Dividends, interest, capital gains and withholding taxes

Dividends

The treatment of dividends determines the tax position of every German entrepreneur who holds shares in a German company after moving to Zurich. Germany levies capital gains tax at source on dividends at a rate of 25 per cent plus the solidarity surcharge. Under Article 10 paragraph 2 of the convention, the tax in the source state may not exceed 15 per cent of the gross dividend in the ordinary case. Higher rates are permitted for income from silent partnerships and from profit participation rights that are deductible in Germany. A special rate applies to dividends from certain hydroelectric companies on the Rhine. Paragraph 3 exempts dividends paid to a company holding at least 10 per cent of the capital of the distributing company, with exceptions for German real estate investment companies and investment funds.¹ The difference between the German withholding tax and the treaty rate must be reclaimed from the Federal Central Tax Office in Bonn, a procedure that the competent authorities have sought to simplify by a mutual agreement of December 2022.

For a Swiss resident individual, the dividends from his German company are taxable in Zurich as ordinary income. Dividends from qualifying participations of at least 10 per cent benefit from partial taxation, which the canton of Zurich applies at 50 per cent for private assets.² Switzerland credits the residual German withholding tax of 15 per cent through the flat-rate tax credit procedure. As long as Article 4 paragraph 4 applies, Germany may also tax the dividends at its ordinary rates, with a credit for the Swiss tax. The combined result during the five-year period is roughly the higher of the two burdens. After that period, the German tax is limited to the treaty rate.

Swiss withholding tax and German shareholders

In the opposite direction, Swiss withholding tax of 35 per cent is deducted from dividends paid by Swiss companies, including those paid to German residents. Under the convention a German resident individual may reclaim the difference between 35 per cent and 15 per cent from the Federal Tax Administration in Bern. The ESTV maintains an electronic portal for such claims, which has been available for income paid from 1 January 2020.³ For German families in Zurich this is relevant in the reverse situation, when some members remain in Germany while others have moved. A Swiss holding company owned by a family whose members live on both sides of the border must distribute its profits in a manner that takes account of the different refund positions of each shareholder.

Capital gains and the exit tax base

Gains from the alienation of shares are taxable under Article 13 of the convention only in the state of residence of the seller. A German who has moved to Zurich and sells the shares of his German company after the expiry of the five-year period of Article 4 paragraph 4 therefore pays no German tax on the gain under the treaty. If the shares form part of his private assets, he pays no Swiss tax either. Within the five-year period, advisers point out, Germany retains its taxing right over gains from substantial shareholdings in German companies.⁴ This combination has made Switzerland a traditional destination for entrepreneurs planning the sale of a company. German domestic law responded with the exit taxation of § 6 AStG, which taxes the hidden reserves in the shares at the moment of departure. The convention recognises this mechanism in Article 13 paragraph 5. One state may tax the increase in value of shares at the departure of a resident individual. On a later alienation, the other state then takes as the acquisition cost the amount that the first state treated as proceeds at the time of departure.⁵ The step-up is of little practical relevance in Switzerland, where private capital gains are exempt. It becomes important if the shares are held as business assets in Switzerland or if the taxpayer later moves to a third state.

Notes

1. Fedlex, SR 0.672.913.62, consolidated version of 27 November 2025, cited above, Article 10 paragraphs 2 and 3. ↩
2. Art. 20 para. 1bis DBG (70 per cent taxation of dividends from participations of at least 10 per cent for the direct federal tax) and Art. 7 para. 1 StHG, which requires the cantons to tax such dividends at no less than 50 per cent. The canton of Zurich applies the minimum rate of 50 per cent under § 20 para. 2 of the Zurich tax law (StG ZH): Kantonsrat Zürich, proposal of the Regierungsrat of 3 February 2021 on the popular initiative “Keine Steuergeschenke für Grossaktionärinnen und Grossaktionäre”, https://parlzhcdws.cmicloud.ch/parlzh5/cdws//Files/a7023b547b4c4b4dabc28637c496b204-332/1/pdf. The initiative, which sought to raise the rate to 70 per cent, was narrowly rejected by 50.5 per cent of the voters in September 2022: SRF, “Knappes Nein zu höheren Steuern für Grossaktionäre”, https://www.srf.ch/news/abstimmung-kanton-zuerich-knappes-nein-zu-hoeheren-steuern-fuer-grossaktionaere. ↩
3. ESTV, “Deutschland”, cited above, referring to the ePortal for refund claims by persons resident in Germany for income with payment dates from 1 January 2020. ↩
4. Happe and Kistler, Steuer Revue 12/2019, cited above, who describe the German taxing right over gains from substantial participations in German companies during the five years after departure and the Swiss exemption of private capital gains under Art. 16 para. 3 DBG. ↩
5. Fedlex, SR 0.672.913.62, consolidated version of 27 November 2025, cited above, Article 13 paragraph 5. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.