Safe harbour interest rate (Swiss Federal Tax Administration)

The Swiss Federal Tax Administration (FTA/ESTV) publishes each year a safe harbour interest rate applicable to loans granted by a company to its shareholders, or by a shareholder to their company. Above this rate, for example 3% on the first CHF 1,000,000 then 1% under the example cited for 2021, the excess interest paid is requalified as a distribution subject to 35% Withholding tax (Switzerland).

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This mechanism complements, without replacing, Swiss thin-capitalisation rules specific to a Shareholder Loan (Switzerland): if the lending shareholder's equity is deemed hidden rather than genuine, the safe harbour rate drops retroactively to 0%, making the entire interest paid taxable as a distribution.

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Since this rate changes every year with market reference rates, an SME that sets its shareholder loan's interest rate once and never reviews it risks gradually exceeding the published safe harbour rate, without any deliberate decision having been made to that effect, a purely mechanical tax risk that an annual review is enough to eliminate.

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In financial due diligence of a Swiss family-owned SME, checking that shareholder loans on the balance sheet comply with this annual FTA safe harbour rate spares a buyer from discovering, after closing, a latent tax liability tied to requalified distributions from past financial years, a point also worth securing through a Swiss advance tax ruling.