Switzerland Update: Withholding tax liability of foreign board of directors now also when paying the remuneration to third parties

Since the withholding tax revision (in force since 1 January 2021), the remuneration of members of the Board of Directors without tax residence or residence in Switzerland is also subject to withholding tax if it is paid to a third party – for example, a company.

Withholding tax liability of foreign boards of directors

Compensation paid by Swiss companies to members of the Board of Directors residing abroad is generally subject to withholding tax. The Swiss company makes the deduction “at source” and pays the compensation reduced by withholding tax to the foreign board of directors.

If, on the other hand, the remuneration was paid to a company in Switzerland or abroad by the end of 2020, this procedure – before the withholding tax revision – did not trigger any withholding tax liability, at least in certain cantons (e.g. Basel-Stadt).

As part of the withholding tax revision, Article 93(1) of the DBG was supplemented to the effect that remuneration paid to third parties is now also subject to withholding tax. Thus, the Swiss company must deduct withholding tax from the remuneration of the board of directors residing abroad even if the remuneration flows to a third party (e.g. to a consulting company). It is irrelevant whether the company is domiciled in Switzerland or abroad. Withholding tax depends exclusively on the residence of the Board of Directors.

This amendment to Art. 93 para. 1 DBG corresponds to the previous practice of some tax authorities (e.g. Canton of Zurich). In certain cantons, however, as mentioned, this procedure has not yet led to any withholding tax liability.

The amendment has implemented an equal treatment with the income of artists, athletes and speakers residing abroad, which is also taxed at source, which was and will be taxed at source even if the remuneration is paid to third parties.

Result

Remuneration paid to members of the Board of Directors residing abroad is also subject to withholding tax if it is paid to a third party or to a company domiciled in Switzerland or abroad. It is therefore worthwhile for Swiss companies with foreign boards of directors to check whether this regulation has been correctly implemented. The social security treatment, which is untypically regulated in Switzerland, can also be checked.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.