What is Withholding Tax?

Withholding tax is an amount that the payer (employer, bank, custodian) deducts from a payment to a beneficiary and remits directly to the tax authority on the beneficiary's behalf, as a prepayment of the beneficiary's eventual tax bill.

The most common form is wage withholding: your employer estimates your income tax and social contributions and pays the net amount to you and the rest to the state. At year-end the tax return reconciles the estimate with the actual liability and you receive a refund or pay a top-up.

Switzerland also applies a 35% federal withholding tax (Verrechnungssteuer) on Swiss-source dividends, interest and lottery winnings. Swiss residents reclaim it via the tax return; non-residents may reclaim part of it under double-taxation treaties. Foreign workers without C permit are taxed at source on wages via Quellensteuer at cantonal rates.

When you receive a payment subject to withholding tax in a foreign country, the relevant tax treaty determines whether you can reclaim the excess. Filing the right reclaim form (US W-8BEN, French formulaire 5000 etc.) at the right time matters: many countries enforce a strict deadline of two to three years.

Example

A Swiss investor receives a CHF 1,000 dividend from Nestlé. The bank withholds CHF 350 federal withholding tax and pays out CHF 650. The full CHF 1,000 is declared on the tax return; the CHF 350 is credited against the final tax bill or refunded.

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Related terms

Income Tax

Income tax is a tax levied by governments on the wages, salaries, business profits and other earnings of individuals and corporations, usually charged at progressive rates that rise with the amount of income.

Capital Gains Tax

Capital gains tax is the tax due on the profit realised when you sell an asset — shares, bonds, real estate, crypto or a business — for more than you paid for it, with rules that differ sharply across European jurisdictions.

Tax Treaty

A tax treaty (double-taxation agreement) is a bilateral or multilateral agreement between countries that allocates taxing rights over cross-border income and provides procedures to relieve double taxation, exchange information and resolve disputes.

Double Taxation

Double taxation occurs when the same income or capital is taxed twice — most commonly by two different countries claiming taxing rights — and is mitigated through bilateral tax treaties and domestic relief mechanisms.

Frequently asked questions

Is withholding tax the same as income tax?+

No — it is a prepayment. Your final liability is computed on the tax return; withholding is credited against it.

Can I reclaim foreign withholding tax?+

Often partially, via the relevant double-taxation treaty and a specific reclaim form.

Who pays Swiss Verrechnungssteuer?+

The paying bank withholds 35%; Swiss residents reclaim it on the tax return, non-residents via treaty.