February 2019 / Switzerland

On 1 February 2019, the Federal Tax Administration published circulars announcing the safe haven interest rates applicable to shareholder and related party loans.

Circular of 31 January 2019: loans denominated in CHF

The minimum interest rates for loans in CHF granted to shareholders or related parties are:

• on loans financed through equity: 0.25%; and
• on loans financed through debt: the interest incurred (prime costs) plus 0.5% on amounts up to CHF 10 million, or plus 0.25% on amounts exceeding CHF 10 million; in all cases, however, the percentage involved is at least 0.25%.

Conversely, the maximum interest rates payable for loans in CHF granted by shareholders or related parties are:

• on real estate loans: 1.0% to 2.25% (depending on loan type and level of debt financing); and
• operational loans received by a Swiss trading or production company: 3.0% for loans up to CHF 1 million and 1.0% on the excess; by a Swiss holding or administration company: 2.5% for loans up to CHF 1 million and 0.75% on the excess.

Circular of 1 February 2019: loans denominated in foreign currencies

For loans in foreign currencies (e.g. EUR and USD) granted to shareholders or related parties, the minimum interest rates are:

• on loans financed through equity: EUR: 0.75%, USD: 3.0%; in all cases, however, at least the safe haven interest rate for loans denominated in CHF, i.e. 0.25%, applies; and
• loans financed through debt: the interest incurred (prime costs) plus 0.5%; in all cases, however, at least 0.75% for loans denominated in EUR, or 3.0% for loans in USD.

These safe haven interest rates are also applicable to loans in EUR and USD received from shareholders or related parties. However, higher interest rates based on the arm's length principle can be paid if they are justified by a business purpose.