Germany–Switzerland · Entrepreneurs

Scenario 03 · Germany → Switzerland

German Entrepreneurs Investing in Switzerland

An individual subject to German tax may hold shares in a Swiss AG or GmbH, invest in a Swiss partnership or operate a Swiss permanent establishment. Each structure has different German tax consequences. Key issues include dividends, Swiss withholding tax, section 17 EStG, the partial income method, the tax treaty, controlled foreign company taxation, place of management and ongoing German tax reporting.

Starting Point

Swiss investments are not all taxed in the same way in Germany

For an individual resident in Germany, the analysis begins by identifying what is actually held: a corporation, a partnership, their own Swiss permanent establishment or another business structure.

For a Swiss corporation, a further distinction is necessary: whether the shareholding is held as a private asset or forms part of German business assets. For private holdings, different German tax regimes may apply to dividends and disposals.

The ownership percentage plays a central role. It can determine whether a subsequent sale falls under section 17 EStG, whether the partial income method can be elected for dividends and which international tax issues arise.

Swiss tax perspective

This page explains the German taxation of an entrepreneur resident in Germany. The Swiss treatment of the company, its profits and the local business structure is covered on TaxRep Switzerland.

Swiss Perspective

Structure Comparison

Swiss corporation, partnership or your own business operations?

Investment	Basic German tax treatment	Typical German tax issues
Swiss AG / GmbH held as a private asset	The corporation generally remains a separate taxpayer	Dividends, section 20 EStG, section 17 EStG, Swiss withholding tax and AStG
Swiss AG / GmbH held as a business asset	The shareholding forms part of a German business	Partial income method, business profit calculation, tax treaty and AStG
Swiss partnership	German classification requires a comparison with German legal forms	Ongoing allocation of profits, tax treaty and permanent establishment income
Your own Swiss permanent establishment	Part of the German sole proprietorship	Profit attribution, tax treaty and German profit calculation
German holding company owns the Swiss company	The shareholding is held by a German corporation	Section 8b KStG, trade tax, Swiss withholding tax and AStG

Swiss AG or GmbH

The entrepreneur holds the Swiss company as a private investment

If an individual resident in Germany directly holds shares in a Swiss AG or GmbH, the Swiss company generally remains a separate taxpayer.

Operating profits earned by the company therefore do not automatically trigger ongoing German income tax for the shareholder. Distributions, disposals and possible special provisions of the German Foreign Tax Act are particularly relevant.

Dividends generally constitute German investment income
Swiss withholding tax must be considered
Section 17 EStG applies to qualifying substantial shareholdings
The partial income method applies in certain cases
Review the AStG for controlled companies
Management from Germany can create German tax residence risks

Dividends

Distributions from the Swiss company to the shareholder resident in Germany

Dividends from a privately held Swiss corporation generally constitute investment income for an individual resident in Germany. Such income is generally subject to the separate German tax rate of 25%, plus solidarity surcharge and, where applicable, church tax.

At the same time, Switzerland generally levies 35% withholding tax on dividends. For an individual resident in Germany, the Germany–Switzerland tax treaty generally limits Swiss withholding tax to 15% of the gross dividend.

The amount withheld in excess of the residual treaty tax generally has to be reclaimed in Switzerland. The Swiss tax remaining under the treaty may be credited against German income tax under the applicable German rules.

Step	Typical treatment
1. Swiss distribution	Generally 35% Swiss withholding tax
2. Tax treaty	Generally limited to 15% for an individual
3. Swiss refund	Reclaim the amount exceeding 15%
4. German tax	Generally taxed as investment income under German law
5. Tax credit	Account for treaty-compliant Swiss withholding tax under German foreign tax credit rules

Partial Income Method

For an entrepreneurial shareholding, flat-rate investment income tax may not be the best or only treatment

For certain corporate shareholdings, a shareholder resident in Germany can elect to have dividends taxed under the partial income method (Teileinkünfteverfahren) instead of the flat-rate investment income tax regime.

This election may be available, in particular, if the taxpayer directly or indirectly holds at least 25%, or holds at least 1% and can exercise significant entrepreneurial influence over the company’s business activities through their professional activity for the company.

Under the partial income method, 60% of the relevant income from the shareholding is generally taxable. Correspondingly, related expenses may be taken into account proportionately, subject to the statutory conditions.

Compare the flat-rate tax and the partial income method

Whether an election is beneficial depends on more than the personal income tax rate. Financing costs, other shareholding-related expenses and the shareholder’s specific role in the Swiss company are also relevant.

Disposal of a Shareholding

Section 17 EStG becomes central at an ownership level of 1%

When an individual sells shares in a Swiss corporation, the gain generally constitutes business income under section 17 of the German Income Tax Act (EStG) if the seller held, directly or indirectly, at least 1% of the company’s capital at any time during the preceding five years.

This provision is not limited to shares in German GmbHs. Shareholdings in foreign corporations may also fall within its scope.

A disposal gain taxable under section 17 EStG is generally subject to the partial income method: 40% remains tax-exempt, while 60% is included in the regular German income tax calculation.

Ownership threshold

Holding at least 1% at any time during the preceding five years can bring a disposal within section 17 EStG.

60%

Partial income method

Where the partial income method applies, 60% of the gain is generally taken into account.

<1%

Small shareholding

A private disposal below the section 17 threshold is generally assessed under the rules for investment income.

Business Assets

Does the Swiss shareholding form part of a German business?

Not every shareholding held by an entrepreneur is automatically a private asset. If the Swiss company shares belong to a German sole proprietorship or are otherwise held as business assets, different rules apply from those for a purely private investment.

For individuals, dividends and disposal gains from corporate shares held as business assets are generally subject to the partial income method. The shareholding must also be incorporated into the business profit calculation and accounting.

It is therefore particularly important to determine whether the Swiss shareholding is a mandatory business asset, an asset validly designated as a business asset, or a private holding.

Swiss Partnership

German tax classification is decisive for a Swiss partnership

The foreign name of a legal form does not automatically determine whether Germany treats it as a corporation or partnership.

German taxation requires an entity classification analysis. This compares the legal and economic characteristics of the Swiss entity with German legal forms.

If the Swiss entity is classified as a tax-transparent partnership from a German perspective, the German partner’s proportionate income is generally allocated to them on an ongoing basis. Taxation therefore does not arise only when a distribution is made.

TYPE

Entity classification

Management, liability, profit rights, capital structure and other characteristics must be compared.

FLOW

Ongoing income allocation

With tax transparency, profit may be allocated to the German partner independently of cash withdrawals.

DTT

Tax treaty

The next step is to determine which state has taxing rights over the business or permanent establishment income.

Identify hybrid classifications early

Germany and Switzerland may classify the same entity differently. Such differences can significantly complicate distributions, ongoing profits and application of the tax treaty.

Swiss Permanent Establishment

A sole trader resident in Germany operates directly in Switzerland

If an entrepreneur resident in Germany conducts part of their business through a fixed place of business in Switzerland, a Swiss permanent establishment may arise.

The permanent establishment is not a separate company. Its profit remains part of the entrepreneur’s business profit, but is allocated between Germany and Switzerland for treaty purposes.

Determine the Swiss permanent establishment’s profit
Allocate functions and assets
Review taxing rights under the treaty
Continue the German profit calculation
Integrate the Swiss financial results
Distinguish cash withdrawals from profit allocation

Profit Attribution

Which profits belong to the Swiss permanent establishment?

Swiss revenue alone does not determine the permanent establishment’s profit. The analysis must consider, in particular, the functions performed there, personnel employed, assets used and risks assumed.

Area	Typical question
Personnel	Which work is actually performed in Switzerland?
Customers	Where are customers acquired and contracts negotiated?
Assets	Which assets serve the Swiss activities?
Risks	Which risks are economically attributable to the Swiss permanent establishment?
Germany	Which central business functions remain with the German head office?

Place of Management

A Swiss company managed from Germany?

For owner-managed Swiss companies, the actual place of management is particularly important. A Swiss registered address or a Swiss board of directors does not by itself resolve the German tax position.

If significant ongoing business decisions are actually made from the shareholder’s home in Germany, Germany may consider the company’s place of management to be in Germany. The Swiss company itself may then become subject to German corporate income tax.

Questions of dual residence, permanent establishments and treaty application may also arise. The actual organisation should therefore align with the intended tax structure.

Swiss substance

Business premises, local functions and genuine decision-making authority reinforce organisational separation.

Activities in Germany

Regular operational management from Germany can be far more relevant for tax purposes than the formal registered address.

DOC

Documentation

Corporate resolutions, responsibilities and actual decision-making processes should be consistent.

Further guidance on this situation

The combination of German residence, personal ownership of a Swiss company and management responsibilities is covered in more detail in “German Entrepreneurs with a Swiss Company” .

International Tax Rules

Controlled Swiss companies may fall within German CFC rules

For a controlled foreign company, sections 7 et seq. of the German Foreign Tax Act (AStG) must be reviewed. Certain low-taxed passive income may be attributed to the shareholder resident in Germany, even if the Swiss company pays no dividend.

The analysis is performed by income category. A Swiss company is therefore not automatically subject to CFC income inclusion merely because of a low cantonal tax rate.

Review control
Distinguish active and passive income
Determine the effective tax burden
Consider low taxation below 15%
Income inclusion may arise without a distribution
Review German AStG filing obligations

Switzerland & AStG

Swiss substance does not automatically eliminate AStG risk

The statutory exception for substantial economic activity under section 8 AStG is limited to companies with their registered office or place of management in an EU Member State or an EEA contracting state.

Switzerland belongs to neither the EU nor the EEA. A Swiss company therefore cannot rely on this specific EU/EEA exception merely because it carries on genuine economic activity.

Nevertheless, a genuine operating business in Switzerland is highly relevant to the AStG analysis, because the first step is to determine which income qualifies as active or passive.

Payments to the Shareholder

Dividends, salaries, loans and service fees are different transactions for tax purposes

An entrepreneur may receive more than dividends from their Swiss company. Depending on their activities, payments may also include managing director or board remuneration, employment income, loan interest or fees for services provided separately.

These payments do not automatically follow the dividend tax treatment. For each type of remuneration, the German income category, the treaty and Swiss withholding taxation must be reviewed separately.

DIV

Dividend

A distribution received in the capacity of shareholder; Swiss withholding tax and German shareholding taxation apply.

SAL

Remuneration

Payment for actual work; treaty allocation requires a separate review of the role and activities performed.

LOAN

Loan

Financing between shareholder and company requires arm’s length terms and proper documentation.

Personal Ownership or a Holding Company?

Hold the Swiss investment personally or through a German GmbH?

Before making a larger Swiss investment, it may be useful to compare direct private ownership with ownership through a German corporation.

With a German holding company, taxation of the shareholding initially takes place at the level of the German corporation rather than the individual. Section 8b KStG may then become relevant for dividends and disposal gains.

A holding company is not automatically more tax-efficient. Distributions from the holding company to the individual shareholder, ongoing costs, trade tax, Swiss withholding tax, financing, AStG and the planned exit must all be included in the overall comparison.

Issue	Direct private ownership	German holding company
Shareholder	Individual	German GmbH / AG
Dividends	Section 20 EStG or the partial income method	Generally requires a review of section 8b KStG
Disposal	Section 17 EStG generally applies to qualifying holdings of at least 1%	Section 8b KStG is generally relevant
Reinvestment	After personal taxation	Profits can initially remain at holding company level
Receipt of funds personally	Direct	Requires a subsequent distribution by the German holding company
Compliance	Personal income tax and foreign shareholding reporting	Additional German corporate and tax compliance

German Tax Reporting

Which documents should be available for German tax purposes?

Document	Typical purpose
Investment agreement / share register	Document the ownership percentage and acquisition date
Acquisition cost records	Calculate a subsequent disposal gain
Swiss annual financial statements	AStG, valuation and shareholding analysis
Swiss tax records	Substantiate the effective tax burden
Dividend documentation	German taxation and foreign tax credits
Swiss withholding tax certificates	Swiss refund and German tax credit issues
Shareholder loan documents	Document interest, arm’s length terms and cash flows
Corporate governance and management records	Assess the place of management and actual functions

Practical Approach

Review an entrepreneur’s Swiss investment in eight steps

Investment

Identify the corporation, partnership, permanent establishment or other investment.

Ownership

Compare direct private ownership with a German holding company structure.

Ownership percentage

Assess section 17 EStG, the partial income method and control rights.

Place of management

Analyse where the business is actually managed between Germany and Switzerland.

AStG

Review control, income categories and the effective tax burden.

Cash flows

Structure dividends, remuneration, loans and other payments.

Compliance

Organise Swiss data and supporting documents for German tax returns.

Exit

Plan for a sale, emigration, succession and reinvestment at an early stage.

Frequently Asked Questions

German entrepreneurs investing in Switzerland

Can I own a Swiss GmbH or AG while resident in Germany?

Yes. However, the shareholding must be considered for German income tax and, where applicable, under German international tax rules. Relevant issues include dividends, a subsequent sale, the ownership percentage, the shareholder’s activities and the actual place of management.

Do I have to pay German tax on my Swiss AG’s ongoing profits?

For a separate Swiss corporation, ongoing profits are generally initially taxed at company level. They are not allocated to an individual shareholder resident in Germany merely because of the shareholding. An important exception may arise under the CFC rules for certain low-taxed passive income of controlled companies.

How are dividends from a Swiss company taxed in Germany?

For a private shareholding, dividends generally constitute investment income. The separate 25% income tax rate generally applies, plus solidarity surcharge and, where applicable, church tax. For certain entrepreneurial shareholdings, the partial income method may apply instead if elected.

How much Swiss withholding tax remains on a private dividend?

Switzerland generally withholds 35% initially. Under the Germany–Switzerland tax treaty, Swiss withholding tax is generally limited to 15% for an individual dividend recipient resident in Germany. The excess generally needs to be reclaimed through the Swiss refund procedure.

When does section 17 EStG apply to a sale?

Section 17 EStG is generally relevant if the seller held, directly or indirectly, at least 1% of the corporation at any time during the preceding five years. This also applies to corresponding Swiss corporations.

What happens when a shareholding of less than 1% is sold?

If no special situation under section 17 EStG applies and the holding is a private asset, a disposal gain is generally assessed under the rules for investment income.

When can I elect the partial income method for dividends?

An election may be available, in particular, where at least 25% of the corporation is held, or where the holding is at least 1% and the shareholder can exercise significant entrepreneurial influence over the company through their professional activity.

What is the risk if I manage the Swiss GmbH from Germany?

The company’s actual place of management may then be in Germany. This can create German corporate income tax liability for the company in addition to Swiss taxation. The actual decision-making processes and treaty residence must then be examined separately.

Do German CFC rules also apply to individuals?

Yes. An individual subject to German tax may also fall within sections 7 et seq. AStG if they control a foreign company and the other statutory conditions are met.

Is a Swiss company taxed at less than 15% automatically subject to CFC income inclusion?

No. Low taxation is only one part of the analysis. The statutory control requirements and relevant passive income must also be present, among other conditions.

Should I hold my Swiss company through a German holding company?

This may be attractive for reinvestment, larger shareholdings and a subsequent exit, but it is not automatically more favourable. A sound decision requires a comparison of ongoing dividends, the exit, subsequent distributions to the individual shareholder, compliance costs and the AStG.

Further Tax Knowledge

Are you an entrepreneur resident in Germany planning an investment in Switzerland?

We analyse direct private ownership, German holding companies, Swiss corporations and partnerships, and permanent establishments from a German and cross-border perspective. We coordinate shareholding taxation, Swiss withholding tax, treaty treatment, section 17 EStG, CFC taxation, place of management and exit planning.

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