Taxing Swiss Employee Stock Correctly: Dividends, Transfer of Securities, and Sale

Employees of a Swiss company, such as the pharmaceutical firm Roche, receive employee shares through a management and trading platform for employee stock ownership programs, such as EquatePlus, which are deposited into a securities account in Switzerland. After a lock-up period expires, these securities can be transferred to a personal securities account in Germany, for example, at a direct bank like ING. From a tax perspective, things can quickly become confusing: With dividends, the issue of double taxation arises, while when selling the securities after the account transfer, a flat-rate tax base is applied due to the lack of recorded cost basis. This guide describes the relevant tax background, explains the issue of missing acquisition costs during the securities transfer, and shows how, in the case of dividends, a portion of the Swiss withholding tax can be reclaimed retroactively and another portion can be credited in Germany. The taxation of the monetary benefit upon receipt or preferential acquisition of employee shares is not covered. This benefit is generally recorded as wages on the payroll if it is shown on the pay stub. This article does not constitute tax advice.

Double Taxation on Dividends Due to Swiss Withholding Tax and German Final Tax

The Swiss withholding tax on investment income is generally 35% of the gross amount. It is levied specifically on dividends from Swiss securities, but not on the sale of those securities. Since this is a withholding tax, it is linked to the origin of the dividend. For Roche shares, this means that even if the securities are held in a German securities account, Swiss withholding tax is initially withheld on the dividend.

In Germany, dividends held as part of private assets are also subject to capital gains tax under the flat-rate withholding tax system. This tax generally amounts to 25% of gross capital gains. In addition, there is a 5.5% solidarity surcharge on the capital gains tax, amounting to an effective 1.375%, and, where applicable, church tax (8% in Bavaria and Baden-Württemberg and 9% in the other federal states). The effective total tax burden is therefore 26.375% (excluding church tax), 27.82% (with 8% church tax), or 27.99% (with 9% church tax). German taxes on capital gains apply once the saver’s allowance has been exhausted. This currently amounts to €1,000 per person or €2,000 for jointly assessed spouses or life partners. To ensure that the financial institution directly applies the allowance, a corresponding exemption order must generally be submitted.

In practice, therefore, this often results in a significant double tax burden: on the one hand, a 35% withholding tax is withheld in Switzerland, and on the other hand, capital gains tax is levied on the dividend in Germany.

The good news: Swiss withholding tax can be partially credited and partially refunded

There is a double taxation treaty between Germany and Switzerland. For private investors with tax residency in Germany, the practical effect is usually as follows: Of the 35% Swiss withholding tax, 20 percentage points can be reclaimed from the Eidgenössischen Steuerverwaltung (ESTV) upon request. The remaining 15 percentage points remain in Switzerland but can generally be credited against German capital gains tax. For securities held in a German securities account, this credit is usually applied automatically by the financial institution. For securities held in a foreign securities account, the dividend and the creditable foreign withholding tax must be reported retrospectively in Annex KAP.

The application for a refund must be submitted within three years of the end of the calendar year in which the dividend became due. A single application may cover up to three years. Anyone wishing to apply for a refund of dividends from 2023, 2024, and 2025 may do so in 2026 by submitting a single application covering all three years. The location of the securities’ custody account is irrelevant; that is, dividends from securities held in custody accounts in Germany and Switzerland can be declared in a single application. For securities held in custody at a non-Swiss institution, a tax voucher or comparable proof of income is generally required. Depending on the financial institution, this is provided automatically or upon request as a PDF file.

The refund procedure is regulated separately for each country. For Germany, the FTA has set up the VST-DE portal, and the application can be submitted online with relative ease. To register on the portal, I used AGOV as my login method. The one-time registration takes just a few minutes, and you can then log in using the AGOV access app as the official access key to e-government services provided by Swiss authorities. After logging in, simply select the refund of Swiss withholding tax. For dividends from Roche, I used the following data:

• Company name: Roche Holding AG
• Security ID: 1203204
• ISIN: CH0012032048
• Purchase date: earliest date of purchase of the securities for which dividends are being claimed

Once the dividends have been recorded and the supporting documents uploaded, an application or a stamp sheet is generated in the portal. This must be signed and the tax residency confirmed by the responsible German tax office. To do this, a copy of the relevant application page can be submitted in an informal letter via ELSTER as “Other Message” or indirectly via tax software such as WISO Steuer. Once confirmation has been received, the application can be finally submitted in the portal.

Having a Swiss brokerage account doesn’t mean the German tax authorities don’t want to know

This point is often overlooked: Anyone who is a tax resident in Germany must generally report investment income, such as dividend payments, in Germany even if the securities are held in a Swiss brokerage account or on an employee stock ownership platform. In practice, this means: If no German financial institution acts as an intermediary paying agent, dividends must be reported retroactively in the German tax return under Schedule KAP for the respective calendar year, in accordance with § 32d (3) EStG.

If the tax return has already been filed and you only realize later that foreign dividends were omitted, you should not simply ignore this. According to § 153 AO, a tax return must be corrected immediately if it is subsequently determined that it was incorrect or incomplete and that taxes were underpaid or could be underpaid as a result. In practice, such a late filing can be made informally, and the relevant supporting documents can be submitted as an attachment, for example via ELSTER as an “Other Message” to the responsible tax office or via tax software such as WISO Steuer.

Selling Securities Without Recorded Purchase Data

When transferring securities accounts between two financial institutions, however, the receiving bank may not import the purchase data. This information is essential for calculating the correct capital gain and the resulting tax liability when selling securities. This was the case for me when transferring a securities account managed via EquatePlus in Switzerland to ING in Germany. According to information from ING, the acquisition data can be entered manually, but this data is for visualization purposes only and is not taken into account in the tax calculation.

If the German financial institution does not have the acquisition data at the time of sale, it uses a substitute tax base (Section 43a(2) sentence 7 of the Income Tax Act (EStG)). In this case, 30% of the sales proceeds is treated as the tax base or notional profit. Capital gains tax, the solidarity surcharge, and, if applicable, church tax are calculated on this tax base. The taxation can be corrected later as part of the tax return. The correction following the application of a substitute tax base is made in the assessment procedure pursuant to Section 32d(4) of the Income Tax Act, and the relevant documents must be submitted for this purpose. Therefore, it is advisable to permanently retain all documents relating to the acquisition data. This includes, in particular, the purchase date, quantity, purchase price, securities account transfers, and documents regarding capital measures.

Can I just leave the substitute tax base as is?

If the actual profit exceeds 30% of the sales proceeds, the substitute tax base may initially appear to be a tax advantage. But that is precisely where the catch lies. Under current law, it is not permissible to simply conceal the actual, higher profit and leave only the lower substitute tax base in place. The Federal Ministry of Finance (BMF) clarifies: If the assessment basis determined by the bank is lower than the actual income, there is generally an obligation to report the difference. This requirement may be waived if the difference does not exceed €500 per assessment period and there are no other grounds under Section 32d(3) of the Income Tax Act (EStG). Conversely, if the substitute tax base was too high, it can be corrected upon request pursuant to Section 32d(4) of the Income Tax Act (EStG).

In general, there is no requirement for individual investors to keep a permanent record of the purchase details of their securities. However, without these records, one bears the burden of proof later on. This can work both to one’s advantage and to one’s disadvantage: an excessively high replacement tax base may not be correctable without supporting documents, while an actually higher profit cannot simply be concealed if it is evident from existing records.

Fazit

If you take the time to understand it, employee stock options from Switzerland aren’t rocket science from a tax perspective, but it’s important to keep the different aspects clearly separate: The monetary benefit received upon receiving the shares is typically recorded on your pay stub; dividends must be handled correctly in Germany despite Swiss withholding tax; and when you eventually sell the shares, having reliable purchase data is crucial. It is particularly important to permanently retain documentation for dividends, tax vouchers, pay stubs, purchase data, and securities account transfers. This ensures that the refund of Swiss withholding tax, its credit in Germany, and any potential adjustment to the substitute tax base can be clearly traced later on.