U.S.-Switzerland tax treaty: withholding rates on interest, dividends, royalties and services

What sets the U.S.-Switzerland treaty apart

The 1996 U.S.-Switzerland treaty exempts interest and royalties at source, caps dividends at 5% and 15%, and since the 2009 protocol exempts dividends paid to Swiss pension plans and individual retirement plans the competent authorities recognize. It has several features no other U.S. treaty shares: Swiss residents taxed on the lump-sum (forfait) basis can be excluded from residence, Swiss family foundations have their own limitation-on-benefits test, U.S. Social Security is capped at 15% rather than exempt, and gambling winnings are left to domestic law.

Common payments at a glance

Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.

Rates on investment and other income

Treaty in effect generally from Jan. 1, 1998. Protocols in effect from: Jan. 1, 2020. IRS country code SZ.

"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.

Pay for personal services performed in the United States

Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.

Reading the U.S.-Switzerland treaty as a payer

Documents and dates

The convention and its protocol were signed in Washington on October 2, 1996, replacing the 1951 treaty, with a general effective date of January 1, 1998. A protocol signed on September 23, 2009 replaced the pension-dividend paragraph, added mandatory arbitration and rewrote the information exchange article; the IRS tables list its withholding change as effective January 1, 2020. Its bank and ownership information rules reach information relating to any date from September 23, 2009.

Residence: forfait taxpayers and partnerships

An individual taxed in Switzerland on the lump-sum (forfait) basis who has not elected to be taxed on all U.S.-source income under the generally imposed Swiss taxes is not a Swiss resident for this treaty (Art. 4(5)). A Swiss address alone does not establish residence. Pension trusts, employee benefit organizations and nonprofits that are generally exempt are residents (Art. 4(1)(c)). A partnership, estate or trust is resident only to the extent its income is taxed as a resident's; the technical explanation says a Swiss partnership can itself be a resident, because Switzerland computes its income worldwide. Dual-resident companies are resident in neither country unless the competent authorities agree.

Limitation on benefits

Article 22 differs from the usual U.S. design. Alongside individuals, governments, listed companies whose principal shares are primarily and regularly traded, and companies owned by them, it uses a predominant interest test in place of the usual ownership and base erosion test: a company fails if persons who are not qualified together own more than 50% of it, counting equity, debt and contracts, including deductible interest and royalty payments (Protocol para. 8). Swiss family foundations have their own test, which fails if the founder or most beneficiaries are not qualified or if half the income could benefit non-qualified persons. A headquarters company test and an active business test apply; the protocol requires the business to be carried on through the company's own officers or staff. Derivative benefits for dividends, interest and royalties require more than 30% ownership by qualified Swiss residents and more than 70% by them plus EU, EEA or NAFTA residents with equivalent treaty rates.

Dividends

The 5% rate needs a company holding directly at least 10% of the voting stock; indirect voting stock and non-voting shares do not count. Everything else is 15%. There is no 0% rate for parent companies. RIC dividends are 15%. REIT dividends get 15% only for an individual holding less than 10%; everyone else, including Swiss companies, pays the statutory 30%.

Since the 2009 protocol, dividends are exempt when beneficially owned by a Swiss pension or other retirement arrangement, or an individual retirement savings plan set up in and owned by a Swiss resident, that the competent authorities agree generally corresponds to a plan recognized in the U.S., provided it does not control the payer (Art. 10(3)). The 1996 technical explanation's statement that individual retirement plans do not qualify was superseded.

Interest and royalties

Interest is taxable only in Switzerland (Art. 11(1)). The exceptions are uncapped: U.S. contingent interest that is not portfolio interest, and REMIC excess inclusions, may be taxed under U.S. law (Art. 11(6)), which the technical explanation gives as 30%. Royalties for copyrights, patents, trademarks, designs, secret formulas and know-how are taxable only in Switzerland (Art. 12(1)). Films and works for radio or television broadcasting are excluded from royalties and treated as business profits along with equipment rental (Art. 7(8)), so they are also exempt without a U.S. permanent establishment. Sound recordings remain royalties, and shrink-wrap software is business profits.

Services

A Swiss individual's independent services are taxable in the U.S. only through a fixed base regularly available here (Art. 14); there is no day count. Construction projects become a permanent establishment after 12 months. Employees are exempt only if present 183 days or fewer in any 12-month period beginning or ending in the tax year, paid by a non-U.S. employer and not borne by a U.S. permanent establishment or fixed base (Art. 15(2)). Unlike most treaties, the director article lets the company's country tax all of a director's fees, wherever the services are performed (Art. 16). Performers and athletes are taxable once gross receipts for the year, including reimbursed expenses, exceed $10,000, and then on the whole amount (Art. 17). The memorandum of understanding lets a payer withhold under domestic law, with a refund claim due within five years after the year of withholding.

Pensions and Social Security

Private pensions, including lump sums and IRAs, and annuities are taxable only in the country of residence (Art. 18). Social Security and tier 1 Railroad Retirement paid to a Swiss resident may be taxed by the U.S. at up to 15% of the gross (Art. 19(4)); this is one of the few U.S. treaties with a capped rather than exclusive rule. U.S. citizens resident in Switzerland do not get the cap. The treaty has no alimony article; the technical explanation treats alimony as other income, taxable only in the recipient's country.

Students, other income and gains

Students and trainees in full-time education or training are exempt only on payments from outside the U.S. (Art. 20). There is no teacher or researcher article. Other income is taxable only in Switzerland (Art. 21(1)), but gambling, wagering and lottery winnings are carved out at Switzerland's request and remain taxable at source under domestic law (Art. 21(3)). Gains other than on U.S. real property or permanent establishment assets are taxable only in the residence country.

Where payers get it wrong

• Treating every Swiss address as a treaty resident. Forfait taxpayers may be outside the treaty, and nominees for non-Swiss owners get nothing.
• Applying 5% or 15% to REIT dividends of a Swiss company. Only individuals holding less than 10% get 15%.
• Exempting all interest. Non-portfolio contingent interest and REMIC excess inclusions are taxed under U.S. law with no treaty cap.
• Exempting U.S. Social Security. It is capped at 15%, not exempt.
• Withholding on a recognized Swiss retirement plan, or exempting an unrecognized one. The 0% rate depends on a competent-authority correspondence determination and no control of the payer.

Read from the treaty documents: Convention, Protocol and Memorandum of Understanding of Oct. 2, 1996; Protocol of Sept. 23, 2009 and exchange of notes; Treasury Technical Explanations of the Convention and the 2009 Protocol. Texts and technical explanations: United States income tax treaties, A to Z.

How the payee claims these rates

• Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
• Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the Switzerland treaty's LOB provision is Article 22).
• Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
• The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.

Questions payers ask

The IRS notes behind the figures

Notes to the rates (IRS Table 1)

• g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
• u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
• w The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or a real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is an individual holding less than a 10% interest (25% in the case of Portugal, Thailand, and Tunisia) in the REIT.
• dd Amounts paid to certain pension funds that are not derived from the carrying on of a business, directly or indirectly, by the fund are exempt. This includes dividends paid by a REIT only if the conditions in footnote mm are met. For Sweden, to be entitled to the exemption, the pension fund must not sell or make a contract to sell the holding from which the dividend is derived within 2 months of the date the pension fund acquired the holding. The United States has competent authority arrangements (MAP) with some treaty jurisdictions (e.g. Netherlands and Switzerland) that describe which pension funds are eligible for the exemption. See the Competent Authority Arrangements page on irs.gov.
• jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.

Notes to the services table (IRS Table 2)

• 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
• 8 Does not apply to fees paid to a director of a U.S. corporation.
• 11 Applies only to full-time student or trainee.
• 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
• 25 Exemption does not apply if gross receipts (including reimbursements) exceed this amount.
• 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.

Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.

Other treaty countries

Australia · Austria · Bangladesh · Barbados · Belgium · Bulgaria · Canada · Chile · China · Commonwealth of Independent States · Cyprus · Czech Republic · Denmark · Egypt · Estonia · Finland · France · Germany · Greece · Iceland · India · Indonesia · Ireland · Israel · Italy · Jamaica · Japan · Kazakhstan · Latvia · Lithuania · Luxembourg · Malta · Mexico · Morocco · Netherlands · New Zealand · Norway · Pakistan · Philippines · Poland · Portugal · Romania · Slovak Republic · Slovenia · South Africa · South Korea · Spain · Sri Lanka · Sweden · Thailand · Trinidad and Tobago · Tunisia · Turkey · Ukraine · United Kingdom · Venezuela