Double Tax Agreement between the USA and Switzerland: An Overview
The United States of America and Switzerland have had a Double Tax Agreement (DTA) in place since 1996. The purpose of the agreement is to avoid double taxation of income earned by residents of either country. In this article, we will discuss the details of the DTA between the USA and Switzerland.
The DTA applies to all taxes on income, including social security taxes and withholding taxes on dividends, interest, and royalties. The agreement applies to individuals, businesses, and other entities such as governments and trusts.
Under the DTA, income is taxed in the country where it is earned. This means that if a US resident earns income in Switzerland, they will pay taxes on that income in Switzerland. However, if a US resident earns income from a Swiss source and pays tax on that income in Switzerland, they can claim a credit for that tax on their US tax return.
The DTA also provides for reduced withholding taxes on dividends, interest, and royalties. For example, if a Swiss resident earns dividends from a US company, the withholding tax on those dividends is reduced from 30% to 15%. The same applies to interest and royalties.
The DTA also has provisions for the prevention of tax evasion. The agreement provides for the exchange of information between the two countries to ensure that residents of each country are paying the correct amount of tax in their respective countries. This helps to prevent taxpayers from hiding income in one country to avoid paying taxes in the other country.
It is important to note that the DTA does not cover all types of income. Some types of income, such as income from real property, are taxed in the country where the property is located. Additionally, the DTA does not cover taxes on estates, gifts, or inheritance.
In conclusion, the Double Tax Agreement between the USA and Switzerland is an important agreement that helps to avoid double taxation of income earned by residents of both countries. The agreement provides for reduced withholding taxes and provisions for the prevention of tax evasion. However, it is important to consult with a tax professional to understand how the DTA applies to your specific situation.