The withholding tax (Verrechnungssteuer) is Switzerland's withholding tax on capital income: 35% is deducted before the money reaches you. Whether it's interest on your business account, dividends from your LLC (GmbH), or distributions from an investment portfolio — the Federal Tax Administration (ESTV) takes its share first. The good news: the withholding tax refund works reliably if you declare your capital income in your tax return. For the self-employed, the amounts involved are often substantial — several thousand francs per year is not uncommon.

Anyone operating as a sole proprietorship (Einzelfirma), LLC (GmbH), or joint-stock company (AG) has capital income subject to withholding tax. This applies to interest on a business account as well as dividends from your own corporation. The 35% deduction is merely a security deposit by the federal government — not a final tax rate. Anyone who declares the income gets the withholding tax refunded. Those who fail to declare it lose the money. In this article, I explain what the self-employed need to know about withholding tax in Switzerland — from the concept to Form 25.

Key Takeaways

• The withholding tax is 35% on capital income such as interest, dividends, and certain insurance benefits — regulated under the Withholding Tax Act (VStG / Verrechnungssteuergesetz).
• The refund happens automatically once you declare the income in your tax return — example: CHF 1,000.00 interest → CHF 350.00 withholding tax → fully refunded.
• For dividends from your own LLC: CHF 50,000.00 distribution → CHF 17,500.00 withheld → refund with your next tax return.
• Those with foreign capital income need Form 25 from the ESTV for the refund.
• Anyone who does not declare the income permanently loses the withholding tax — and risks retroactive taxation.

What Is the Withholding Tax? Definition and Legal Basis

The withholding tax is a source tax on capital income in Switzerland. The term Verrechnungssteuer (withholding tax) describes the mechanism: the federal government retains 35% of capital income and credits this amount against the taxpayer's actual tax liability. The legal basis is the Withholding Tax Act (VStG / Verrechnungssteuergesetz). You can find the current text on admin.ch.

Which Income Is Affected?

The withholding tax is levied on the following capital income:

• Interest on bank deposits (business account, savings books, fixed-term deposits)
• Dividends from Swiss shares and cooperative memberships
• Distributions from Swiss investment funds
• Gains from certain insurance policies (e.g., annuity policies)
• Interest on bonds from Swiss issuers

The tax rate is a flat 35%. That sounds high, but it is not an additional tax — it is a security deposit. The deduction secures the federal government before the taxpayer has even been assessed. Only with the assessment in the tax return is the actual tax liability determined, and the withholding tax is credited or refunded.

Who Pays the Withholding Tax?

The deduction happens at the source — that is, at the bank, the corporation, or the insurer that pays out the capital income. The Federal Tax Administration (ESTV) collects the withholding tax. For the taxpayer, the withholding tax is initially a pass-through item: it appears on the bank or depository receipt, but is declared in the tax return as tax paid and credited against the actual tax liability. Anyone who is tax-resident in Switzerland and declares the income in the tax return gets the difference — or the full amount — back. Details on the practice can be found on the ESTV withholding tax page.

Withholding Tax vs. Capital Gains Tax

The terms are often confused. The withholding tax is a federal tax, regulated under the VStG. "Capital gains tax Switzerland" is another term used colloquially for the same deduction — legally, the correct term is Verrechnungssteuer (withholding tax). Switzerland does not have a separate capital gains tax like Germany. Anyone searching online for "capital gains tax Switzerland" usually means the withholding tax.

How the Withholding Tax Refund Works — Step by Step

The withholding tax refund is not a separate application — it happens automatically through the tax return. Anyone who declares capital income in the tax return receives the withholding tax either credited or fully refunded. The deduction acts like a prepayment that is settled after the assessment.

The Process Step by Step

1. Receipt of capital income: The bank pays interest or the LLC pays dividends — minus 35% withholding tax. The receipt shows the gross amount, the deduction, and the net amount.
2. Declaration in the tax return: You enter the gross amount and the withheld withholding tax on the form — for Swiss capital income in the main form, for foreign income in Form 25.
3. Assessment: The cantonal tax authority reviews the return and determines the actual tax liability.
4. Crediting: The withheld withholding tax is credited against the tax liability. If the withholding tax is higher than the actual tax on the income, you receive the difference back. If it is lower, the remaining amount is charged.
5. Payout: The refund is made together with the definitive assessment — usually 1–2 years after the tax year.

Mini-Story: Sarah, Sole Proprietor in Web Design

Sarah runs a sole proprietorship (Einzelfirma) for web design in Basel. She has CHF 120,000.00 in her business account. The bank pays 1% interest — that's CHF 1,200.00 gross. The bank withholds CHF 420.00 withholding tax and credits CHF 780.00. Sarah declares the CHF 1,200.00 in her tax return as interest income. Her effective tax burden on this income is — depending on canton and total income — around 15%, so approximately CHF 180.00. Since the withholding tax of CHF 420.00 is higher than the effective tax, Sarah gets CHF 240.00 back.

Sarah's lesson: Anyone who declares the interest gets money back. Anyone who doesn't declare the interest loses the CHF 420.00 entirely — and commits tax evasion.

Form 25 from the ESTV: Refund of Foreign Source Taxes

The Swiss withholding tax only applies to Swiss sources. Anyone with foreign capital income (e.g., dividends from US stocks or German shares) pays source tax there. The refund runs through Form 25 of the ESTV — an official document that allows Swiss taxpayers to reclaim foreign source tax, based on double taxation agreements (DTAs). Form 25 and the detailed instructions are available directly on the ESTV website for Form 25. Processing can take several months, and in complex cases over a year. Anyone who regularly receives foreign dividends should keep an eye on the deadlines of the respective countries — some countries require the refund within 2–3 years.

Mini-Story: Thomas, LLC Founder from Zurich

Thomas runs an LLC (GmbH) for IT consulting in Zurich. After a good year, the company distributes a dividend of CHF 50,000.00. The LLC withholds CHF 17,500.00 withholding tax and pays out CHF 32,500.00 to Thomas. Thomas declares the CHF 50,000.00 as dividend income in his personal tax return. His effective tax burden on this amount is around 25% — that's CHF 12,500.00. The withholding tax of CHF 17,500.00 is credited. Thomas gets CHF 5,000.00 back.

Thomas's lesson: Anyone who declares dividends from their own LLC generally gets part of the withholding tax back. Anyone who doesn't declare the dividend loses the CHF 17,500.00 — and risks criminal tax proceedings.

Withholding Tax Refund in the Tax Return: "With or Without"

In the Swiss tax return, when reporting capital income, you'll find the option "with withholding tax" (mit Verrechnungssteuer) or "without withholding tax" (ohne Verrechnungssteuer). This distinction causes confusion for many self-employed people. The logic is actually simple.

What Does "With Withholding Tax" Mean?

"With withholding tax" means: the capital income was subject to 35% withholding tax at the Swiss source. You enter the gross amount and the withheld withholding tax. The withholding tax is credited against your tax liability or refunded. This is the standard case for Swiss bank interest and dividends.

What Does "Without Withholding Tax" Mean?

"Without withholding tax" means: the income was received without Swiss withholding tax being deducted. This typically applies to foreign capital income where the Swiss withholding tax doesn't apply, or to income that is exempt from withholding tax (e.g., certain pension products). You declare the gross amount, but there is no withheld withholding tax to credit. The foreign source tax may be recoverable through Form 25 — but that is a separate process.

Why the Distinction Matters

If you report income in the wrong category, you lose money. If you report income as "without withholding tax" that was actually "with withholding tax," the withholding tax cannot be credited — you're giving away 35% of the income. Conversely, an incorrect entry can lead to an assessment that later needs to be corrected. So check your bank receipt: does it show a 35% deduction? Then "with withholding tax." Does it show no deduction or a foreign deduction? Then "without withholding tax" and check whether Form 25 applies.

Tip: With clean accounting, these income types can be separated. Anyone who manages their invoice template and bookkeeping in one place has an overview of all income and withheld taxes in minutes — whether as a sole proprietorship or an LLC.

Dividends from Your Own LLC or AG: Withholding Tax for Founders

For the self-employed who run their business as an LLC (GmbH) or joint-stock company (AG), withholding tax on dividends is a recurring topic. Anyone who distributes to themselves has the LLC withhold 35% — the law requires it. This works exactly the same way as with foreign shareholders.

How the Distribution Works

When the LLC distributes a dividend, the resolution goes through the shareholders' meeting. The LLC withholds 35% withholding tax and transfers the net amount to the shareholder. The LLC reports the withholding tax to the ESTV and pays it. The shareholder declares the gross dividend in their personal tax return, and the withholding tax is credited.

In concrete terms: anyone who wants to distribute CHF 50,000.00 receives CHF 32,500.00 paid out — CHF 17,500.00 goes to the ESTV as withholding tax. In the tax return, the gross amount of CHF 50,000.00 is taxed. The withheld withholding tax of CHF 17,500.00 is credited against the actual tax liability. Depending on your personal tax burden, you get part or all of the withholding tax back.

The Special Feature: Dividends Are Only Partially Taxable Income

For dividends from Swiss corporations, the so-called partial taxation principle (Teilbesteuerungsprinzip) applies. For individuals who hold a significant stake in a corporation (at least 10%), only 60%–70% of the dividends are recognized as taxable income — depending on the canton. This means: dividends are taxed more favorably in private assets than regular salary. At the same time, the withholding tax remains fully creditable.

Practical example: Thomas from Zurich (see above) receives a CHF 50,000.00 gross dividend. In Zurich, 60% of the dividend is taxable — that's CHF 30,000.00. The effective tax burden on the CHF 30,000.00 is around 20% → CHF 6,000.00. The withholding tax of CHF 17,500.00 is credited. Thomas gets CHF 11,500.00 back. That's a significant amount.

For AG Founders: Same Principle, Different Scale

Anyone who runs an AG (joint-stock company) and distributes dividends experiences the same mechanism. The difference: the AG has more disclosure obligations and more complex administration. For the withholding tax, nothing changes. The 35% deduction is the same for every Swiss corporation. Anyone considering whether an LLC or AG is the right legal form should also factor in tax implications — not just withholding tax, but the overall burden. Anyone who wants to keep their invoice template and bookkeeping under control should also read our article on the provisional tax calculation in Switzerland, where we cover ongoing taxes for the self-employed.

Business Account Interest: Withholding Tax for Freelancers

For most freelancers and self-employed people, interest on the business account is the most common point of contact with withholding tax. The interest amounts are often small, but the 35% deduction is noticeable.

How Much Is Lost?

Let's say you have CHF 80,000.00 in your business account. The bank pays 1% interest — that's CHF 800.00 gross. The bank withholds CHF 280.00 withholding tax and credits CHF 520.00. If you declare the CHF 800.00 in your tax return, the CHF 280.00 is credited. With an effective tax burden of around 15% on this income (CHF 120.00), you get CHF 160.00 back.

Sounds like little? Over 10 years, that's CHF 1,600.00 — just from declaring interest. And the higher the account balance and the higher the interest rate, the more it adds up.

What About Foreign Banks?

Anyone who invests money abroad (e.g., at a foreign bank) pays source tax there — not the Swiss withholding tax. The refund runs through Form 25. Note: with foreign banks, the automatic information exchange rules (AIA/AEOI) apply. The Swiss tax authorities learn about the deposits. Anyone who doesn't declare them commits tax evasion.

Caution With Pension Products

Some pension products (Pillar 3a, tied pension) are exempt from withholding tax. Anyone who earns interest or returns there pays no withholding tax — and doesn't need to declare the income as current income. Taxation only occurs at payout. This is a tax advantage that is often overlooked. Anyone who structures their capital wisely can legally reduce the withholding tax.

Common Mistakes and How to Avoid Them

The withholding tax is not complicated — but there are pitfalls. Here are the most common mistakes and how to avoid them.

Mistake 1: Not Declaring Income

The most common mistake: the self-employed don't declare their interest or dividends in the tax return. Reason: the 35% deduction looks like a "tax that's already been paid." This is a misconception. The withholding tax is a security deposit. Anyone who doesn't declare the income permanently loses the withholding tax — and the income is considered untaxed. This can lead to retroactive taxation and criminal proceedings. The solution: declare every capital income, no matter how small.

Mistake 2: Confusing Gross and Net

The tax return requires the gross amount of capital income. Anyone who accidentally enters the net amount (i.e., the amount after withholding tax) taxes too little and credits too little withholding tax. The solution: the bank receipt shows the gross amount — always use that.

Mistake 3: Forgetting Foreign Income

Anyone holding foreign stocks or ETFs pays source tax there. This income must be declared in the Swiss tax return — in the form for foreign income. The foreign source tax can be reclaimed through Form 25 if a double taxation agreement (DTA) exists. Anyone who forgets the income not only loses the refund but also risks an assessment correction. The solution: review your portfolio overview at year-end and include all foreign income in Form 25.

Mistake 4: Claiming Withholding Tax on Pension Products

With pension products (Pillar 3a), the withholding tax doesn't apply — so there's nothing to reclaim. Anyone who accidentally applies for a refund gets rejected and loses time. The solution: before filling out the form, check whether the income is subject to withholding tax. If unsure, consult the VStG or call the cantonal tax authority.

Mini-Story: Elena, Freelance Architect from Geneva

Elena runs a sole proprietorship (Einzelfirma) for architecture in Geneva. In 2025, she had CHF 200,000.00 in a fixed-term deposit account and received 1.5% interest — that's CHF 3,000.00 gross. The bank withheld CHF 1,050.00 withholding tax. Elena didn't know about it — she had forgotten the interest in her 2025 tax return. During the assessment, the cantonal tax office noticed the bank receipt (which the bank reports automatically) and demanded the CHF 3,000.00. Elena not only had to tax the CHF 3,000.00 — she also lost the CHF 1,050.00 withholding tax because she hadn't declared it.

Elena's solution: the following year, she declared the interest correctly. With a tax burden of around 18% on this income (CHF 540.00), she got CHF 510.00 back. She has since used her invoicing software to create a clean overview of all capital income at year-end.

Elena also had foreign dividends from an ETF held at a Swiss bank in 2025. She forgot the foreign source tax on Form 25 — and lost the refund of around CHF 180.00. Since then, she reviews all depository receipts annually.

Mistake 5: Not Submitting Form 25 on Time

Anyone who wants to reclaim foreign source taxes must submit Form 25 within the deadline of the respective country. Some countries have deadlines of 2–3 years from the calendar year of distribution. Anyone who misses the deadline loses the refund. The solution: an annual routine — in spring, review all depository receipts from the previous year, fill out Form 25, and submit it.

Withholding Tax and MWST: Two Different Taxes

Withholding tax and MWST (Swiss VAT) are often confused. Both are federal taxes, but completely different. MWST (Mehrwertsteuer / Swiss VAT) is levied on the turnover of goods and services — 8.1% standard rate. Withholding tax is levied on capital income — 35%. For the self-employed, both are relevant: MWST on invoices to customers, withholding tax on interest and dividends. Anyone who needs to calculate MWST will find all rates and examples in our article on calculating MWST in Switzerland. Anyone who wants to keep track of all deductions for the self-employed should also read our guide on tax deductions for independents.

A common misconception: the withholding tax cannot be deducted from MWST. The two taxes are settled separately. The withholding tax is credited against income and wealth tax, while MWST is settled against the VAT liability.

Conclusion: The Refund Pays Off for the Self-Employed

The Swiss withholding tax is not a bogeyman — it's a mechanism that the self-employed should understand. The 35% deduction on interest and dividends is a security deposit: anyone who declares the income in their tax return gets the money back or credited. Anyone who doesn't declare it loses the withholding tax and risks retroactive taxation.

For the self-employed, the following applies:

• Declare every capital income — whether CHF 100.00 or CHF 100,000.00.
• Use the gross and withholding tax amounts from the bank receipt.
• Enter foreign income in Form 25 and watch the deadlines.
• Don't forget pension products — they're exempt, but keep the overview anyway.

Anyone who consistently uses the withholding tax refund gets back several hundred to a thousand francs every year. Anyone who keeps clean accounting has all the income together in minutes. With Magic Heidi, you have capital income, invoices, and MWST in one place — starting at CHF 25.00 per month, significantly less than bexio. Anyone looking for a streamlined solution for freelancers will find the right plan in the pricing comparison. And anyone who wants to know whether switching pays off can compare directly with our bexio alternative.

The withholding tax is a tool of the federal government to secure capital income. For the self-employed, the refund is a tool to secure themselves.