Reform of Swiss withholding tax and securities transfer tax to strengthen the Swiss debt capital market


On December 17, 2020, the Swiss Parliament decided to abandon the withholding tax on bond yields and on the interest income of Swiss funds. In addition, transactions in national bonds and certain transactions for the sale of eligible participations will be exempt from stamp duty on transfers of securities.

Withholding tax on Swiss bonds


Unlike many countries, Switzerland does not levy withholding tax on interest paid on private and commercial loans (including arm’s length business-to-business loans). However, a withholding tax of 35% is currently levied on interest paid to Swiss or foreign lenders on bonds and similar collective debt securities issued by or on behalf of Swiss resident issuers as well as on interest paid by banks Swiss.

Since capital markets tend to steer clear of bonds subject to withholding tax, Swiss multinational groups frequently resort to issuing bonds through a foreign subsidiary. However, the Federal Tax Administration (FAC) will reclassify these foreign bonds as domestic bonds if the resulting proceeds used in Switzerland exceed certain thresholds (i.e. the combined accounting equity of all non-Swiss subsidiaries of the Swiss parent company and the total amount of loans granted by the Swiss parent company and its Swiss subsidiaries to non-Swiss subsidiaries).

In order to avoid withholding tax on regular loans (as opposed to bonds, which are subject to this tax anyway), credit facility agreements entered into by a Swiss borrower or a non-Swiss borrower under a guarantee of a Swiss parent company must contractually restrict free transferability and syndication by invoking the so-called “non-banking 10/20” rules and specifying that:

  • lenders must, throughout the term of the loan, prohibit assignments, transfers or significant sub-participations of loan tranches which would lead to the intervention of more than 10 non-bank lenders; and
  • the borrower must always ensure that the number of non-bank lenders will not exceed 20 for all of its borrowings (affiliated lenders are not covered by the provisions in both cases).

Fundamental changes

The main aim of the current reform is to facilitate the issuance of Swiss bonds free of withholding tax and thus to strengthen the Swiss capital market. This objective will be achieved by abolishing the withholding tax on bond yields, as proposed by the Federal Council on April 14, 2021. Previous reform proposals focused on the introduction of a paying agent tax, which n is no longer on the agenda.

It should be noted that Parliament deviates significantly from the position of the Federal Council on one point by limiting the abolition of withholding tax to new issues. The version of the Federal Council of April 14, 2021 provided for the abolition of withholding tax on all interest payments from January 1, 2023, which would also have covered the interest on bonds already issued.

However, due to a strictly formal approach to what constitutes a new issue and an old issue, it should be possible to replace a current foreign issue with a domestic issue. In addition, the transfer of the registered office of a foreign financial company to Switzerland does not imply that the bonds issued by this company before January 1, 2023 will be subject to withholding tax. The same applies to the repatriation of a foreign issue which is accompanied by a change of issuer.

Withholding tax on Swiss funds

The Federal Council’s proposal of 14 April 2021 did not provide for any substantial change with regard to the collection of withholding tax on Swiss collective investment schemes. To eliminate discrimination against domestic UCITS compared to foreign UCITS, Parliament has reworked the legislation. Income from UCITS bonds declared separately is now exempt from withholding tax.

Changes to stamp duty on securities transfers

Stamp duty on title transfers on domestic bonds should be abolished with a view to improving trading of domestic bonds in the secondary market. Primary market transactions in domestic bonds, as well as the return of securities for redemption, are already exempt from stamp duty on transfers of securities.

During parliamentary consultations, a new amendment was introduced exempting the brokerage or purchase and sale of domestic or foreign holdings of at least 10% of the share capital or nominal capital of other companies by a securities dealer securities within the meaning of the Federal Stamp Duty Act from stamp duty on securities, provided that the participation is considered as fixed assets. However, said exemption does not extend to the acquisition and disposal of investments held for the short term, considered as current assets.

Commentary and perspectives

The abolition of the Swiss withholding tax on bonds and other proposed changes to the Swiss withholding tax and stamp duty regime on transfers of securities should strengthen Switzerland’s position as an international financial and treasury center . All types of financing and refinancing activities in Switzerland (e.g. raising capital through bond issuances, crowdfunding platforms, asset-backed securities structures and other securities market transactions capital) will be facilitated because the negative consequences of withholding tax can be avoided. The abolition of the Swiss withholding tax on bonds is expected to come into effect on January 1, 2023 even if the already called referendum takes place, if voters approve the proposal. The referendum period, which is about to expire, ends on April 7, 2022. A public vote could therefore take place in autumn 2022. The Federal Council will decide on the promulgation of the remaining amendments to the Federal Law on withholding tax and the Federal Stamp Duty Act.


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