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10% Tax Instead of 5% on Dividend Income from January 1, 2025
Higher tax on dividend: From January 1, 2025 Indians need to pay witholding tax at 10% rate instead of 5% rate in Switzerland. Experts say this may result in burden for a company's cash flow and may also result in dead loss for certain trusts and individuals investing in Switzerland. Read below to know the impact of this decision by Switzerland.
The State Secretariat for International Financial Matters, which represents Switzerland's interests in financial, monetary and tax matters, has officially decided to suspend the most favoured nation (MFN) clause between Switzerland and India with respect to taxes on dividend income with effect from January 1, 2025. This means dividend income will be taxed at 10% rate instead of 5% in Switzerland for Indians in the new year 2025.
This decision by Switzerland comes against the backdrop of a recent Supreme Court of India (Case - Nestle SA [2023] 458 ITR 756 (SC)) ruling, which rejected the interpretation of the most favored nation (MFN) clause in India's Double Taxation Avoidance Agreement (DTAA) with Switzerland, Netherlands and France. While the geo-political consequences of this action are yet to unfold completely, it's also important to assess its impact and act especially for Indian residents and companies who got caught in the cross-fire of this action of the institutions in these two countries.
However, despite this unfavourable development for Indian investors the worse outcome was still avoided. Experts with whom we spoke said thankfully the Switzerland government ceased MFN clause for only dividend income and left royalty and other incomes outside it, so the impact might not be that deep. Nevertheless, an impact in the nature of stress on cashflows and ‘dead loss’ can be felt by Indian business and residents who have financial interest in Switzerland.
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