Complex international tax issues arise when dividends are paid or received between France and Switzerland. Withholding rates, tax treaties, parent-daughter regime: each situation must be analyzed in the light of the beneficiary’s status and bilateral rules. Here are the points you need to know to secure your distributions.
French-Swiss dividends: how are they taxed?
When a French company pays dividends to a Swiss resident, a withholding tax applies in principle, subject to application of the bilateral tax treaty. Conversely, Switzerland applies a 35% withholding tax, but this may be limited to 15% or 0% in certain cases, notably if the recipient company has a sufficient shareholding.
To benefit from these reduced rates, strict formalities must be complied with. In France, form 5000 is used to apply for an exemption or a reduced rate of withholding tax. In Switzerland, a request for partial reimbursement must be submitted to the Swiss tax authorities. These steps should be taken well in advance, as failure to do so may result in definitive taxation at the full rate.
What are the formalities for benefiting from reduced withholding rates?
The application of reduced rates or withholding tax exemptions to dividend flows between France and Switzerland is conditional on the filing of specific forms within the prescribed deadlines.
On the French side, the distributing company must submit forms 5000 (tax residence certificate) and 5001 (statement of beneficial owners) to the tax authorities, together with supporting documents. These documents make it possible to claim the exemption provided for in the Franco-Swiss tax treaty, notably under the parent-subsidiary regime. In the event of failure to file, or incomplete filing, withholding tax is automatically applied at the full rate.
On the Swiss side, in the case of dividends received by a French resident, an application for repayment of the withholding tax (35% withholding) must be submitted to the Swiss Federal Tax Administration. Form 82 (for individuals) or 86 (for companies) must be duly completed, signed and accompanied by proof of receipt. The legal filing deadline is three years from the end of the calendar year in which the dividends were received.
Parent company tax regime and conditions of application
The so-called “parent company-daughter” regime makes it possible to avoid withholding tax in certain situations, subject to certain holding and duration conditions. Under article 119 ter of the CGI, a Swiss parent company holding at least 10% of the capital of a French company for two years can benefit from total exemption from dividend withholding tax. In practice, full documentation must be provided to demonstrate compliance with the thresholds.
This system makes it possible to optimize intra-group flows by reducing the tax burden associated with distributions. It does not, however, dispense with tax reporting obligations, either in Switzerland or in France.
Dividends and personal taxation: best practices
For an individual Swiss resident receiving dividends from a French company, tax is paid in France via a withholding tax. This income must be declared in Switzerland, where it is taken into account in calculating income tax and, depending on the canton, wealth tax.
The Franco-Swiss tax treaty avoids double taxation by granting a tax credit equivalent to the tax deducted in France. Particular attention must be paid to the consistency of amounts declared in both countries, in the event of an audit.
What are the risks of incorrect application?
Incorrectly anticipating the tax treatment of dividends between France and Switzerland can have serious consequences for both individuals and companies:
- Loss of conventional benefit: if forms are not submitted on time, the full rate applies, with no possibility of reimbursement.
- Effective double taxation: in the absence of a tax credit or recapture of withholding, income may be taxed twice.
- Tax reclassification: in the event of unjustified or poorly documented payments, the tax authorities may reclassify dividends as hidden distributions, remuneration or non-deductible flows.
- Adjustments and penalties: tax authorities can apply interest on late payments, fines for failure to declare, or even challenge the very nature of the relationship between entities.
To avoid these risks, it is essential to document each distribution, to respect the deadlines imposed by the States, and to seek, if necessary, dedicated tax support.
Optimize the taxation of your dividends
Optimizing the taxation of dividends requires a thorough understanding of tax treaties, administrative procedures and the differences in treatment between individuals and legal entities. BERGEOT PAOLI Associés can help you manage dividend flows between France and Switzerland, whether you are an investor, a company director or the owner of a foreign company. Our approach is based on an analysis of the capital link, the tax qualification of the beneficiary and the structuring of flows in compliance with bilateral rules. To find out more, discover our complete expertise in investment and real estate taxation.