Switzerland: Revised proposal concerning withholding tax on non-Swiss sources of interest

Switzerland: Revised proposal

According to reports, the Swiss Federal Council will abandon its previously proposed “paying agent” concept and the related extension of the 35% withholding tax to non-Swiss sources of interest.


The latest “unofficial” proposal of the Federal Council would be to repeal the 35% withholding tax liability on interest from Swiss bonds and bond-like instruments.

However, the new “unofficial” proposal to repeal the Swiss withholding tax liability on interest would only apply to bond interest and bond-like interest. It would not apply to interest from deposits held at Swiss banks, irrespective of the underlying currency. As a result, interest on deposits at Swiss banks paid to Swiss resident individuals would remain subject to withholding tax at a rate of 35%. This restriction would mean that Swiss banks must properly classify their clientele and properly identify the Swiss resident clients who will continue to be subject to the 35% withholding tax on deposit interest. In addition, Swiss banks would also need to continue monitoring the repatriation of cash associated with fiduciary deposits made by Swiss individuals at related foreign entities and properly assess whether bond-like instruments could qualify as bank deposits.

Current Swiss tax regulations do not provide a clear definition of bonds, bond-like instruments, and bank deposits.

KPMG observation

Retaining the withholding tax on Swiss bank deposit interest is viewed as not being particularly reasonable in the current environment, not only because of the very low, nil or even negative rates of interest but also because of the withholding tax exemption applicable to annual bank deposit interest of up to CHF 200. For example, consider when a Swiss bank would apply a 35% withholding tax on interest paid to an individual resident in Switzerland only if this client makes an interest-bearing deposit at the Swiss bank of more than for example U.S. $200,000 over one year, assuming a favorable interest rate of 0.1% or higher. Conversely, no withholding tax would apply on a deposit of CHF 1 million as such a deposit would likely suffer “negative interest” rather than generate any positive interest income.

The proposal is probably not final, since keeping the 35% withholding tax liability on Swiss bank deposits could create more costs than generate any meaningful tax revenue.

Read an October 2020 report prepared by the KPMG member firm in Switzerland

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