests their own wealth can, in some cases, be categorized as a commercial trader by the tax authorities. If a person is categorized as a commercial investor, their capital gains have to be added to their income for tax purposes.

Who is categorized as a private investor?

The Swiss Federal Tax Administration (FTA) set down five criteria for investing in a publication. These criteria not only apply to investing in stocks, bonds, and funds, but also to using futures, options, swaps, contracts for difference (CFDs) and other financial instruments.

If you consistently meet all of the criteria listed below simultaneously, you will always be categorized as a private investor, and your capital gains will not be taxable:

1. Investment terms: You hold the securities you buy for at least six months before you resell them.
2. Transaction volume: The total, combined value of all your purchase and sales made in one calendar year is not more than five times the value that your investment capital had at the beginning of the tax year.
3. Main income: You do not rely on investment returns to supplement your income for your regular living expenses. The rule of thumb: Your capital gains should not make up more than 50 percent of your gross income.
4. Loans: You invest your own money, and not finance your investments with money from third parties. Or: Your taxable yields like interest and dividends earned are higher than the interest paid for the use of third-party capital.
5. Derivatives: You can only use derivatives, and particularly options, to hedge your own securities.

Tax offices have some freedom to make decisions within the scope of these five criteria. Because of that, it is possible that you may not be categorized as a commercial investor and will not have to pay taxes on your capital gains even if you do not meet all of the above criteria. In practice, investors are often categorized as private investors even if they do not fulfill all five criteria.

If you are unsure of your status, it can be beneficial to consult a specialized tax advisor or to ask the tax office directly.

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