What the treaty update aims to change
The United States and Switzerland signed their current income-tax treaty in 1996 and updated it with a protocol in 2009, but Treasury now considers it outdated compared to more recent agreements. According to the National Foreign Trade Council's 2026 Tax Treaty Survey published in June, Treasury has ranked Switzerland as the number-one priority for treaty modernization. The proposed changes follow the blueprint Treasury used in recent treaties with the United Kingdom, Netherlands and Luxembourg, focusing on two core reforms.
First, the amendment would eliminate withholding tax on dividends paid to corporate shareholders who own at least 10 percent of the voting stock of a Swiss company, dropping the rate from 5 percent under the current treaty to 0 percent. Second, it would introduce stricter Limitation on Benefits provisions modeled on the 2016 US Model Convention, designed to close loopholes that allow entities in third countries to route investments through Swiss holding companies solely to access treaty benefits.
These changes mirror the pattern set by the 2019 US-Croatia protocol, which similarly eliminated group dividend withholding and tightened anti-abuse rules. For US persons living in Switzerland and holding direct stakes in Swiss corporations or participating in Swiss pension arrangements that invest in equities, the treaty update could shift both your withholding liability and your compliance footprint.
Current dividend withholding rates under the 1996 treaty
Under the existing treaty, dividends paid by a Swiss company to a US resident face Swiss withholding tax at one of two treaty rates depending on the size of your stake. If you are a corporate shareholder owning at least 10 percent of the voting stock, the treaty caps the withholding at 5 percent. If you hold less than 10 percent—a portfolio investment—the cap is 15 percent. Without the treaty, Switzerland's statutory withholding tax would be 30 percent.
Switzerland also imposes a domestic withholding tax called Verrechnungssteuer at 35 percent on dividends, interest and certain other income paid by Swiss entities. The treaty does not eliminate this Swiss domestic levy; it only reduces the rate Switzerland may keep. Swiss residents—including US citizens living in Switzerland—typically reclaim the difference between the 35 percent Verrechnungssteuer and the treaty rate by filing a Swiss tax return. US persons who are not Swiss residents claim the treaty-reduced rate by submitting IRS Form W-8BEN to the Swiss payor.
Treaty versus domestic withholding
The US-Switzerland treaty limits the withholding tax Switzerland may charge a US recipient, but Swiss domestic law still withholds 35 percent at source. You recover the excess either through your Swiss tax return if you are a Swiss resident, or by applying for a refund from the Swiss Federal Tax Administration if you are a US resident receiving Swiss-source income.
The proposed zero-percent rate for group dividends
The Treasury proposal would reduce the treaty withholding rate on qualifying group dividends from 5 percent to 0 percent. A group dividend is a distribution paid by a Swiss subsidiary to a US corporate parent that owns at least 10 percent of the subsidiary's voting stock and meets certain holding-period and active-business tests specified in the Limitation on Benefits article.
Eliminating withholding on group dividends aligns the US-Switzerland treaty with the zero-percent rate already in place under treaties with the United Kingdom, Netherlands, Luxembourg and other major economies. The change is designed to remove a layer of friction for multinational groups repatriating earnings and to encourage foreign direct investment in both directions.
For individual US expats living in Switzerland, the direct impact of the group-dividend provision is limited because most individuals do not meet the 10-percent corporate-ownership threshold. However, if you hold equity indirectly through a Swiss pension vehicle—such as a vested-benefits foundation or a pillar-3a account that invests in Swiss equities—the new rule could interact with another recent development: IRS Announcement 2025-8, issued in March 2025, which clarified that qualifying pension arrangements may eliminate source-country dividend withholding under Article 10 paragraph 3 of the treaty.
IRS Announcement 2025-8 and pension-held dividends
In March 2025 the IRS published Announcement 2025-8 to clarify how the US-Switzerland treaty applies to dividends and interest received by pension plans. The announcement confirmed that dividends paid to a qualifying pension arrangement—such as a US 401(k), IRA or Swiss pillar-2 occupational pension fund—may be exempt from source-country withholding if the arrangement meets the definition of a pension fund in Article 3 paragraph 1(h) of the treaty and satisfies the conditions in Article 10 paragraph 3.
This means that if your Swiss pension fund receives dividends from US equities, those dividends may be exempt from US withholding tax. Conversely, if a qualifying US pension plan receives dividends from Swiss companies, Switzerland may grant exemption from Swiss withholding under the same principle. The announcement does not create a new rule; it clarifies that the existing treaty language already supports this treatment when properly documented.
The interaction with the proposed treaty update is significant: once the zero-percent group-dividend rate takes effect, pension funds that own at least 10 percent stakes in Swiss corporations and satisfy the LOB tests could see both treaty withholding and domestic Verrechnungssteuer relief streamlined. In practice, most pension funds hold diversified portfolios below the 10-percent threshold, so the portfolio rate—currently 15 percent and likely to remain unchanged—will continue to apply to the majority of pension-held dividends.
Tighter Limitation on Benefits provisions
The second pillar of the proposed treaty update is the introduction of stricter Limitation on Benefits provisions modeled on the 2016 US Model Convention. LOB clauses are anti-abuse rules designed to ensure that only genuine residents of the treaty countries—not shell companies or conduit entities established in Switzerland purely to access treaty benefits—can claim reduced withholding rates and other treaty protections.
The current 1996 treaty includes an LOB article, but it predates the OECD Base Erosion and Profit Shifting project and the US shift toward more granular residence and activity tests. The updated LOB provisions are expected to include stricter tests for derivative benefits, narrower publicly traded-company safe harbors and explicit anti-conduit rules that disqualify arrangements whose principal purpose is obtaining treaty benefits.
For individual US citizens and green-card holders living in Switzerland, the tighter LOB rules are unlikely to restrict your access to treaty benefits because you qualify as a bona fide resident under both US and Swiss domestic law. The real impact falls on corporate structures: US holding companies with Swiss subsidiaries, Swiss holding companies owned by non-treaty-country investors and conduit financing arrangements will face closer scrutiny and may lose treaty relief unless they demonstrate substantial business activity in Switzerland or the United States.
Treaty shopping and conduit structures
If you participate in a corporate structure that routes income through Switzerland to benefit from the treaty—for example, a Swiss holding company owned by investors in a country without a favorable US treaty—the updated LOB rules may disqualify that structure from treaty benefits. The IRS and Swiss Federal Tax Administration both have the authority to challenge arrangements they view as abusive, even under the current treaty.
Timeline and ratification process
Treasury's ranking of Switzerland as the top treaty-modernization priority in June 2026 does not mean the updated treaty will enter into force immediately. The process typically unfolds in several stages: Treasury and the Swiss State Secretariat for International Finance negotiate the text of the protocol; both governments sign the protocol; the US Senate provides advice and consent to ratification; both countries exchange instruments of ratification; and the protocol enters into force on a date specified in the text, usually the first day of the month following the exchange.
Based on recent precedent, the entire process can take eighteen months to three years. The 2019 US-Croatia protocol, for example, was signed in December 2019 but did not enter into force until February 2023. Treasury has not announced a target signing date for the Switzerland protocol, so it is prudent to assume that the earliest effective date for the new withholding rates and LOB rules is sometime in 2027 or 2028.
Until the updated treaty enters into force, the current 5-percent and 15-percent dividend withholding rates remain in effect, and the existing LOB article governs eligibility for treaty benefits. You should continue to claim treaty benefits under the current rules using the appropriate forms—Form W-8BEN if you are a Swiss resident receiving US-source income, or documentation required by the Swiss payor if you are a US resident receiving Swiss-source dividends.
Claiming treaty benefits and reporting obligations
To claim reduced withholding under the US-Switzerland treaty, you must provide the payor with the correct documentation. Swiss residents receiving US-source dividends file IRS Form W-8BEN with the US financial institution or broker, certifying residence in Switzerland and entitlement to treaty benefits. US residents receiving Swiss-source dividends typically complete a Swiss withholding-tax reclaim form and file it with the Swiss Federal Tax Administration to recover the difference between the 35-percent Verrechnungssteuer withheld at source and the treaty-reduced rate.
US persons who take a treaty-based position that overrides or modifies a provision of the Internal Revenue Code must disclose that position by attaching IRS Form 8833 to their annual tax return. For example, if you rely on the treaty to reduce withholding below the statutory US rate, or to claim exemption for pension-fund income under Article 10 paragraph 3, you may be required to file Form 8833. The penalty for failing to file Form 8833 when required is one thousand dollars per return for individuals and ten thousand dollars for C corporations.
In practice, many routine treaty claims—such as the reduced withholding rate on portfolio dividends—do not trigger the Form 8833 filing requirement because the IRS has carved out exceptions in the instructions. However, if your fact pattern is unusual—owning a 10-percent stake in a Swiss company, receiving dividends through a non-standard pension vehicle or claiming derivative benefits under the LOB article—you should review the Form 8833 instructions carefully or consult a cross-border tax professional to determine whether disclosure is required.
35%
Swiss domestic Verrechnungssteuer rate on dividends, reduced by treaty
Practical implications for US expats in Switzerland
If you are a US employee, manager or self-employed professional living in Switzerland and you do not own a direct stake of 10 percent or more in a Swiss corporation, the treaty update is unlikely to change your day-to-day tax situation. Portfolio dividends—those from publicly traded Swiss equities or diversified funds—will continue to be taxed at the 15-percent treaty rate, and the same documentation and reclaim procedures will apply.
The update becomes material if you hold a significant equity position in a Swiss operating company, either directly or through a US holding structure. In that scenario, the shift from 5 percent to 0 percent withholding can produce meaningful cash savings, especially if the Swiss subsidiary distributes earnings annually. You will want to coordinate with both your US and Swiss tax advisors to ensure that the structure satisfies the new LOB tests and that you document the corporate ownership and holding period correctly.
The tighter LOB provisions also matter if you participate in a corporate or partnership structure that involves investors or entities from third countries. Treasury's focus on anti-conduit rules means that arrangements designed primarily to access treaty benefits—rather than to conduct genuine cross-border business—will face disqualification. If your structure falls into this category, now is the time to review it with a specialist before the new treaty enters into force.
Review your equity holdings now
If you own a direct or indirect stake in a Swiss company and expect to receive dividends in the coming years, map out your ownership percentage, holding period and the chain of entities between you and the Swiss payor. This information will be essential both for claiming the reduced treaty rate once the update is effective and for demonstrating compliance with the new LOB tests.
What the treaty update does not change
The proposed amendments target dividend withholding and anti-abuse rules, but they do not alter the core structure of the US-Switzerland treaty or your fundamental tax obligations as a US citizen living abroad. You remain subject to US citizenship-based taxation on your worldwide income, regardless of where you live or where the income is sourced. The treaty prevents double taxation by granting the United States or Switzerland the primary right to tax specific categories of income and allowing a foreign tax credit or exemption for taxes paid to the other country.
The update also does not modify the treaty's provisions on employment income, pensions, social security, capital gains or the exchange of information between the IRS and the Swiss Federal Tax Administration. If you receive a Swiss salary, pillar-2 pension distributions or capital gains from the sale of Swiss real estate, those items continue to be governed by the existing treaty articles and the interplay between US and Swiss domestic law.
Finally, the treaty update does not provide relief from US information-reporting requirements such as the Foreign Bank Account Report, the Foreign Account Tax Compliance Act or the reporting of passive foreign investment companies. If you hold Swiss mutual funds, exchange-traded funds domiciled outside the United States or Swiss-pillar-3a investment accounts, you must continue to report those holdings on FinCEN Form 114 and IRS Form 8938 as applicable, and to calculate any PFIC income or mark-to-market adjustments on Form 8621.
How to prepare for the treaty changes
Because the updated treaty is still in negotiation and has not yet been signed, you cannot take advantage of the new rates or rules today. What you can do is position yourself to benefit once the protocol enters into force. Start by documenting your current equity holdings: the name and jurisdiction of the payor, your ownership percentage, the date you acquired the stake and the holding structure. If you receive dividends through a Swiss pension vehicle, confirm with the plan administrator whether the arrangement qualifies as a pension fund under the treaty definition and whether it has obtained the necessary certifications from the Swiss or US tax authorities.
Next, review any existing treaty-based return positions you have taken. If you have filed Form 8833 in prior years to claim treaty benefits, ensure that the documentation and factual representations remain accurate and that the position will still be valid under the stricter LOB tests. If you have not filed Form 8833 but believe you may need to once the new treaty takes effect, gather the supporting records now so you are ready when the time comes.
Finally, monitor the negotiation and ratification timeline. Treasury and the Swiss government will publish the signed protocol text once negotiations conclude, and the US Senate Foreign Relations Committee will hold hearings before recommending ratification. Staying informed about these milestones will allow you to adjust withholding elections, reclaim procedures and corporate structures in advance of the effective date rather than scrambling after the fact.
Where personal advice becomes essential
This article explains the proposed treaty changes, the current withholding framework and the procedural steps for claiming treaty benefits, but it cannot tell you whether the update will increase or decrease your personal tax liability or whether your specific equity structure will satisfy the new LOB tests. That determination depends on your ownership percentage, the legal form of the Swiss entity, the presence of third-country investors, your US and Swiss filing history and a dozen other variables that require individual analysis.
If you own a direct stake in a Swiss company, receive group dividends through a US or Swiss corporate structure or participate in a multi-tier holding arrangement, the treaty update is not a passive event—it is a prompt to review your structure with a cross-border tax advisor who understands both the US Internal Revenue Code and Swiss federal tax law. The same applies if you are considering acquiring a significant equity position in a Swiss operating company in the next twelve to twenty-four months: the withholding and LOB landscape will likely look different by the time you begin receiving distributions.