Crypto tax in Switzerland: How do I correctly (not) pay tax on my cryptocurrencies?
In 2021, investors relished rapidly rising Bitcoin prices. Then, in 2022, the value sank steeply—for many, that was right after they had filed their tax declaration. Is your liquidity buffer enough to cover the taxes which are due? © Getty Images
A pocket guide for those who are looking for crypto tax advice
Over the last few years, trading in cryptocurrencies has become increasingly popular. That gives rise to the question which many investors are currently asking themselves: how will their crypto assets actually be taxed? Find out more in our summary.
Since the subject is still in its infancy, regulatory terms and conditions, as well as related legal practice, still need to become established. Estimates and appraisals by authorities and courts may, therefore, change over the next few years. A good overview of the currrent situation can be gained by reading Arbeitspapier der eidgenössischen Steuerverwaltung. (Not available in English).
How tax should be paid on cryptos
For assets and profit made with cryptocurrencies, there are a range of taxes due. The following is an overview of the most important ones:
1. Wealth taxes on cryptocurrencies
Experts agree: cryptocurrencies are considered as being wealth and must be taxed. Wealth tax rates are governed by a course list which is issued at the end of each year by the Federal Tax Administration. As a rule, the values are averages. If no current course is available, the cryptocurrency should be declared at the original purchase price, in Swiss Francs.
Why “classic” liquidity is a good idea
In 2021, many investors were enjoying steeply rising Bitcoin prices. In Q2 2022, prices took a rapid downturn. This demonstrates why a liquidity buffer is important in the case of cryptocurrencies. In this way, it is not necessary to sell off crypto holdings if you get a high tax bill. Because—in a worst case scenario—that will happen exactly when prices are low. A cash reserve reduces that risk.
2. No capital gains taxes on cryptocurrencies
From an investor viewpoint, the most important question is: are capital gains taxes due on my cryptocurrency holdings? In short: no. In Switzerland, private investors do not pay capital gains tax. In complete contrast to practice in our neighbor states.
However, it may be that the tax authorities classify you as being a commercial crypto trader. This based on so-called “safe haven criteria” as for commercial securities traders.
Since classic investments such as equities and bonds differ significantly from cryptocurrencies in a number of ways, current discussion focuses on whether classification as a commercial securities trader should be adopted as is. Claude Frosio, Head Tax Consulting at Vontobel, presents his assessment.
The five “safe haven” criteria:
- Transaction volumes should not exceed a maximum of five-times the starting capital
- The holding period must be longer than six months
- Third-party financing should be kept at the lowest possible level
- Capital gains make up less than half all taxable income
- Derivates should be used for hedging purposes only
If you fulfil all these conditions, you are not trading on a commercial basis. But that is difficult in the case of cryptocurrencies: many investors tend to realize capital gains due to the high levels of volatility involved and often hold their positions for less than six months.
The good news is: if you do not fulfil all the aforementioned points, you are not automatically classified as a commercial securities trader. More often than not, the tax authorities will investigate your case individually. Experience shows that they are usually restrained in their assessments.
What consequences can commercial traders expect?
If you are classified as a commercial crypto trader, your capital gains are subject to progressive income tax and you will pay a contribution amounting to around 10 percent of your profit to the old-age and survivors insurance. On the other hand, losses can be carried forward over the following seven tax periods. This status will automatically be transferred to your heirs.
What is not quite clear is whether the status of “commercial crypto trader” also means that you are classified as “commercial securities trader”. Up to now, the authorities have distinguished between the commercial nature of various asset classes. For example, someone could be a commercial real estate trader without automatically being a commercial securities trader. We assume that the same principle will apply for cryptocurrencies.
3. Yields from mining, staking & co.
In addition to price gains, as an investor, you can generate a range of different types of yield from cryptocurrencies – these are comparable to interest or dividends on classic investments. Here is more detail on how these are treated from a tax viewpoint:
Active mining is considered as self-employment. This also applies to so-called “proof of work” currencies such as Bitcoin. Old-age and survivors insurance contributions are due, but you may deduct expenditure such as electricity consumption.
In the case of “proof of stake” currencies such as Ethereum, you may receive staking income. Since a lower level of active management is required than for mining, you will be classified differently from a tax viewpoint. You must pay tax in accordance with the interest on your account.
Liquidity mining generates another form of income. Trading platforms must provide liquidity. This capital can be generated by users depositing funds but waiving their use for a certain amount of time. They receive compensation for doing so, which is deemed taxable income, comparable with interest. The principle for Airdrops is similar. This refers to crypto assets which are received without any personal effort having been made in their acquisition.
Are you seeking tax advice in connection with your crypto assets?
For all those who trade with cryptocurrencies, Switzerland is attractive from a tax viewpoint. Currently, many private investors do not fulfil the requirements for commercial trading. If you have questions in connection with the legal status or your personal situation, please contact us. We would be pleased to give you an initial evaluation—with no obligations.
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