Abolition of stamp duty and reform of withholding tax 

A strong economy and financial centre depend on a properly functioning capital market. However, the Swiss capital, money and credit markets are still being held back by cumbersome taxes such as stamp duty and withholding tax. Investors, banks and other financial service providers are shifting substantial volumes of business to rival foreign locations as a result. The Swiss Bankers Association calculates that this offshored business, together with potential new business, amounts to some CHF 6,670 billion. 

What exactly are stamp duty and withholding tax? 

The Swiss banking industry ranks among the best in the world, managing total assets of around CHF 7.3 trillion. Roughly half of this figure is attributable to foreign customers. The Swiss financial centre leads the world in cross-border wealth management with a market share of 27%. This is a clear sign of the confidence customers have in the work done by Swiss banks. Switzerland has also achieved this position through attractive operating conditions as well as a highly competitive and innovative banking industry. 

A strong economy and financial centre depend on a properly functioning capital market. However, the Swiss capital, money and credit markets are being held back by cumbersome taxation. The federal government, for instance, levies a stamp duty of 1% on newly issued shares, and every single purchase or sale of securities also attracts a transfer stamp tax (0.15% for Swiss securities, 0.3% for foreign securities). These two forms of stamp duty are curbing issuance and trading. 

Swiss securities are also subject to a withholding tax of 35% on interest and dividends, which must be deducted by the issuer and paid to the tax authority. Investors thus receive only 65% of the actual income. Depending on their country of residence, they may be able to reclaim some or all of the remaining 35%, but doing so entails costs and risks. Withholding tax and the procedure for reclaiming it thus detract from the appeal of Swiss securities from an international standpoint. 

How do they affect us?  

Stamp duty and withholding tax put Switzerland at a significant disadvantage. Rival centres such as London, Singapore and Hong Kong do not have comparable taxes. Investors, banks and other financial service providers are shifting substantial volumes of business to rival foreign locations as a result in order to invest and manage the assets involved more competitively. However, stamp duty and withholding tax are not just a hindrance to the Swiss financial centre specifically, they are also bad for investment and business in Switzerland generally because they diminish the value of capital as a production factor and thereby weigh on capital spending. This is why the SBA has been campaigning for years to alleviate this tax burden on investment, as have representatives of other sectors. 

Tapping into unused potential 

The SBA released a position paper based on a detailed analysis of this shift towards other countries due to the current stamp duty and withholding tax regimes, focusing on five specific areas of business. It also estimated the future potential for the Swiss financial centre, should the tax obstacles be removed, in terms of business that had been moved abroad being repatriated and new business coming to Switzerland from abroad. 

The volume of assets currently managed domestically in the five areas studied is approximately CHF 9,130 billion. Adding together the currently offshored business and potential new business, additional assets totalling some CHF 6,670 billion would come under Swiss management if the obstacles of stamp duty and withholding tax were to be removed. The chart below shows how these estimates of assets currently under management in Switzerland (on the left) and potential for repatriation and new business (on the right) break down: 

The Federal Council published a report by BAK Economics in June 2019 that looks at the economic impact of abolishing stamp duty and comprehensively reforming withholding tax. The report concludes that these reforms would boost gross domestic product by 1.4% within ten years, which equates to around 22,000 new jobs on a full-time equivalent basis.

Which political initiatives are we supporting?

Parliamentary initiative 09.503 “Progressively abolish stamp duties and create jobs”

This initiative targets the economic potential outlined above. In our response to the consultation on the parliamentary initiative “Progressively abolish stamp duties and create jobs”, we expressly welcome the political impetus but call for certain adjustments in order to end the disadvantages for Switzerland relative to comparable international financial centres in the most targeted manner possible.

Federal Council’s proposal for reforming withholding tax

The Federal Council published the dispatch on a reform of withholding tax for the attention of the Swiss Parliament on 14 April 2021. Under the proposal, withholding tax would continue to apply unchanged to interest paid on bank accounts held by private individuals in Switzerland, but it would no longer apply to interest (coupons) paid on bonds or to individuals outside Switzerland. In respect of the latter, the international system of automatic exchange of information in tax matters has established itself as a safeguard, removing one of the main purposes of withholding tax. 

The Federal Council also proposes abolishing the transfer stamp tax on Swiss bonds.  

The SBA welcomes and expressly supports this step on the part of the Federal Council. The reform will benefit the national economy, and the resulting economic growth will compensate for the short-term loss of withholding tax revenues through higher income tax revenues within five years at most. 

Graphic: a reform of stamp duty will boost the Swiss economy


Urs Kapalle
Head of Tax Strategy
+41 58 330 63 00