Withholding Tax Rates: India to Switzerland Under DTAA

India to Switzerland Withholding Tax Rates Under DTAA

The India-Switzerland DTAA provides reduced withholding tax rates for cross-border payments between the two countries. These rates apply uniformly at 10% across all major income categories: dividends, interest, royalties, and fees for technical services. This represents a significant reduction from India's domestic withholding rate of 20% (plus surcharge and cess).

A major development has reshaped the withholding landscape: effective 1 January 2025, Switzerland suspended the Most Favoured Nation (MFN) clause that had previously reduced the dividend rate to 5%. The dividend withholding rate has now reverted to the original treaty rate of 10%. This change followed the Indian Supreme Court's October 2023 ruling in the Nestle SA case, which held that the MFN clause is not self-executing without a government notification under Section 90 of the Income Tax Act.

For Indian payers making remittances to Switzerland, understanding the correct withholding rates is essential for compliance under Section 195 of the Income Tax Act. For a complete treaty overview, see our India-Switzerland DTAA complete guide.

Dividend Withholding Rates

The dividend withholding provisions have been the most affected by recent developments:

Impact of the MFN Clause Suspension

The MFN (Most Favoured Nation) clause in the India-Switzerland DTAA protocol provided that if India entered into a treaty with an OECD member offering lower rates on dividends, interest, or royalties, those lower rates would automatically apply. In 2021, Switzerland interpreted that Colombia and Lithuania joining the OECD triggered this clause, reducing the dividend rate from 10% to 5%.

However, the Indian Supreme Court in the Nestle SA case (October 2023) held that:

• The MFN clause is not self-executing and requires a specific notification under Section 90 of the Income Tax Act
• The term "third State which is a member of the OECD" refers only to countries that were OECD members at the time the treaty was signed
• Without a government notification, the lower rate cannot be claimed in India

In response, Switzerland unilaterally suspended MFN clause application from 1 January 2025. The practical impact is that dividend payments from Swiss entities to Indian investors are now subject to 10% withholding, up from the 5% rate that Switzerland had been applying.

Transitional Considerations

For dividends earned during tax years 2018 to 2024, the 5% rate may still be claimed, depending on ongoing judicial proceedings and the position of Indian tax authorities. Swiss investors who paid 5% withholding during this period should maintain documentation to support their position.

Interest Withholding Rates

Interest payments from India to Switzerland are governed by Article 11:

The 10% rate on interest has not been affected by the MFN clause suspension. The arm's length limitation is important: if interest paid between related parties exceeds what would have been agreed upon between independent parties, the excess is not eligible for the treaty rate and is taxed under domestic law.

Special Interest Provisions

• ECB interest: Interest on External Commercial Borrowings from Swiss banks and financial institutions qualifies for the 10% treaty rate
• Bond interest: Interest on listed bonds and debentures follows the same 10% cap
• Government-to-government: Complete exemption for interest paid to the Swiss government or the Swiss National Bank
• Export credit interest: Interest on export credits guaranteed by the Swiss Export Risk Insurance (SERV) may qualify for the government exemption

Royalty and FTS Withholding Rates

Article 12 of the India-Switzerland DTAA covers both royalties and fees for technical services:

Royalties under this treaty include payments for the use of, or the right to use, any copyright (including software), patent, trademark, design, model, plan, secret formula or process, or for the use of industrial, commercial, or scientific equipment. Given the significant presence of Swiss pharmaceutical and technology companies in India (such as Novartis and Roche), the royalty provisions are particularly relevant.

Fees for technical services cover payments for managerial, technical, or consultancy services. Indian subsidiaries of Swiss companies frequently make FTS payments to their parent companies for management support, technology transfer, and consulting services, all of which benefit from the 10% treaty rate versus the domestic 20%.

For companies with significant royalty or FTS flows, our transfer pricing services can help ensure arm's length pricing compliance.

Capital Gains Treatment

Capital gains under the India-Switzerland DTAA follow a nuanced framework based on asset type:

The capital gains provisions are particularly favourable for Swiss portfolio investors selling Indian securities, as they may be taxable only in Switzerland. However, India's domestic provisions on indirect transfers (Section 9(1)(i) of the Income Tax Act) may still apply in certain circumstances involving substantial shareholdings.

How to Apply Reduced Rates

To avail the reduced withholding rates under the India-Switzerland DTAA, the following steps must be followed:

Tax Residency Certificate (TRC)

The Swiss resident must obtain a certificate of residence from the Swiss Federal Tax Administration or the relevant cantonal tax authority. The TRC is mandatory under Section 90(4) of the Indian Income Tax Act and must cover the relevant income period.

Form 10F

Form 10F must be filed electronically on the Indian Income Tax e-filing portal. This self-declaration provides details including status, country of incorporation, Swiss tax identification number, period of residential status, and registered address.

Lower Withholding Certificate (Section 197)

If the Indian payer is reluctant to apply the lower treaty rate, the Swiss resident can apply for a Lower Withholding Certificate from the Indian Assessing Officer under Section 197. This certificate explicitly specifies the rate at which TDS should be deducted.

Form 15CA/15CB

For each remittance to Switzerland:

• A Chartered Accountant must issue Form 15CB, certifying the nature of payment, applicable DTAA article, and the correct TDS rate
• The Indian payer must then file Form 15CA electronically before making the remittance, as a declaration to the Reserve Bank of India

Proper compliance with these procedures is essential. Failure to deduct TDS at the correct rate can result in the payer being treated as an assessee in default under Section 201 of the Income Tax Act. For assistance with FEMA compliance for Switzerland remittances, see our FEMA and RBI compliance services.

Domestic Rates vs Treaty Rates Comparison

A comprehensive comparison reveals the full extent of tax savings available under the treaty:

When DTAA rates apply, no surcharge or health and education cess is levied. This means the treaty rate of 10% is a flat rate, whereas the effective domestic rate ranges from 20.8% to 21.84% after adding surcharge (2%-5%) and cess (4%). For Swiss multinationals with Indian subsidiaries making regular cross-border payments, the cumulative annual savings can be substantial.

India and Switzerland also have a bilateral investment treaty and various trade agreements that complement the DTAA framework. Companies looking to establish or expand their India presence from Switzerland should review our guide to registering a company in India from Switzerland.

Common Mistakes and Compliance Tips

Based on extensive experience advising India-Switzerland cross-border transactions, here are the most frequent errors and best practices:

Mistakes to Avoid

• Applying the 5% MFN dividend rate after 1 January 2025: The MFN clause has been suspended. Applying 5% instead of 10% will result in short deduction of TDS and potential penalties under Section 201
• Missing or outdated TRC: The TRC must be current and cover the period of income accrual. An expired TRC means no DTAA benefit
• Confusing cantonal and federal tax residency: Switzerland has a complex federal structure. The TRC must be from an authority recognised by the Indian tax department
• Ignoring transfer pricing for related-party payments: Royalties and FTS between Swiss parent companies and Indian subsidiaries must satisfy arm's length standards under both the treaty and Indian transfer pricing rules
• Failing to file Form 10F electronically: Paper submissions are no longer accepted. The form must be filed on the Indian e-filing portal

Compliance Tips

• Establish an annual calendar for TRC renewal and Form 10F filing
• Document the commercial rationale for all cross-border arrangements to withstand scrutiny under GAAR and the Principal Purpose Test
• Maintain beneficial ownership evidence: board resolutions, decision-making records, and substance documentation in Switzerland
• For large or recurring payments, consider obtaining a Section 197 certificate upfront to avoid cash flow disruption
• Monitor developments in the MFN clause litigation, as future court decisions could affect historical claims
• Consult our tax advisory team for complex structuring questions

Frequently Asked Questions

What is the withholding tax rate on dividends from India to Switzerland?

From 1 January 2025, the withholding tax rate on dividends from India to Switzerland is 10% under the DTAA. Prior to this date, Switzerland had applied a reduced rate of 5% under the MFN clause, but this was suspended following the Indian Supreme Court's Nestle SA ruling.

Has the MFN clause suspension affected interest and royalty rates?

No. The MFN clause suspension by Switzerland only impacts dividend withholding rates. Interest, royalties, and fees for technical services continue to be subject to the 10% rate under the original treaty provisions, which was always the applicable rate for these income types.

What documentation is required for a Swiss company to claim DTAA benefits in India?

A Swiss company needs: (1) a Tax Residency Certificate from the Swiss Federal Tax Administration or cantonal authority, (2) electronically filed Form 10F on the Indian Income Tax portal, (3) a beneficial ownership self-declaration, and (4) supporting documentation for the nature of the payment.

Can withholding tax paid in India be credited against Swiss taxes?

Yes. Switzerland provides a foreign tax credit for taxes paid in India under the DTAA. The credit is limited to the Swiss tax attributable to the Indian-source income. Swiss taxpayers should consult their cantonal tax authority for the specific credit calculation methodology.

What is the service PE threshold for Swiss companies in India?

Under Article 5 of the India-Switzerland DTAA, a service PE is created if services are furnished through employees or other personnel for 90 days or more within any 12-month period. This is stricter than many other Indian DTAAs, so Swiss companies should carefully track the duration of service engagements in India.

Does the DTAA cover gains from cryptocurrency or digital asset sales?

The DTAA does not specifically address cryptocurrency or digital assets, as it was signed in 1994 before these instruments existed. Such gains would likely fall under the residual capital gains article or other income provisions, but the treatment is uncertain and may depend on the specific characterisation of the digital asset under each country's domestic law.

How long does it take to obtain a Swiss Tax Residency Certificate?

Processing times vary by canton but typically take 2-4 weeks for companies and individuals. It is advisable to apply well in advance of the income accrual date to ensure the TRC is available when needed for DTAA benefit claims. The Swiss Federal Tax Administration may expedite requests in urgent cases.