Swiss tax treatment of cryptocurrencies and tokens in the context of ICO/ITO

(This article is not exhaustive. For more information, you can consult the Federal Tax Administration’s working document dated December 14, 2021.)

As a preamble, it should be noted that the tax treatment of business assets and returns on business assets differs from the tax treatment of private assets. To determine whether or not the management of your cryptocurrencies can constitute income from a self-employed activity, we refer you to FTA Circular No. 36 “Professional Trading in Securities” dated July 27, 2012, and we remain at your disposal for further information.

Tax Treatment of Cryptocurrencies Held as Private Assets (Payment Tokens as Digital Means of Payment)

It should be noted that holding cryptocurrencies is not incompatible with the tax status of taxation based on expenditure. If this status is obtained, only income and assets from Swiss sources must be declared. Foreign income and assets may, but do not need to, be declared and are therefore not taxable. You are, however, subject to a minimum tax calculated based on your regular expenses. We remain at your disposal to advise you.

Wealth Tax

Payment tokens are treated as movable assets, subject to cantonal wealth tax. They must be declared at their market value as of December 31 of the year in question. If there is no valuable price, they are declared at their initial purchase price converted into CHF. For information purposes, the maximum wealth tax in Valais, excluding the potential application of the tax shield that would reduce the tax, is 0.69% rounded up. This tax is applied to net taxable assets of approximately CHF 2,000,000.

Income Tax

For information purposes, the maximum income tax in Valais is 38.5%. This tax is applied to net taxable income of approximately CHF 750,000.

Staking income is generally taxed as income from movable assets if the staking is carried out through a staking pool. Otherwise, it can be considered income from independent gainful employment, subject not only to income tax but also to the payment of OASI/AI/APG contributions of 10.6%.

Compensation paid in payment tokens for mining is taxable remuneration if it is a gainful activity.

Airdrops are taxed as income from movable assets.

Other income received in payment tokens is taxable depending on its classification: a salary paid in cryptocurrency is taxable as income from a professional activity, rent paid in cryptocurrency is taxable as income from real estate assets.

Capital gains of all kinds, including profits from the sale of tokens, are not subject to income tax if they are private assets.

Expenses directly related to the generation of taxable income are deductible, except for those paid for the acquisition or sale. Payment tokens are not subject to Swiss withholding tax (withholding tax).

Payment tokens are not subject to stamp duty on issuance or trading.

Tax Treatment of NFTs

Tax Treatment of Investment Tokens Issued as Part of an ICO/ITO

The tax treatment of investment tokens depends on the nature of the relationship between the investor and the issuer. They are classified into the following categories :

Foreign Equity Tokens (similar to investment debt, treated for tax purposes like bonds)

The funds raised are not considered taxable income. If the issuer pays interest to the investor, this is a deductible expense for the issuer and a return on assets for the investor. The issuer reports the value of the funds on the liabilities side of the balance sheet, as debt. The investment is added to the investor’s taxable assets.

If a salary is paid in the form of foreign capital tokens, this payment is taxed as salary.

Interest paid periodically or as a one-time payment is subject to a 35% withholding tax, which may be fully, partially, or non-recoverable depending on the investor’s domicile.

The issuance of foreign equity tokens is not subject to trading duty.

Trading in foreign equity tokens is generally subject to trading stamp duty.

Contract-based investment tokens (no obligation to repay the investment, but compensation is provided based on a proportional share of income or profit (EBIT, licensing income, turnover, profit, etc., treated for tax purposes as derivative financial instruments).

The funds raised from the issuance of contract-based investment tokens are taxable income for the issuer. Financial services paid to the investor are, in principle, deductible expenses, provided that the beneficiaries of the services can be proven at the time of the income payments. Another accounting alternative may be accepted. We will not detail it here. The investment is added to the investor’s taxable assets, and the payments received by the investor are taxable income from movable assets.

The tax treatment of tokens issued to employees is reserved.

Investment tokens are not subject to Swiss withholding tax (withholding tax).

Investment tokens are not subject to stamp duty on issuance or trading, unless they relate to taxable documents within the meaning of the Tax Act.

Investment tokens with participation rights (equivalent to participation rights, such as a stake in the issuing company’s share capital, treated for tax purposes as a capital contribution)

The funds raised are not considered taxable profits. Income from investment tokens with participation rights is not a deductible expense for the issuer. It constitutes a return on assets that is taxable under income tax with an allowance. For your information, provided that the income is private wealth and the investor holds at least 10% of the participation rights, this income benefits from a 40% municipal and cantonal tax allowance in Valais and a 30% allowance at the federal level. Within the issuing company, this capital is taxable. The investor declares the value of these participation rights subject to wealth tax.

The tax treatment of tokens issued to employees is reserved.

Income from investment tokens with participation rights is subject to withholding tax of 35%, which may be fully, partially, or non-recoverable depending on the investor’s domicile.

The issuance of investment tokens with participation rights is subject to a 1% issuance stamp duty on the value exceeding CHF 1,000,000.

The trading of investment tokens with participation rights may be subject to trading stamp duty.

Utility tokens (treated for tax purposes as a mandate report)

Utility tokens grant the right to use digital services but do not incorporate any rights appreciable in cash.

Funds raised through the issuance of utility tokens constitute taxable income for the issuer. Another accounting alternative may be accepted. We will not detail it here. The investment is added to the investor’s taxable assets.

Capital gains of any kind, including profits from the sale of utility tokens, are not subject to income tax if they are private assets.

The tax treatment of tokens issued to employees is reserved.

Utility tokens are not subject to Swiss withholding tax (withholding tax).

Utility tokens are not subject to stamp duty on issuance or trading.