Crediting foreign withholding taxes
Crediting foreign withholding taxes
Income from foreign securities, such as dividends, are often subject to withholding tax in the country of origin, which is deducted before the income is paid out. If a double taxation agreement (DTA) is in place, this tax can be reclaimed in part or in full between Switzerland and the respective state or offset against the income tax or profit tax owed in Switzerland. In this article, we show how the crediting of foreign withholding tax works. We are explicitly not going into the tax credit on income from the USA here.
How can foreign withholding taxes be credited?
In the case of the Swiss tax return, an application for the offsetting of part of the foreign withholding tax can be submitted under certain conditions – using form DA-1 for natural persons or form DA-2 for legal entities.
Is it possible to offset foreign withholding taxes in any case?
In the assessment procedure, the Swiss tax authorities first check:
- whether the tax affiliation to Switzerland is given at the due date of the benefit
- whether a credit is permissible under the double taxation agreement (DTA)
- whether the withholding tax was actually levied abroad and whether the applicant is also the beneficial owner. For dividends that have already been taxed at company level abroad (so-called franked dividends), for example, there is no entitlement to a credit.
- whether the foreign withholding taxes amount to at least CHF 100
- whether the application has been duly completed and the enclosures showing the withholding tax deduction have been enclosed.
The following three limit values are then calculated. The effective crediting is limited to the smallest amount of each of the three limits:
- Non-recoverable foreign withholding tax
- Eligible securities income less proportional debt interest and asset management costs, multiplied by the tax rate
- Total income taxes or profit tax of the canton, municipality and direct federal tax
Our recommendation
Have your income carefully reviewed each year to make the most of the credit options available. Make sure you use the correct forms and meet all deadlines. Please also note that not all income is creditable – interest or income from countries without a corresponding double taxation agreement (DTA) in particular can lead to problems.
If we already prepare your tax return for you and are registered as your tax representative, you do not need to worry about this. We declare your income correctly and check the tax authority's decisions before forwarding them to you. If you have any questions or special circumstances, we will of course be happy to assist you personally.
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