Swiss tax shakeup: Effect on Indian investors, workers

Investors face tax hike on dividend starting January, following Switzerland's MFN suspension

- Shipra Singh

Last week, Switzerland suspended the most-favoured-nation (MFN) clause in its double taxation avoidance agreement with India. A major fallout of this is that beginning 1 January, taxation on dividend payments from Swiss entities to Indian investors has been doubled from 5% to 10%.

The changes could also have some implications for India-based employees and freelancers working for Swiss companies, and people settled in India but earning a pension from Switzerland. Mint breaks down the impact of the development.

Stock option holders

Switzerland's suspension of the MFN status for India will primarily affect taxation of cross-border dividends.

"Earlier, dividends from Swiss-listed companies were taxed at 5% under the MFN clause. With its withdrawal, dividends will now be subject to the default rate of 10% (according to the India-Switzerland Double Taxation Avoidance Agreement, or DTAA),"" said Ajay R. Vaswani, the founder of Aras and Co. Chartered Accountants.

In effect, starting 1 January, a higher 10% withholding tax will apply to Indian investors with direct investments in Swiss stocks, mutual funds, or exchange traded funds (ETFs).