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Switzerland: Tax reform implications for individual taxpayers

Switzerland: Tax reform implications, individuals

The Swiss federal law on tax reform and AHV financing (TRAF)—while mainly focusing on corporate taxation—has implications for certain individual taxpayers.

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New rules for qualifying shareholders

Private “qualifying shareholders” (i.e., those holding at least 10% of the share capital) previously benefited from a privileged dividend tax treatment at both cantonal and federal levels.

As of 1 January 2020, such dividend income will now be taxed at a rate of 70% (previously taxed at a rate of 50% or 60%) at the federal level, regardless of whether the shares are held as a private or as a business asset. On a cantonal level, the taxation of qualifying dividends ranges between the rates of 50% and 70%.


Dividend distribution

Previously, companies were free to decide whether they wanted to distribute “normal” reserves or capital contribution reserves as dividends to their shareholders. While dividends in the form of normal reserves were subject to income and withholding tax, dividends paid out of capital contribution reserves were not taxed.

As of 1 January 2020, companies listed on a Swiss stock exchange may only distribute capital contribution reserves to the shareholders if the companies distribute dividends from the “normal” reserves in the same amount. As a result of this change, dividends paid by listed companies are now always subject to income tax—at least, partially subject to tax.


Transpositions

The tightening of the corporate transposition rule will also affect individual taxation. According to the new conditions, the transfer of a single share from a private portfolio to a self-controlled company may be treated as taxable income if the transfer price exceeds the nominal value.

Under previous law, a taxable individual had to sell off 5% or more of the assets held personally to a legal entity held by this same person before this transposition rule was triggered.

Read a January 2020 report prepared by the KPMG member firm in Switzerland

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