Tax aspects of funds

Withholding tax

Tax law is the second great obstacle to the international competitiveness of Swiss funds after the lack of market access. The Swiss withholding tax of 35 per cent applies to income distributed by Swiss collective investment schemes and to income that accumulating funds retain. For transparent Swiss funds, the tax falls due irrespective of whether the income is distributed. Opaque investment companies, notably the SICAF, are subject to withholding tax only on distributions.¹ Swiss resident investors can credit or reclaim the tax in full if they declare the income. Foreign investors can reclaim it only to the extent that a double taxation treaty so provides, and the residual tax is often 15 per cent or more.

Two mechanisms mitigate the burden. Capital gains that a fund realises are not subject to withholding tax if they are distributed separately by a dedicated coupon or shown separately in the accounts. Funds that derive at least 80 per cent of their income from foreign sources may use the affidavit procedure. Under that procedure, distributions to foreign investors are paid without deduction of withholding tax if the custodian bank receives a declaration that the investor is resident abroad.² The affidavit procedure makes Swiss funds with global portfolios usable for foreign investors in principle. In practice, the administrative burden of the procedure and the need to explain it to foreign distributors have limited its use. International investors prefer Luxembourg and Irish funds, which levy no withholding tax on distributions to non-residents.

Stamp duties

The federal stamp duties add a second layer. The issuance of units of Swiss funds is exempt from the issuance stamp duty. Secondary market transactions in fund units, by contrast, are subject to the securities transfer tax if a Swiss securities dealer is involved, at a rate of 0.15 per cent for Swiss and 0.3 per cent for foreign securities.³ The L-QIF is also exempt from stamp duty on issuance. Its income is taxed at the level of the investors because the vehicle is transparent, except for direct real estate holdings, while its distributions remain subject to withholding tax.⁴ Swiss pension funds and other institutional investors that qualify as exempt investors are relieved of the transfer tax on many of their transactions, which reduces the practical burden for the domestic institutional market.

The failed reforms of 2022

Parliament attempted twice to reduce the tax handicaps of the Swiss capital market, and both attempts failed at the ballot box. On 13 February 2022, 62.7 per cent of voters rejected the abolition of the issuance stamp duty of 1 per cent on equity capital.⁵ On 25 September 2022 a narrow majority of 52.01 per cent rejected the reform of the withholding tax. That reform would have abolished the withholding tax on interest from Swiss bonds and the transfer tax on Swiss bonds, with the aim of bringing the bond issues of Swiss companies back from Luxembourg to Switzerland.⁶ Parliament’s reform had also contained special provisions for collective investment schemes, including exceptions for bond interest distributed by funds.

The rejection of both reforms has shaped the political debate since. The asset management industry continues to argue that the withholding tax on fund income and the transfer tax on securities trading drive business abroad. The political left and a majority of voters regard both taxes as legitimate contributions of the financial sector and as instruments that secure the declaration of income by Swiss residents. After two lost votes, a comprehensive reform is unlikely in the near future. The tax treatment of Swiss funds therefore remains the main reason why Zurich managers domicile their international products abroad. The detailed taxation of investors and of companies in the canton of Zurich is the subject of chapter H.V.

Notes

1. Alberto Lissi and Monika Gammeter Utzinger (Tax Partner AG – Taxand Switzerland), “Swiss withholding tax in collective investment schemes”, International Tax Review (12 July 2016), on the 35 per cent withholding tax on income of transparent Swiss collective investment schemes irrespective of distribution, the affidavit procedure for funds with at least 80 per cent foreign-source income, the treatment of capital gains distributed by separate coupon, the treatment of SICAFs, and the stamp duty exemption for the issuance of fund units, https://www.internationaltaxreview.com/article/2a68rfy5bw2ycq0qbjkgr/swiss-withholding-tax-in-collective-investment-schemes. ↩
2. Art. 34 of the Withholding Tax Ordinance (VStV, SR 642.211), bilingual edition, https://www.droit-bilingue.ch/de-fr/6/64/642.211-34-40.html. The Federal Tax Administration may authorise payment against a declaration of domicile (affidavit) in favour of a foreign investor where the taxable income of the fund will foreseeably derive permanently to at least 80 per cent from foreign sources. The treatment of capital gains coupons follows the Lissi and Gammeter Utzinger article cited above. ↩
3. Alberto Lissi and Monika Gammeter Utzinger, “Swiss withholding tax in collective investment schemes”, International Tax Review (12 July 2016), on the exemption of the issuance of fund units from stamp duty and the transfer tax of 0.15 to 0.3 per cent on secondary market transactions, https://www.internationaltaxreview.com/article/2a68rfy5bw2ycq0qbjkgr/swiss-withholding-tax-in-collective-investment-schemes. ↩
4. KPMG Switzerland, “Limited Qualified Investor Fund (L-QIF) factsheet”, on the tax transparency of the L-QIF, the special rules for direct real estate holdings, the 35 per cent withholding tax on distributions and the exemption from stamp duty, https://assets.kpmg.com/content/dam/kpmg/ch/pdf/limited-qualified-investor-fund-factsheet.pdf. ↩
5. swissinfo.ch, “Volk lehnt Abschaffung der Stempelsteuer deutlich ab” (13 February 2022), on the rejection of the abolition of the issuance stamp duty on equity capital by 62.7 per cent of voters, with only the canton of Zug in favour, https://www.swissinfo.ch/ger/volk-lehnt-abschaffung-der-stempelsteuer-deutlich-ab/47343884. ↩
6. swissinfo.ch, “Die Reform der Verrechnungssteuer findet keine Mehrheit” (25 September 2022), on the rejection of the reform by 52.01 per cent of voters, turnout of 51.7 per cent, and the purpose of abolishing the 35 per cent withholding tax on interest from bonds issued in Switzerland, https://www.swissinfo.ch/ger/politik/abstimmungssonntag_die-reform-der-verrechnungssteuer-findet-keine-mehrheit/47926372. The abolition of the transfer tax on domestic bonds, also part of the reform enacted by Parliament on 17 December 2021, is described in Homburger, “Reform von Verrechnungssteuer und Stempelabgaben”, https://www.homburger.ch/de/insights/reform-von-verrechnungssteuer-und-stempelabgaben. ↩

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.