Widespread adoption of cryptocurrencies and the increasing economic importance of digital assets increases the need to understand their respective tax implications. In Switzerland taxation of cryptocurrencies is usually based on existing tax laws. The Federal Tax Administration (FTA) has detailed its practice in a recently updated working paper.

Expanding on our previous blog post, this article provides a more in-depth analysis of withholding tax and stamp duty regulations regarding digital assets in Switzerland.

The SFTA recently published an updated working paper tax treatment of diverse cryptocurrency activities. In this blog we focus on withholding tax and stamp duty considerations: i.e. Swiss capital issuance tax and Swiss securities transfer tax, for both the issuer as well as the beneficial owner.

Withholding tax

In Switzerland a withholding tax of 35% is levied on profit distributions from corporate bodies as well as on certain interest payments (e.g. on interest payments in connection with bonds or on balances from bank accounts). Depending on the tax residence of the beneficial owner, a (partial or full) refund may be obtained to reduce this tax burden.

Stamp duty

Swiss capital issuance tax of 1% is levied when a company raises equity by issuing new equity rights; this can be particularly relevant when issuing investment tokens.  Swiss securities transfer tax is levied when trading with securities, such as equity rights or bonds, via a Swiss bank or any other qualifying securities dealer. The rate amounts to 0.15% on domestic securities and 0.3% on foreign securities.

Assessment per token category

In cryptocurrencies the exact tax treatment depends on the legal qualification of the token. We have summarised the taxes levied on various tokens in the overview provided below:

Payment token

Payment tokens, such as Bitcoin, are treated similarly to foreign currencies for tax purposes. This means that income earned whilst holding such tokens (e.g. by way of staking or via airdrops) is generally not subject to withholding tax. In addition, the issuance of such tokens should not be subject to Swiss capital issuance tax and trading such tokens is not subject to Swiss securities transfer tax.

Asset tokens

Debt Tokens

Creating a debt token does not incur capital issuance tax. However, withholding tax may apply to the interest payments associated with debt tokens. Furthermore, the securities transfer tax may be imposed when trading debt tokens on the secondary market.

Asset Tokens on a contractual basis

Issuing an asset token based on a contractual agreement is exempt from capital issuance tax. However, in certain cases the withholding tax may be levied based on the requalification of payments to the token holder as a hidden dividend distribution.  The SFTA is applying a “threshold-practice” (“Schwellenwert-Praxis”): withholding tax will be triggered if one or both of the following thresholds are met:

1. the shareholders of the issuer (along with related parties), own 50% or more of the tokens, or
2. the payments to token holders exceed 50% of the company's EBIT.

It is important to note that trading these tokens does not trigger any Swiss securities transfer tax.

Asset Tokens with participation rights

Capital issuance tax is applicable when issuing an asset token with participation rights. Additionally, any payment received when holding such a token is subject to withholding tax. Swiss securities transfer tax is triggered if a qualified securities’ dealer is involved in a trade with such tokens.

Utility tokens

Utility tokens establish a contractual relationship with no right to repayment of the investment i.e., provide for the receipt of a service rather than a monetary payment. Since no monetary profit is received, no withholding tax is triggered. Capital issuance tax is not applicable when issuing such a token. Trading utility tokens does not trigger Swiss securities transfer tax.

Conclusion

As already stated in our previous blog, each case is different. The biggest challenge lies in identifying the correct classification and evaluation of the tokens. Consequently, it is crucial for issuers and investors to perform a detailed case by case analysis to correctly classify the respective token and familiarise themselves with the relevant tax regulations in order to fully understand the tax implications of their investment decisions.

Your Deloitte Corporate and Financial Services tax team will be happy to support you. We are at your disposal for any questions you may have. Please reach out to your trusted CT and FSI Tax team member, who will be happy to help.

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