Dividend season is coming up for many Swiss companies and once again the question as to avoiding tax pitfalls comes up. The internationalisation of investors in Swiss companies puts international tax treaties increasingly in focus. Next to more common questions relating to withholding tax (in particular notification procedure and related deadlines) tax risks also loom in the context of the so called source tax agreements (STA) with UK and Austria. Contrary to common perception the STA are relevant not only for Swiss banks. They may also be relevant for Swiss companies with UK or Austrian shareholders.

The Source Tax Agreements

Switzerland entered into the STA with UK and Austria. Simply put, the STA‘s primary aim is to enable individuals resident in the UK and Austria to keep their funds anonymously at Swiss banks in full  tax  compliance. The STA‘s scope is to „achieve a level of cooperation which has an effect equivalent to the outcome achieved through exchange of information on an automatic basis“ (Art. 1 STA).

Since the introduction of automatic information exchange seems a matter of time the STA‘s fate seems somewhat uncertain. However, as long as they are in force they will deploy their effects.

Potential tax trap for Swiss companies: „paying agent“ in the case of aggregate dividend exceeding CHF 1m

At first sight the STA appear to apply to Swiss banks only. In fact, however, they may become relevant for any Swiss company distributing a gross aggregate dividend exceeding CHF 1m with shareholders resident in the UK or in Austria.

By way of example, a Swiss company decides on a dividend of CHF 1,5m. The company pays the cash dividend directly to the shareholders one of which is a UK resident individual. As a consequence, the Swiss company qualifies as so called „paying agent“.

Obligations of Swiss „paying agents“

If a Swiss company qualifies as paying agent its main obligations are (i) registration with the Swiss Federal Tax Administration (FTA), (ii) deduction of the source tax from the dividend paid to the UK or Austrian shareholder and (iii) transfer of tax to the FTA.

Failing registration the company is subject to a potential fine of CHF 20‘000. Failure to levy to source tax may be punished with a fine of up to CHF 250‘000.

In addition, Swiss companies qualifying as paying agent are under an obligation to keep their books in a manner allowing to establish all facts relevant to the tax obligations.

Companies qualifying as paying agent are responsible for identification of the individual‘s resident in UK and Austria. Actual levying of the source tax and, to be eccentric required, preparing notifications to the FTA. Also, the company is responsible for sending the required attestations to the shareholder.

„KYS: Know your shareholder“ – and the man behind

For a Swiss company to avoid getting caught in the tax trap it is essential to know its shareholders, meaning the company must know in which jurisdiction its shareholders are resident. The examination may have to go  beyond  the  immediate  shareholder  registered in the books. If UK or Austrian residents hold their shares indirectly via an  intermediary company or otherwise structure (e.g. trusts or foundations) the Swiss company must examine whether it qualifies as so called domiciliary company. Domiciliary companies are treated in a transparent manner resulting in a direct attribution of dividends to the shareholder. As a consequence the Swiss company is under an obligation to discharge its duties pursuant to the STA.


Much has been written about the source tax agreements and related obligations arising to Swiss banks. Often, however, it was overlooked that all Swiss companies with a shareholder resident in the UK or in Austria are potentially subject to the agreements. It is not merely the person registered in the company‘s books that is relevant but potentially also the individual behind with residence in the UK or Austria.