Should Swiss financial institutions take part in the EU FASTER Directive?

<article class="rz"><h2>1. The Benefits of FASTER</h2> <p>Investors, and in particular non-institutional ones such as small businesses and individuals, often do not claim reduced withholding tax (WHT) rates on their investment income. The reasons are well-known and include complex procedures (still largely paper-based), cost of professional advice and lengthy processing times. The current withholding tax rate applicable to dividends and interest are shown in Table 1 for key European Union (EU) Member States.</p> <p>Table 1: Standard gross withholding tax (WHT) rates on cross‑border portfolio income in the 10 biggest EU countries ranked by market capitalization.<a title="" href="#_ftn1" name="_ftnref1">⁰¹</a></p> <p><img src="https://images.ctfassets.net/bgpaxzxi3eyz/6xWqkm1rJZnclit1pxvier/f4b1dcef9b154e32913c98793829632f/2026_Grafik_A2_1.svg" alt="Table with Dividend WHT Rate and Interest WHT Rate per Country" width="500" height="443" /></p> <p>The European Commission estimates that on average over EUR 6 billion of potential withholding tax refunds are foregone by cross-border investors holding shares and bonds of EU companies and governments.<a title="" href="#_ftn3" name="_ftnref3">⁰³</a> To tackle this well-known issue, the EU adopted the <a href="https://eur-lex.europa.eu/eli/dir/2025/50/oj/eng">COUNCIL DIRECTIVE (EU) 2025/50 of 10 December 2024 on Faster and Safer Relief of Excess Withholding Taxes</a> (&ldquo;FASTER Directive&rdquo; or &ldquo;FASTER&rdquo;)<a title="" href="#_ftn4" name="_ftnref4">⁰⁴</a>. The key goal of FASTER is to reduce double taxation on cross-border investments into EU Member States by making the withholding tax relief procedure more efficient for non-resident investors, whilst safeguarding the interests of national tax authorities. These objectives are pursued through three pillars: (i) the Fast-Track Procedures (relief at source and quick refund), (ii) the electronic Tax Residency Certificate (eTRC), and (iii) standardised reporting by financial institutions.</p> <h3>1.1 Fast-Track Relief Procedures</h3> <p>The Directive introduces two &ldquo;fast-track&rdquo; relief procedures complementing the existing national refund processes. There will be a &ldquo;relief at source&rdquo; and a &ldquo;quick refund&rdquo; procedure, which will make the relief process quicker and more harmonized across the EU.</p> <p>Under the relief at source system, registered financial institutions will provide details about their investors, including name and applicable reduced withholding tax rate, to the upstream withholding agent. Investors will thus benefit from the reduced treaty rate directly upon payment of the income.<a title="" href="#_ftn5" name="_ftnref5">⁰⁵</a> Under the quick refund procedure, registered financial institutions will be enabled to file a collective refund claim with the source state tax authorities. The refund claim must include details about each investor as well as a certain number of supporting documents, including the investor&rsquo;s tax residency certificate.</p> <p>To benefit from the quick refund procedure, financial institutions must file the claim within two months after the month of payment of the income and tax authorities are given a deadline of 60 days to proceed with the refund or reject the claim. In case the refund takes longer than the specified 60 days, interest has to be credited in favor of the investor.<a title="" href="#_ftn6" name="_ftnref6">⁰⁶</a> Member States must implement at least one of the two fast-track procedures unless they qualify for the carve-out for comprehensive relief-at-source systems and have a market capitalisation ratio below 1.5%.<a title="" href="#_ftn7" name="_ftnref7">⁰⁷</a></p> <h3>1.2 Electronic Tax Residency Certificate</h3> <p>Member States must provide an automated process to issue a common EU digital tax residency certificate (eTRC) to taxpayers resident in their jurisdiction.<a title="" href="#_ftn8" name="_ftnref8">⁰⁸</a> Both natural persons and entities tax resident in the EU will be able to request such eTRC.<a title="" href="#_ftn9" name="_ftnref9">⁰⁹</a> Tax authorities will have 14 calendar days to issue the certificate. The eTRC validity will, however, be limited to a particular calendar or tax year.<a title="" href="#_ftn10" name="_ftnref10">¹⁰</a> Investors will therefore have to request this document on an annual basis.</p> <p>For non-EU residents, equivalent proof of tax residence may be accepted by the source Member State; for entities that are fiscally disregarded, alternative documentation may be required.<a title="" href="#_ftn11" name="_ftnref11">¹¹</a> The technical requirements of the eTRC are provided in an appendix to the Directive and will not be further detailed here.</p> <h3>1.3 Standardised Reporting</h3> <p>To make it easier for national tax authorities to detect potential fraud or abuses, the Directive introduces a standardised reporting obligation for financial intermediaries taking advantage of the relief procedures. While investors will certainly appreciate the relief at source and quicker refunds, these procedures come with heavy reporting obligations for financial institutions. For each and every dividend and interest payment, financial institutions will have to provide a report in XML format to the tax authorities of the Member State where they are registered.<a title="" href="#_ftn12" name="_ftnref12">¹²</a> The report has to be filed within two months after the month of the income payment date and has to contain details about each investor, identification of the payor (which will allow tax authorities to trace the full payment chain), information about the income paid, and the application of anti-abuse provisions (more on this below).<a title="" href="#_ftn13" name="_ftnref13">¹³</a> Especially during the dividend payment season, which concentrates around the 2nd quarter of the year for European companies, financial institutions will therefore face a substantial reporting workload. Member States may furthermore require transaction histories for one year before the record date up to 45 days after, and additional depositary receipt details.<a title="" href="#_ftn14" name="_ftnref14">¹⁴</a></p> <h2>2. Obligations Placed upon EU Financial Institutions</h2> <h3>2.1 Registration</h3> <p>Member States will have to establish national registers where financial intermediaries can register to be certified. Member States qualifying for the carve-out (comprehensive relief at source and market capitalisation ratio &lt; 1.5%) are not required to maintain a national register.<a title="" href="#_ftn15" name="_ftnref15">¹⁵</a></p> <p>To simplify registration, the Commission will create a &ldquo;European Certified Financial Intermediary Portal&rdquo;. The Portal is a single entry point to submit registration requests and to access national registers; Member States remain solely responsible for registration decisions.<a title="" href="#_ftn16" name="_ftnref16">¹⁶</a> Nonetheless, an enrolment will be required in the national register of every Member State from which the financial institution receives payments subject to withholding tax. The registration will be compulsory for &ldquo;large financial institutions&rdquo; as defined in the Capital Requirements Directive<a title="" href="#_ftn17" name="_ftnref17">¹⁷</a>, and central securities depositary institutions acting as withholding agent for securities issued in their jurisdiction.<a title="" href="#_ftn18" name="_ftnref18">¹⁸</a> For other EU-based financial institutions, the registration is optional.</p> <p>Once registered, &ldquo;certified financial intermediaries&rdquo; will have access to the Directive&rsquo;s relief procedures in the Member States where registered. In exchange of this benefit, those financial institutions shoulder two key sets of obligations: perform due diligence on their investors to determine which ones can access the quick relief processes and report a given set of information to the relevant tax authorities.</p> <h3>2.2 Due Diligence</h3> <p>Financial institutions have first to identify the &ldquo;registered owner<a title="" href="#_ftn19" name="_ftnref19">¹⁹</a>&rdquo; of the securities, i.e. the person or entity entitled to receive the dividend or interest at the payment record date and that is not another intermediary. The registered owner also has certain duties which include (a) providing an authorisation to request relief, (b) confirming beneficial ownership and entitlement to a reduced treaty rate and (c) providing the eTRC previously received from the national tax authorities.<a title="" href="#_ftn20" name="_ftnref20">²⁰</a> The financial institutions have then to validate these documents (amongst others against the know-your-customer information held on file), ensure that there is no open &ldquo;financial arrangement&rdquo; that could be considered as abusive<a title="" href="#_ftn21" name="_ftnref21">²¹</a> on the concerned securities and ensure that, for dividend payments, the shares have not been acquired within the 5 days prior to the ex-dividend date<a title="" href="#_ftn22" name="_ftnref22">²²</a>. The fast‑track procedures apply to non‑residents; domestic recipients remain outside the FASTER fast-track scope but can still be covered by national systems. Member States can further narrow the access to the relief procedure based on the list of causes listed in Art. 11(2) of the FASTER Directive, which will inevitably create differences between Member States.</p> <h3>2.3 Reporting</h3> <p>As already indicated, the reporting obligations resting on the participating financial institutions will be extremely burdensome, requiring separate filings for each dividend or interest distribution to which one of the fast-track procedures is applied, and all within 60 days following the month of the payment date. The data points that need to be provided &ndash; in a standardized XML file &ndash; are listed in appendix II of the Directive and include, amongst others, the identification of each registered owner (for the financial institutions&rsquo; own clients/investors) as well as payments that have been transferred to other certified financial intermediaries.<a title="" href="#_ftn23" name="_ftnref23">²³</a> Tax authorities will therefore get full transparency on the payment chain until the ultimate recipient. Where a non‑certified intermediary appears in the chain, a participating financial institution may &lsquo;step into&rsquo; that position and assume reporting and relief responsibilities by agreement; otherwise, the fast‑track relief can be excluded.<a title="" href="#_ftn24" name="_ftnref24">²⁴</a> In our view, despite the burden of the reporting process, the digitalisation of the tax residence certificate and the standardisation of reporting obligations and refund requests would allow financial intermediaries to largely automate their processes given some initial investments are apportioned.</p> <p>The logic of FASTER is illustrated in the enclosed Chart 1.</p> <p><img src="https://images.ctfassets.net/bgpaxzxi3eyz/QrhIER9r2VxttHLyKrr7x/549ab3621c8e28f4f9a62622b4559935/2026_Grafik_A2_2.svg" alt="Overview of the FASTER process as a flow chart" width="500" height="617" /></p> <h2>3. Can Swiss Financial Institutions Join FASTER?</h2> <p>The answer is yes, as the Directive opens the possibility for non-EU financial institutions to join the system<a title="" href="#_ftn25" name="_ftnref25">²⁵</a>. The registration will be possible if (i) the non-EU country where the entity is tax resident does not appear on the EU list of non-cooperative jurisdictions<a title="" href="#_ftn26" name="_ftnref26">²⁶</a>, (ii) the entity is licensed to provide its services under local legislation that is deemed equivalent to EU regulations<a title="" href="#_ftn27" name="_ftnref27">²⁷</a>, and (iii) the entity is subject to anti-money laundering (AML) rules comparable to the EU ones<a title="" href="#_ftn28" name="_ftnref28">²⁸</a>. For Swiss-based banks, these conditions should clearly be fulfilled in our opinion, given Switzerland has equivalent legislation &ndash; albeit the eventual assessment will be in the hands of each Member State in which the bank seeks registration.</p> <p>An additional point to note is that, for financial institutions resident for tax purposes in a non-EU jurisdiction, where there is no convention that provides assistance in the collection of (withholding) taxes, the Member State to which the registration request has been submitted may require sufficient and proportionate financial guarantees to ensure the recovery of any withholding tax that may have been improperly reduced or refunded<a title="" href="#_ftn29" name="_ftnref29">²⁹</a>. While Switzerland has such an agreement in place with the EU relating to VAT fraud<a title="" href="#_ftn30" name="_ftnref30">³⁰</a>, the agreement does not apply to withholding taxes. Swiss banks could therefore be faced with such demands.</p> <p>For non-EU resident investors, including Swiss residents, that will logically not have access to the eTRC created by the Directive, other formats of tax residency certificate can be accepted<a title="" href="#_ftn31" name="_ftnref31">³¹</a>, but it is likely that those will still be on paper for the time being. Swiss banks that have an important Swiss and non-EU client base will therefore not escape the handling of multiple formats of residency certificates.</p> <p>Swiss-based banks, and possibly other Swiss regulated financial institutions, will therefore be able to offer faster withholding tax refunds, or even relief at source, to their clients investing in publicly traded EU shares and bonds. In the same way as EU based financial intermediaries, these benefits come, however, with a price tag in the form of (often: multiple) registration(s), collection of additional documents from clients and implementation of new IT processes allowing to comply with the complex reporting obligations. A careful cost-benefit analysis will therefore be required by each institution before deciding whether to join the FASTER mechanism.</p> <h2>4. Impacts on Existing Tax Reclaim Services Offered by Swiss Banks</h2> <h3>4.1 Current Tax Reclaim Process</h3> <p>Banks offering a tax reclaim service will typically complete the withholding tax refund forms for their clients that have subscribed to this service. Many banks also rely on specialist third‑party providers (e.g., tax reclaim agents or outsourcing firms) to prepare the forms. In the process, all the credit advice showing the withholding tax levied on the dividends and interest paid to that client need to be extracted and attached to the claim. The tax refund forms, together with all supporting documents, will then be mailed to the tax authorities of the client&rsquo;s jurisdiction of tax residency for validation (usually by stamping the forms), before going to the country of source of the income to proceed with the refund. In most countries, the process is still entirely paper-based, and the bank has therefore to prepare as many request packs as they have clients, multiplied by the number of source countries where withholding tax is applied.</p> <h3>4.2 How FASTER Changes the Game (and how not)</h3> <p>FASTER aims to automate and speed-up the withholding tax relief process by introducing a &ldquo;relief at source&rdquo; and a &ldquo;quick refund&rdquo; procedure relying on electronic filings. A key component to move the process online is additionally the introduction of the electronic tax residency certificate or eTRC for EU resident investors. It is important to remind, however, that the process is limited to withholding taxes levied on dividends and interest by EU Member States (see table for withholding rates applied by major markets), on publicly traded securities and only when the income is paid to cross-border investors.</p> <p>Although FASTER aims to automate the relief process, a certain number of requirements are placed on the participating financial institutions that are incompatible with this goal. Whether collecting eTRCs (for EU investors) or paper tax residency certificates (for non-EU investors), banks will have to perform extended due diligence checks before any relief can be granted, namely<a title="" href="#_ftn32" name="_ftnref32">³²</a>: (a) obtain a declaration from the investor that she/he is entitled to double tax treaty benefits (including the legal basis and the applicable withholding tax rate); (b) if required by the source Member State, confirm that the investor is the beneficial owner of the dividend or interest in accordance with the national rules of the source Member State or the applicable double tax treaty; and (c) ensure that the security holding is not part of a financial arrangement that has not been settled, expired or otherwise terminated before the ex-dividend date. These requirements have been criticized because they break the possibility to fully automate the process and rely on concepts that are either not clearly defined or are differently construed across Member States. Participating banks will however have to define processes that allow them to comply with those requirements.</p> <h3>4.3 Go with FASTER or Stick with Traditional Tax Reclaim?</h3> <p>For banks, the answer to this question will very much depend on the nature of their clients: Institutional investors, such as corporations, pension funds and collective investment vehicles will certainly require benefitting from the FASTER procedures, as for such investors the amounts of withholding tax to recover are material. The possibility for a fast refund &ndash; or even better: a relief at source &ndash; represents a key advantage as the cash from the tax relief can be re-invested immediately. For tax exempt investors, such as pension funds or collective investment funds, it has nonetheless to be checked whether they have access to the treaty network of their country of registration. For example, Swiss based investment funds only have access to a very small number of double tax treaties with EU countries. FASTER does not create any new benefits in terms of reduced withholding tax rate; the basis remains the existing tax treaty network and entities that do not qualify for treaty benefits under those cannot be given access to the FASTER mechanisms.</p> <p>For retail clients, either private individuals or small businesses, the amounts to recover usually tend to be small. While such clients are certainly also eager to benefit from a quicker refund procedure, the question is rather for the bank whether the gain is worth the investments required by FASTER when compared to existing reclaim services.</p> <p>For banks deciding to join FASTER, an additional question will be whether to keep their existing tax reclaim services, among other reasons to recover withholding taxes in markets outside the EU. While for certain banks the answer will clearly be positive, other banks may lack the minimum volume to justify keeping such service. For the latter, outsourcing their tax reclaim service could be an alternative. A final point is that the Directive does not prohibit banks to charge their clients for the relief process under FASTER. Therefore, banks currently charging for their reclaim services could continue to do so.</p> <p>Given that the participation in FASTER is optional for Swiss banks, they will have to assess whether the costs of joining the Directive&rsquo;s new relief mechanisms is worth the benefits that their clients will get and &ndash; incidentally &ndash; the fees they may charge for this service. If joining, banks will also have to re-assess the remaining value of their existing tax reclaim services and decide whether to keep this offering, end it or maybe look for an outsourcing solution.</p> <h2>5. Time to Reform the Swiss Withholding Tax Refund Procedure</h2> <p>After looking at consequences for Swiss based financial institutions, we would like to conclude this article by taking a broader view and examine how FASTER accentuates the shortcomings of the Swiss withholding tax refund procedure.</p> <h3>5.1 Swiss Withholding Tax Refund Process</h3> <p>Swiss withholding tax applies at the rate of 35% on dividends paid by corporations resident in Switzerland, income from Swiss investment funds, as well as interest on bonds issued by Swiss resident debtors or paid by Swiss banks on their client accounts.<a title="" href="#_ftn33" name="_ftnref33">³³</a> With 35%, the rate of the Swiss withholding tax is among the highest in the world. In addition, excess withholding tax can only be claimed through a refund process (besides very limited exceptions)<a title="" href="#_ftn34" name="_ftnref34">³⁴</a>. In particular for investors resident outside Switzerland the process is burdensome, paper-based (with the current exception of Germany) and time-consuming. By law, refund claims can only be filed in the calendar year following the year in which the dividend or interest subject to Swiss withholding tax was paid<a title="" href="#_ftn35" name="_ftnref35">³⁵</a> &ndash; therefore coming with an important opportunity cost in terms of cash flows.</p> <h3>5.2 Will FASTER Foster Changes in the Swiss Refund Procedure for Foreign Investors?</h3> <p>Swiss tax authorities are perfectly conscious that the existing, paper-based, refund process is no longer adequate and have been working to move the procedure online. Nonetheless, as of today, only German residents have access to an online refund process for the Swiss withholding tax.<a title="" href="#_ftn36" name="_ftnref36">³⁶</a> While the target should remain to extend this facility to other countries, progresses have been slow so far as electronic transmission channels need to be agreed and established for each bilateral relationship. However, even if the electronic refund process is extended to more countries, we will still be far away from the FASTER standard. Amongst others, under Swiss legislation, foreign investors can file a refund request only after the calendar year &ndash; thus far from the maximum 2 months given to EU Member States under the FASTER Directive. An acceleration of the process in Switzerland would nevertheless require a legislative change, which is obviously beyond the remit of the sole tax authorities.</p> <p>Maybe an area where progress could be easier is the issuance of a Swiss eTRC. Currently, many Cantons offer to request a tax residency certificate online, but the document still comes in the mail. The fact that the EU now adopts a common standard, could certainly animate Cantons to introduce a similar facility. This would also help Swiss banks participating in FASTER process refunds for their Swiss resident clients in a more efficient manner.</p> <p>FASTER introduces innovative processes to accelerate the refund of withholding taxes to foreign investors, including by imposing strict constraints to EU tax authorities such as the obligation to issue eTRC within 14 days and process refunds within 2 months after receiving the request, or pay late-interest otherwise. After the go-live of FASTER, the Swiss withholding tax refund process will be even less attractive as it is today. To avoid that foreign investors get round the Swiss market for that reason, Swiss tax authorities (and lawmakers!) need to improve the process. Maybe some of the technical standards that will be established by the EU to implement FASTER could be leveraged within Switzerland.</p> <h2>6. Concluding Words</h2> <p>FASTER goes live on 1 January 2030. While it seems still far away, Swiss financial intermediaries interested in joining should start looking into the implications now given the complexity of the rules and the time necessary for their implementation.</p></article>