Dividend Tax Rate Between India and Switzerland Under DTAA

Dividend Tax Rate Between India and Switzerland

Article 10 of the India-Switzerland Double Taxation Avoidance Agreement (DTAA), originally signed on 2 November 1994, governs the taxation of dividend income flowing between the two countries. The treaty provides a reduced withholding tax rate of 10% compared to India's domestic rate of 20% (plus applicable surcharge and 4% health and education cess) under Section 195 of the Income Tax Act, 1961.

Dividend taxation under this treaty has been a subject of significant attention due to the Most Favoured Nation (MFN) clause in the Protocol to the treaty. Switzerland had unilaterally extended a reduced 5% rate on dividends to Indian tax residents based on the MFN clause, but suspended this benefit effective 1 January 2025 following the Indian Supreme Court's decision in the Nestle SA case. The current operative rate for dividends is therefore 10% of the gross amount.

India and Switzerland maintain one of the most commercially significant bilateral tax relationships, with Switzerland serving as a major hub for private banking, wealth management, and corporate holding structures. Understanding the dividend withholding provisions is essential for Indian companies with Swiss subsidiaries, Swiss companies investing in India, and NRIs with investments in Swiss equities. For a comprehensive overview of the treaty, see our India-Switzerland DTAA complete guide. If you are also interested in interest taxation, refer to our interest tax rate guide for India-Switzerland.

Treaty Rate vs Domestic Rate: Detailed Comparison

Article 10(2) of the India-Switzerland DTAA establishes a single-tier rate structure for dividend taxation:

10% Rate for All Dividends (Current Effective Rate)

Under Article 10(2), dividends paid by a company resident in one contracting state to the beneficial owner who is a resident of the other contracting state shall not be taxed at a rate exceeding 10% of the gross amount of the dividends. Unlike several other Indian DTAAs (such as the India-USA or India-UK treaties), the India-Switzerland DTAA does not differentiate between substantial holding and portfolio dividends. The flat 10% rate applies regardless of the percentage of capital held by the beneficial owner.

Impact of MFN Clause Suspension

The Protocol to the India-Switzerland DTAA contains an MFN clause providing that if India enters into a DTAA with another OECD member country with a lower rate on dividends, interest, or royalties, the same lower rate would apply to the India-Switzerland treaty. Based on India's treaties with Slovenia, Lithuania, and Colombia (which provide 5% rates for substantial holdings), Switzerland had unilaterally applied a 5% dividend withholding rate for Indian residents from 2018 to 2024.

However, in October 2023, the Indian Supreme Court ruled in Nestle SA vs ADIT that the MFN clause does not automatically trigger lower rates without a specific notification under Section 90 of the Income Tax Act. Further, the Court held that "OECD member" must be interpreted as at the time the treaty was signed, not at the time the third-country treaty was entered into. Following this ruling, Switzerland announced on 11 December 2024 that it would suspend the MFN clause effective 1 January 2025.

Who Qualifies for the Reduced Rate

The reduced 10% rate under Article 10 is available only when specific conditions are satisfied:

Beneficial Ownership Requirement

The dividends must be beneficially owned by a resident of the other contracting state. The beneficial owner concept requires that the recipient has genuine economic ownership of the dividend income, not merely nominal or agency-based entitlement. Conduit companies, nominees, and back-to-back arrangements designed solely to obtain treaty benefits do not qualify. The beneficial ownership test is applied based on substance over form principles consistent with the OECD commentary on the Model Tax Convention.

Tax Residency Requirement

The recipient must be a tax resident of Switzerland (or India, as applicable) as defined under Article 4 of the treaty. A person is considered a resident of a contracting state if they are liable to tax therein by reason of domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature. Dual residence of companies is resolved by the place of effective management.

No Automatic Limitation of Benefits (LOB)

Unlike the India-USA DTAA, the India-Switzerland treaty does not contain a specific Limitation of Benefits (LOB) article. However, India's domestic General Anti-Avoidance Rule (GAAR) under Sections 95-102 of the Income Tax Act may apply to deny treaty benefits where the primary purpose of an arrangement is to obtain a tax benefit and the arrangement lacks commercial substance. The MLI's Principal Purpose Test (PPT) may also apply to deny benefits where the principal purpose of an arrangement is to obtain treaty benefits.

Dividend-Specific Treaty Provisions

Definition of Dividends (Article 10(3))

The term "dividends" under Article 10(3) means income from shares, jouissance shares or jouissance rights, mining shares, founders' shares, or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the state of which the company making the distribution is a resident.

PE Attribution Exception (Article 10(4))

If the beneficial owner of dividends carries on business through a permanent establishment (PE) situated in the source state and the shareholding generating the dividends is effectively connected with that PE, the dividends are taxed as business profits under Article 7 rather than under Article 10. This means the income would be taxed at the applicable corporate tax rate rather than the reduced 10% withholding rate.

Extra-Territorial Taxation Prohibition (Article 10(5))

Where a company that is a resident of one contracting state derives profits or income from the other contracting state, that other state may not impose any tax on the dividends paid by the company (except insofar as the dividends are paid to a resident of that other state or the shareholding is effectively connected with a PE). This prevents India from taxing dividends distributed by a Swiss company to its non-Indian shareholders, and vice versa.

Documentation Required

To claim the reduced 10% DTAA rate on dividends, the following documentation is mandatory:

Tax Residency Certificate (TRC)

The Swiss resident must obtain a Tax Residency Certificate from the Swiss cantonal tax authority (or the Swiss Federal Tax Administration for federal tax purposes). The TRC confirms that the recipient is a tax resident of Switzerland for the relevant period. For Indian residents claiming refunds from Switzerland, a TRC issued by Indian income tax authorities is required.

Form 10F

Form 10F must be furnished to the Indian payer (or filed on the Indian income tax e-filing portal), providing the recipient's status, nationality, taxpayer identification number, period of residential status, and address in Switzerland. Form 10F can now be filed electronically.

Self-Declaration

A self-declaration confirming beneficial ownership, the absence of a permanent establishment in India, and that the arrangement is not designed to obtain treaty benefits without genuine economic substance is typically required.

PAN (if applicable)

While not always mandatory for treaty benefit claims, obtaining a Permanent Account Number (PAN) in India can simplify the process. Without a PAN, the higher rate under Section 206AA may apply, though CBDT circulars have clarified that treaty rates prevail if TRC and Form 10F are furnished.

Withholding Procedure for Indian Payers

Indian entities paying dividends to Swiss residents must comply with Section 195 of the Income Tax Act:

TDS Deduction and Deposit

The Indian company must deduct TDS at 10% (the DTAA rate, being lower than the domestic rate) at the time of credit or payment to the Swiss shareholder, whichever is earlier. The TDS must be deposited with the government by the 7th of the following month (30th April for March deductions).

Form 15CA and Form 15CB

For dividend remittances exceeding INR 5 lakh in a financial year:

• Form 15CB: A Chartered Accountant must file Form 15CB on the Income Tax portal, certifying that TDS has been deducted at the correct rate under Article 10 of the India-Switzerland DTAA.
• Form 15CA Part C: The remitter then files Form 15CA Part C online, referencing the 15CB acknowledgement number.
• For remittances up to INR 5 lakh: Only Form 15CA Part A is required.

FEMA Compliance

Dividend payments to Swiss residents must also comply with FEMA (Foreign Exchange Management Act) regulations and RBI guidelines governing current account transactions. The Authorised Dealer bank processes the remittance after verifying Form 15CA/15CB compliance.

Common Disputes and Judicial Precedents

Nestle SA vs ADIT (Supreme Court, 2023)

The landmark decision in Nestle SA vs ADIT held that the MFN clause in the India-Switzerland DTAA Protocol does not automatically apply to grant lower rates without a separate notification under Section 90. The Court ruled that the term "OECD member state" must be interpreted as of the date the India-Switzerland treaty was signed (1994), not at the time when India entered into the third-country treaty offering lower rates. This decision overturned the Delhi High Court's earlier favourable ruling and directly led to Switzerland's suspension of the MFN clause.

Beneficial Ownership Challenges

Indian tax authorities have increasingly challenged Swiss holding companies claiming treaty benefits on dividends, particularly where the Swiss entity lacks substance (employees, office space, independent decision-making). The transfer pricing and international tax scrutiny has intensified following the BEPS project and India's adoption of GAAR. Companies using Swiss intermediate holding structures must demonstrate genuine commercial rationale beyond tax benefits.

Dividend Stripping and GAAR

Transactions involving the purchase of shares cum-dividend followed by sale ex-dividend (dividend stripping) have been challenged under India's GAAR provisions. Under Sections 95-102 of the Income Tax Act, an arrangement whose main purpose is to obtain a tax benefit may be disregarded, and the tax consequences may be re-determined. Swiss investors should ensure dividend receipts are not part of artificial arrangements. For professional guidance on structuring Indian investments, consult our tax advisory services. Companies planning to establish operations in India may also benefit from our guide on registering a company in India from Switzerland.

Interaction with Section 115A

For dividends paid to non-residents, Section 115A of the Income Tax Act provides a specific tax rate (currently 20% plus surcharge and cess). Since the DTAA rate of 10% is lower, the DTAA rate prevails under Section 90(2), which provides that the taxpayer may be taxed at the more beneficial rate under either the treaty or domestic law.

Practical Examples and Calculations

Example 1: Swiss Parent Receiving Dividends from Indian Subsidiary

A Swiss holding company (Zurich AG) holds 100% of an Indian subsidiary (Mumbai Pvt Ltd). Mumbai Pvt Ltd declares a dividend of INR 1,00,00,000 to Zurich AG.

• Domestic rate (Section 115A): 20% = INR 20,00,000 (plus surcharge and cess, effectively ~20.8%)
• DTAA rate (Article 10(2)): 10% = INR 10,00,000
• Tax saving under DTAA: INR 10,00,000 per year

Zurich AG provides TRC from Swiss cantonal authority, Form 10F, and beneficial ownership declaration. Mumbai Pvt Ltd deducts TDS at 10% and remits INR 90,00,000. Zurich AG claims credit for the INR 10,00,000 Indian tax against Swiss corporate tax liability.

Example 2: Indian Investor Receiving Dividends from Swiss Company

An Indian resident individual holds shares in Nestle SA (Switzerland) and receives CHF 50,000 in dividends. Switzerland withholds 35% anticipatory tax (Verrechnungssteuer) at source = CHF 17,500.

• DTAA rate (Article 10(2)): 10% = CHF 5,000
• Refund claimable from Swiss FTA: CHF 12,500 (35% - 10% = 25%)
• The Indian investor must file a Swiss refund claim using Form 82 (for individuals) or Form 83 (for entities), certified by Indian tax authorities.

The Indian investor declares the gross dividend income in India and claims Foreign Tax Credit (FTC) of CHF 5,000 (the DTAA-capped amount) under Section 90 read with Rule 128.

Example 3: NRI with Indian Equity Portfolio

A Switzerland-resident NRI receives INR 5,00,000 in dividends from various Indian listed companies.

• Domestic rate: 20% = INR 1,00,000
• DTAA rate: 10% = INR 50,000
• Tax saving: INR 50,000

The NRI must furnish TRC, Form 10F, and self-declaration to each Indian company (or their registrar and transfer agent). The depository participant facilitates the reduced TDS rate at source. For withholding rate details on all income types, see the India-Switzerland withholding tax rates page.

Frequently Asked Questions

What is the dividend tax rate under the India-Switzerland DTAA?

The treaty provides a flat rate of 10% on the gross amount of dividends under Article 10(2). This rate applies to all dividends regardless of the percentage of shareholding held by the beneficial owner. The previously available 5% MFN rate was suspended by Switzerland effective 1 January 2025.

Why did Switzerland suspend the MFN clause?

Switzerland suspended the MFN clause following the Indian Supreme Court's decision in Nestle SA vs ADIT (October 2023), which held that MFN benefits do not apply automatically without a specific notification under Section 90 of the Income Tax Act, and that OECD membership must be determined as of the treaty signing date. Switzerland announced the suspension on 11 December 2024, effective from 1 January 2025.

Does the 10% rate apply to both Swiss and Indian investors?

Yes. The 10% rate under Article 10(2) applies reciprocally. Swiss residents receiving dividends from Indian companies are taxed at a maximum of 10% in India, and Indian residents receiving dividends from Swiss companies are entitled to a Swiss withholding tax refund down to 10% (from the standard Swiss anticipatory tax of 35%).

Is GAAR applicable to dividend income under the India-Switzerland DTAA?

Yes. India's General Anti-Avoidance Rule (GAAR) under Sections 95-102 of the Income Tax Act can override treaty benefits if an arrangement is found to lack commercial substance and its main purpose is to obtain a tax benefit. Swiss holding structures must have genuine business rationale to sustain treaty benefit claims.

How does a Swiss investor claim the 10% DTAA rate in India?

The Swiss investor must furnish a valid Tax Residency Certificate (TRC) from the Swiss cantonal tax authority, file Form 10F on India's e-filing portal, and provide a self-declaration of beneficial ownership to the Indian payer. The Indian payer then deducts TDS at 10% instead of the domestic rate of 20%.

Can an Indian investor claim a refund of excess Swiss withholding tax?

Yes. Switzerland levies a 35% anticipatory tax (Verrechnungssteuer) on dividends. Under the DTAA, the effective rate is capped at 10%. The Indian investor can claim a refund of the excess 25% from the Swiss Federal Tax Administration using Form 82 (individuals) or Form 83 (entities), certified by the Indian income tax authorities.

What documentation is required for Form 15CA/15CB for dividend remittances?

For dividend remittances exceeding INR 5 lakh in a financial year, a Chartered Accountant must first file Form 15CB certifying correct TDS deduction under Article 10. The remitter then files Form 15CA Part C online. For remittances up to INR 5 lakh, only Form 15CA Part A is required.