Personal Taxes in the Business World

Withholding Tax

Withholding tax in Switzerland is a special type of income tax that is deducted directly at the source (i.e., by the payer) and paid to the tax office.

It serves as a simplified procedure for taxing individuals who do not yet have full tax status in Switzerland.

Who is subject to withholding tax?

Withholding tax mainly affects:

1. Foreign employees residing in Switzerland: Individuals who live and work in Switzerland but do not have a settlement permit (C permit). Exception: Persons whose spouse has a C permit or Swiss passport are usually assessed regularly.

2. Persons without tax residence in Switzerland: For example, cross-border commuters, weekly residents, artists, athletes, or board members who earn income in Switzerland.

How does the deduction work?

• The employer is obliged to deduct the owed tax (federal, cantonal, and municipal taxes) directly from the gross salary and transfer it to the cantonal tax administration.
• For the person subject to withholding tax, the tax debt is usually settled. No annual tax return needs to be filed.

Good to know:

• Cantonal differences: Withholding tax rates vary by canton and depend on your gross income, marital status, and number of children.
• Subsequent ordinary assessment (NOV): For gross annual income over CHF 120,000 or significant additional income not subject to withholding tax, an ordinary tax return must be filed later. Withholding taxes already paid are credited.

Partial Taxation of Dividend Income

Normally, the profit of a corporation (AG) or GmbH is taxed twice:

1. First taxation: The company pays profit tax on corporate earnings (legal entity).

2. Second taxation: The shareholder pays income tax on the distributed dividend (natural person).

Partial taxation reduces the second taxation (income tax on the dividend) to correct this inequality. Otherwise, it would not be fair to shareholders.

Who benefits from partial taxation?

The relief is only granted if the shareholder holds a qualified participation.

Requirement: As a natural person, you must hold at least 10% of the share or equity capital of the company.

How does partial taxation work?

With partial taxation, the dividend is not counted as 100% taxable income, but only at a reduced percentage.

• Direct Federal Tax (DBG): Dividends from qualified participations are taxed at 70% in private and business assets.
• Cantonal and municipal taxes (StHG): A minimum taxation of 50% applies. This means cantons must tax dividends from qualified participations at least 50% (many cantons apply exactly 50% – this should be checked by canton).

An impressive calculation example:

Let's say you receive a dividend of CHF 10,000 from your qualified participation:

At the federal level: For direct federal tax, only CHF 7,000 is counted as taxable income. Your savings: 30% of the dividend (CHF 3,000) remains tax-free at the federal level!

At the cantonal level: In most cantons (e.g., when applying the minimum rate), only CHF 5,000 is recorded as taxable income. Your savings: 50% of the dividend (CHF 5,000) remains tax-free at the cantonal and municipal level!