Swiss 10/20/100 Non-Bank Rule - February 2019

Author:Mr Christoph Suter, Peter Reinarz, Susanne Schreiber and Daniel U. Lehmann
Profession:Baer & Karrer
 
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Legal Basis

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

Notions of Bond, Debenture and Bank for federal withholding tax purposes

The federal withholding tax definition of the notions of "bond" and "debenture" is broader than the notions used by civil law or in the financial markets. Swiss withholding tax practice defines bonds or debentures as written debt acknowledgments for fixed amounts which are issued in multiple tranches at comparable conditions for the purpose of collective financing, and which allow the investor to evidence, reclaim or transfer its receivable claim.

Loans qualify as bonds for federal withholding tax purposes where the following conditions are met:

A borrower issues written debt acknowledgments over fixed amounts; these written debt acknowledgments are based on a single credit agreement and have identical conditions; the lenders include more than 10 non-banks (including certain types of sub-participants), i.e. not including Swiss or foreign banks as defined by the Swiss Federal Banking Act or comparable foreign banking legislation at the place of establishment of the lender; and the aggregate amount of issued debt amounts to at least CHF 500'000. Loans qualify as debentures similar to bonds for federal withholding tax purposes under the following conditions:

A borrower issues written debt acknowledgments over fixed amounts; the debt acknowledgments may have variable conditions; the lenders include more than 20 non-banks (as described above); and he total borrowed amount corresponds to at least CHF 500'000. Taxable bank interest includes interest paid by Swiss banks or Swiss branches of foreign banks acting under a banking license. In addition, it includes interest paid by any Swiss resident entity that publicly solicits interest-bearing deposits, or continuously accepts interest-bearing deposits from more than 100 depositors (not counting Swiss or foreign banks as defined by the applicable banking legislation), whereby the aggregate amount of deposits amounts to at least CHF 5'000'000.

Banks (as described above), as well as any corporate...

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