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Switzerland Germany Tax Treaty in 2019

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February 26, 2019 | Knowledge base

Switzerland Germany tax treaty

Trade and economic barriers between Switzerland and Germany minimised and the formation and update of the Switzerland Germany double tax treaty.

Down the road as a trader of skills, services and products decide to expand your business to accommodate an international market, and you are bound to face issues to deal with double taxation of your income whether active or passive. There will be a question as to which country will collect your taxes. Governments step up to avoid your income from getting taxed twice. The governments form a bilateral agreement called a tax treaty to fulfil this. Your country of origin as an investor is referred to as the residence country, or capital-exporting country and the country you are investing in is called the source country or the capital-importing country. However, not all states are open to tax treaties and are those with tax havens.

Swiss German double tax agreement

A tax treaty also goes by the name of Double tax agreement. Double Tax Agreements (DTAs) occur formed under either of two models:
• The UN Model Convention and
• The OECD model.

OECD stands for Organization for Economic Cooperation and Development. It is made up of 34 affluent countries. The motive of this group is to enhance economic progress and promote global trade. Capital-exporting countries are favoured over capital importing countries by the group's Tax convention on capital and income. This is because the latter is required to forfeit a portion or the whole tax on some types of income earned by the citizens of the residence country.

The United Nations Model Double, Taxation Convention between Developed and Developing Countries, is the formal alternate name for the second model. The United Nations has a quest to enhance economic and political cooperation within its ranks. The international body provides favourable taxing rights to the source country. However, this model is heavily inspired by the OECD Model Convention.

Germany and Switzerland have exemplified the perks that can come along with significant cooperation in and financial matters. Germany and Switzerland Double Tax agreement was initiated and signed on 27th October 2010. Then German Finance Minister Wolfgang Schäuble and Federal Councilor Hans-Rudolf Merz oversaw and signed on a joint declaration which launched the negotiations over the tax issues and improving their banks' market access. The Switzerland Germany double tax treaty is under the OECD Model Convention and was signed for the first time in 1992. The Federal Council sanctioned that all agreements made on income and capital ought to adhere to the OECD Model Convention.

Banks and their services

A joint working group conducted exploratory talks in the preceding months, and they were to be the driving factor for the negotiations initiated by the two diplomats. The dawn of 2011 would also be the dawn of these negotiations. The Federal Council in conjunction with parliamentary committees and affiliated parties is to approve the negotiating mandate.

Both parties in the Switzerland Germany double tax treaty aimed at achieving a fair long-term solution which would seek to play down the competition on tax issues and one that is in line with both interests. The treaty opened up to Germans being able to own and operate a bank account in Switzerland freely. Bank client privacy was also a topic for discussion, and it was to be respected. What's more, their investment decisions should not be influenced by a probable tax evasion risk. Justified tax claims would also be implemented in the Switzerland Germany double tax treaty.

Shareholders and the Beneficial Owners

The Switzerland Germany tax treaty focused on the Shareholder's ownership. When distributing dividends, Shareholders would be viable for tax exemption if he or she owns 10% or more voting rights. This was an upgrade from the previous Switzerland Germany double tax treaty of 1972 which required a shareholder to possess 20% or more voting rights. However, there is a time required for this policy update. The shareholder must have been in possession of the required amount of shares for a period of not less than 12 months.

German citizen making startups in Switzerland also have a factor to adhere to in the Switzerland Germany double tax treaty. The tax on their investment would range between 19% and 34%. The company's investment field is a determining factor in the rate at which it will be taxed.

Withholding taxes in 2019

Withholding taxes are a huge determining factor in double tax agreements. The treaty releases a policy on these taxes as is helps determine the amount of tax levied upon a non-resident from their securities income. For example, it states that a German's firm real estate dividends will be charged at a withholding tax of 15%. In the Switzerland Germany tax treaty, withholding taxes have been subjected to new regulations. A withholding tax was to cover any incomes in the future, and it will be considered as a fulfilment of the taxpayers' tax obligation to the residence country.

Furthermore, in the Switzerland Germany double tax treaty items existing assets that are untaxed ought to be regulated.

What's more, German authorities have the option of requesting for administrative assistance. The request would include the tax payer's name, but their bank details are not necessary. However, these requests are limited. This is to help prevent cases of 'fishing'. Fishing, in this case, is a scenario where random people, in this case, German investors, are selected at random, and their information on transactions via the Swiss banks is requested. Fishing applies where there has been no plausible cause for requesting the information. The Swiss banks are responsible for collecting the tax levied, retaining it and handing it over to the German authorities.

The Switzerland Germany double tax treaty adheres to the OECD standards with respect to the requirement on tax information exchange. Only the taxes covered by the Switzerland Germany tax treaty are subject to information exchange, and the information is relayed only upon request by either party to the treaty.

Switzerland has carried out many other treaties on top of the Switzerland Germany double tax treaty. In an effort to decrease the trade and economic barriers, Switzerland has double tax treaties with 80 countries and tax information agreements with a few more countries.


Legal disclaimer.This article does not constitute legal advice and does not establish an attorney-client relationship. The article should be used for informational purposes only.