Dividends Under Swiss Law


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Investors who invest in a company realize their returns either through capital gains achieved by selling their shares and/or through dividend distributions made by the company in which they have invested. The following article examines the types of dividends provided for under Swiss law and the key considerations to keep in mind when distributing them. 

1. Ordinary and extraordinary dividends

Ordinary and extraordinary dividends are distributed from the net profit or reserves designated for this purpose, often referred to as the company’s freely disposable equity. The basis for both types of dividends is the annual financial statements approved by the ordinary shareholders’ meeting. Ordinary dividends are resolved during the company’s ordinary shareholders’ meeting, which is held once a year. In contrast, extraordinary dividends are resolved during an extraordinary shareholders’ meeting held at any time during the financial year, based on an already-approved set of annual financial statements. There is no legal requirement to prepare interim financial statements for the distribution of extraordinary dividends. However, if there are indications that the company’s financial position has significantly deteriorated since the last approved financial statements, it is advisable to prepare interim financials to ensure the legality and prudence of the distribution.

1.1 Distribution of ordinary or extraordinary dividends

The proposal by the board of directors to distribute a dividend, along with the financial statements underlying this proposal, must generally be reviewed by the company’s auditors. An exception applies to companies that have waived a limited audit. The shareholders’ meeting is responsible for deciding how any potential profit is to be used, including whether a dividend will be distributed or not. For larger companies, it is advisable to include a specific due date for the dividend payment in the proposal submitted to the shareholders’ meeting for approval. This ensures that the payout can be effectively coordinated, particularly with the company’s bank.

1.2 Allocation to statutory and voluntary profit reserves

It is essential to note that dividends may only be determined once allocations to the statutory and voluntary profit reserves have been made. Five percent of the annual profit must be allocated to the statutory profit reserves. This allocation continues until the statutory profit reserves, together with statutory capital reserves, amount to 50% of the company’s share capital. An exception applies to holding companies, for which the threshold is 20% of the share capital. If an ordinary dividend has been resolved at the annual shareholders’ meeting and/or an allocation to statutory profit reserves has already been made, no additional allocation to statutory reserves is required for extraordinary dividends. Furthermore, any required allocations to voluntary profit reserves, as specified by the company’s articles of association, must also be reviewed and addressed accordingly.

2. Interim dividend

The revision of Swiss corporate law introduced a formal legal framework for interim dividends. An interim dividend allows the distribution of the profit of the current fiscal year based on interim financial statements. However, the distributable funds for an interim dividend are not limited to the period profit generated during the current fiscal year but encompass the entire freely disposable equity as shown in the interim financial statements. It is generally permissible to distribute multiple interim dividends within a fiscal year. The interim financial statements required for such a distribution consist of a balance sheet, an income statement, and explanatory notes. These statements must be prepared in accordance with the regulations governing annual financial statements. Simplifications or reductions in the preparation of interim financial statements are permissible, provided they do not impair the presentation of the company’s business performance. The explanatory notes to the interim financial statements must disclose the purpose of the interim financial statements, any simplifications or reductions made (including deviations from the accounting principles used in the last annual financial statements), and any other significant factors that have materially influenced the company’s financial position during the reporting period. The same rules that apply to ordinary dividends generally apply to interim dividends. Consequently:

  • Allocations to statutory profit reserves amounting to 5% of the period profit must be made.
  • Allocations to voluntary profit reserves must be made as required by the company’s articles of association or resolutions of the shareholders’ meeting

The interim financial statements and the board of directors’ proposal for the distribution of an interim dividend must generally be reviewed by the company’s auditors. An exception is granted if all shareholders consent to the payment of the interim dividend and creditor claims are not jeopardized. However, in any case the shareholders’ meeting must approve the underlying interim financial statements before the resolution on the payment of an interim dividend is passed.

3. Tax implications of a dividend

Dividend distributions are subject to withholding tax. The withholding tax, set at 35%, must be remitted by the company to the Swiss Federal Tax Administration (ESTV) within 30 days of the dividend’s due date. Unless the resolution of the shareholders’ meeting specifies a different due date, the dividend is considered due on the date of the resolution. Domestic shareholders may reclaim the withholding tax. For foreign shareholders, the ability to reclaim the withholding tax or obtain a reduction in the withholding tax rate depends on the applicable double taxation treaty. As an alternative to paying the withholding tax, the notification procedure may be applicable in certain cases. Prominent examples of the notification procedure include distributions to shareholders with a qualifying participation of at least 10% or distributions in kind (e.g., non-cash dividends)

Dividends are also subject to income or corporate income tax at the shareholder level. However, distributions in the form of capital contribution reserve repayments are not subject to either income tax or withholding tax. For shareholders, it is therefore critical to determine whether the dividend is distributed from profit or profit reserves or from capital contribution reserves. If a distribution is to be made from capital contribution reserves, this must be explicitly resolved by the shareholders’ meeting and for listed companies, the 50/50-rule must also be observed.

4. Special cases

Dividends are typically paid out in cash (so-called cash dividends) following the end of a financial year or quarter. However, dividends may also be distributed in other forms, such as advance dividends, dividends in kind (including stock dividends), or optional dividends. Each of these forms involves specific considerations.

4.1 Advance dividend

An advance dividend is a prepayment of future dividends, which is legally classified as a loan to the shareholders. An advance dividend is permissible provided that an actual loan agreement is made, and the terms of this loan adhere to the arm’s length principle, particularly with regard to the assessment of creditworthiness, required collateral, and interest rates. In certain circumstances, shareholders receiving an advance dividend may be required to sign an acknowledgment of debt, establish a repayment plan, or provide collateral to ensure compliance with due diligence obligations. If the board of directors fails to ensure that the loan granted to the shareholders complies with the arm’s length principle, they risk being held personally liable for any potential damages through a liability lawsuit. The advance dividend must be recorded as an asset in the company’s balance sheet. The repayment of this loan (advance dividend) becomes due once the shareholders’ meeting resolves to pay a dividend and offset the dividend claim with the granted advance dividend (loan). The dividend claim and the repayment claim are then offset against each other. If no dividend or an insufficient dividend is resolved, the board of directors must enforce the (full or partial) repayment of the loan (advance dividend).

4.2 In-kind dividend

An in-kind dividend involves the distribution of dividends in the form of non-cash assets or goods. These can include tangible assets, legal transfers, assignment of receivables, assumption of debts, foreign capital shares, or the company’s own shares (stock dividend). In principle, the assets distributed as in-kind dividends to the individual shareholders must be homogeneous and of equal value. The value of the asset is determined not by its book value but by its actual value (market value), which includes any hidden reserves that may have been built up on the asset.

The shareholders’ meeting must explicitly resolve the distribution of an in-kind dividend. This resolution must specify both the monetary extent of the dividend and the assets to be distributed as the in-kind dividend. These details should already be included in the dividend proposal submitted by the board of directors.

There is controversy regarding the majority required for the resolution to distribute an in-kind dividend. While some scholars demand a unanimous decision, others believe that a qualified majority is sufficient, especially if the assets distributed are homogeneous, of equal value, and easily marketable. Another view is that a simple majority is sufficient if the in-kind dividend involves assets that are either easily marketable and valuable or closely related to the purpose of the company. The in-kind dividend was not regulated as part of the 2023 revision of the Swiss Code of Obligations and was not included it in the exhaustive list of key decisions requiring a qualified majority in Article 704 of the Swiss Code of Obligations. A qualified quorum is therefore not legally required, and since the in-kind dividend is not included in Article 704 of the Swiss Code of Obligations (OR), it should be assumed that the legislator has intentionally not addressed this issue, particularly in relation to cash-like and easily transferable assets. Therefore, a simple majority should suffice for the resolution on the distribution of an in-kind dividend, unless a specific provision in the articles of association dictates otherwise.

Within a group of companies, in-kind dividends can be used as a tool for transferring various assets, receivables, and liabilities between parent and subsidiary companies. Depending on the ownership structure, in-kind dividends may also be useful for corporate restructurings or so-called carve-outs.

4.3 Dividend on discretion

A dividend on discretion grants shareholders the right to choose between a cash dividend, new shares in the company, or another in-kind asset. The available options for the shareholders to choose from must generally be of equal value.

The dividend on discretion is a form of an election right according to Article 72 of the Swiss Code of Obligations (OR), which benefits the shareholders and arises with the decision made by the shareholders’ meeting to grant the option. The resolution must specify the right to choose, the available options, and the modalities for exercising the right to choose. If shareholders do not make a choice within the stipulated time frame, it is usually provided that they will receive a cash dividend. Generally, a simple majority is sufficient to resolve the distribution of a dividend on discretion. However, this assumes that the available options are identical in value.

4.4 Asymmetric dividend

With regard to the distribution of dividends, the principle of equal treatment among shareholders must be observed. The key principle here is the proportionality of capital. Each shareholder is entitled to a share of the net profit corresponding to their participation in the company. The extent of the participation is determined by the nominal paid-in share capital. This means that shareholders with the same capital participation receive an equal dividend. However, in the case of an asymmetric dividend, shareholders with the same capital participation receive different dividend amounts. This constitutes a violation of the equal treatment principle.

From a corporate law perspective, asymmetric dividends are permissible if they result from the existence of different categories of shares (common shares and preferred shares with dividend preference).. The dividend preferences of the preferred shares must be clearly defined in the company’s articles of association, be materially justified, and must not lead to excessive favoritism.

However, there is debate over whether an asymmetric dividend is permissible without being explicitly governed in the company’s articles of association. One part of legal doctrine holds that an asymmetric dividend decision regarding the amounts allocated to preferred shareholders is not only challengeable but partially void. Accordingly, adopting an asymmetric dividend without addressing it in the articles of association would be impermissible. Another part of the doctrine is of the opinion that an asymmetric dividend is allowed even without specific provisions in the articles of association. However, in the absence of such provisions, the decision to distribute an asymmetric dividend can be challenged. According to this perspective, the decision on the asymmetric dividend becomes fully effective only after the expiration of the two-month challenge period, provided no challenge is made. The Lucerne Cantonal Court followed the second view in a ruling of 4 April 2022, emphasizing that a decision to distribute an asymmetric dividend without being governed in the articles of association is always legally invalid in terms of corporate law, but such a decision remains legally effective if no challenge is raised.

The distribution of asymmetric dividends is treated differently for tax purposes in various cantons. It should also be noted that an asymmetric dividend may have social security implications if certain shareholders or partners are working for the company.

To avoid unintended consequences and potential additional financial burdens, we recommend that the distribution of an asymmetric dividend be carefully examined from both a tax and social security perspective on a case-by-case basis in advance.


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