Effective January 1, 2025, the withdrawal of the Most Favoured Nation (MFN) provision under the India–Switzerland Double Taxation Avoidance Agreement (DTAA) has resulted in an increase in the withholding tax on dividend income from 5% to 10%.
The change affects Indian residents and investors receiving dividends from Swiss companies and highlights the importance of reviewing international tax obligations and treaty benefits.
What Has Changed?
Under the revised tax treatment:
- Dividend withholding tax has increased from 5% to 10%.
- The revised rate applies to dividend payments made on or after January 1, 2025.
- Dividends received before this date may still qualify for the earlier 5% tax rate, subject to applicable treaty conditions.
Who Will Be Affected?
The revised tax rate primarily impacts:
- Indian residents investing in Swiss companies.
- Companies receiving dividend income from Switzerland.
- Institutional and foreign portfolio investors.
- Businesses with cross-border investments involving Switzerland.
Taxpayers should review dividend receipts and applicable treaty provisions to determine the correct withholding tax.
Continuing MFN Benefits
While the dividend tax rate has changed, the MFN provisions relating to certain other types of income continue to remain relevant, including:
- Interest income.
- Royalties.
- Fees for Technical Services (FTS).
Taxpayers should evaluate the applicable treaty provisions based on the nature of the income received.
What Taxpayers Should Do
To ensure proper tax compliance, taxpayers should:
- Review dividend payment dates.
- Verify applicable DTAA provisions.
- Maintain supporting documentation.
- Evaluate foreign tax credit eligibility.
- Seek professional advice for cross-border tax planning.
Conclusion
The increase in the dividend withholding tax rate from 5% to 10% marks an important change in the India–Switzerland tax framework. Investors and businesses with Swiss investments should carefully assess the impact on their tax positions and remain informed about treaty developments.
Proper planning and timely professional guidance can help ensure continued compliance while optimizing available treaty benefits.