Tax Refunds for Investors in Swiss Stocks

by Craig Pellet, CPA

Millions of American investors hold shares in Swiss corporations, partly because such stocks can pay generous dividends. Like most countries, Switzerland requires companies to withhold tax on dividends paid to foreign stockholders. By default, Switzerland takes 35%. That’s quite a haircut! Luckily for US investors, Switzerland and the United States have agreed to charge each other’s residents no more than 15% on dividends.

If a Swiss company doesn’t know you are an American, they are probably withholding much too much tax. You should review your dividend statements to see if this is the case. If so, you can file a claim with Switzerland to get a refund of the excess. And you can update the Swiss company to avoid this error in the future. We help our clients recover overpaid Swiss tax in resolving the issue going forward.

One way to avoid excess withholding is to purchase American depository receipts (ADRs) instead of directly holding Swiss stocks. ADRs are issued by a US intermediary. Each ADR represents a certain number of shares of stock in the foreign company. Typically, the intermediary will apply for the tax refund, and then distribute the dividend to the shareholders about a month after the foreign company issues their dividend.

Similar problems can arise with investments in stocks in other treaty countries, including all of the major trading partners of the US. If dividends are a significant part of your income, it is worth learning about how treaties affect your investment returns.

Questions? Talk to us. Learn more about foreign dividends, and how tax treaties affect the tax you owe.