By Heini Rüdisühli, Frédéric Neukomm, Lukas Aebi

Switzerland levies a 35 per cent withholding tax on interest paid on bonds and on bank interest. Conversely, Switzerland does not levy withholding tax on interest paid on ordinary loans. The comparably high withholding tax rate renders Swiss-issued bonds unattractive for foreign investors.

Even though most Swiss double taxation agreements allow for a significantly reduced (often zero per cent) withholding tax rate on interest payments, Swiss withholding tax is, in a first step, in any case, deducted from the interest payment and must then be reclaimed by the investor on the basis of the applicable treaty.