Cryptocurrencies for companies

The four classifications of cryptocurrencies established by the FTA are considered for both individual tax purposes and corporate tax purposes.

This section will examine the tax treatment of cryptocurrency tokens when held and/or traded by a company/individual professional trader, and when issued by a company following an ICO/ITO.

The four classifications of cryptocurrencies established by the FTA are considered for both individual tax purposes and corporate tax purposes.

This section will examine the tax treatment of cryptocurrency tokens when held and/or traded by a company/individual professional trader, and when issued by a company following an ICO/ITO.

Tax treatment of tokens held by a company or an individual professional trader

Cryptocurrency tokens must be reported in the balance sheet as an asset, typically as a security. If the trading of said tokens is a substantial part of the company’s operating activity, classifying tokens as inventory may also be appropriate.

As mentioned before, an individual’s trading may still be considered a professional activity if certain criteria are met. For such taxpayers, please refer to the related section in that respect above. The below section is only related to companies.

Authorizations

It is worth mentioning that trading cryptocurrencies may be subject to a license issued by the Swiss Financial Market Supervisory Authority (FINMA). This will generally be the case if the company trades high volumes of cryptocurrency and has numerous clients. The type of license that needs to be obtained will depend on the kind of cryptocurrency being traded (whether it is considered a security by FINMA, for example).

Getting these licenses has been quite difficult in the past, as the requirements are rather strict. However, Switzerland is taking measures to lower the threshold of authorization to trade cryptocurrencies. Since August 2021, a legal reform has been in place enforced allowing for a new license for Distributed Ledger Technology (DLT) securities trading. This license is more lenient than the traditional trading licenses as companies under it are allowed to grant access to private individuals directly and can provide custody, clearing, and settlement services without the need for a separate license. As the blockchain is also a DLT, this effectively allows for companies and people to get authorized to trade DLT assets, including cryptocurrency, with a lower barrier to entry.

At the same time, the anti-money laundering legislation was reviewed to include DLT trading facilities. Under the reviewed law, if a DLT trading platform meets the condition of being a financial intermediary, it is subject to a number of obligations including, among others, the need to verify the identity of its customers and their assets. A DLT trader is considered to be a financial intermediary only if the trading services are provided in the context of a permanent business relationship.

Income tax

Companies or individuals who trade cryptocurrency as an independent gainful activity are subject to Swiss corporate income tax on any net earnings from the sale of cryptocurrencies.

It is important to note that in a corporate context, all gains (including capital gains) are taxable. However, any losses, including a loss in value, can instead be deducted, unlike for cryptocurrency held in private wealth.

Capital tax

Cryptocurrency tokens held by a company, thus an asset for the latter, is not subject to the capital tax.by "in liquidation".

Stamp duty

Trading certain tokens could be subject to the transfer stamp tax. This is notably the case for foreign capital tokens and asset-backed tokens with voting rights. The tax consequences should be further analyzed on a case-by-case basis.

Value-added tax (VAT)

For the purposes of VAT, cryptocurrency tokens are treated the same way as regular currencies. Therefore, all transactions with cryptocurrency are exempt from VAT.

Tax treatment of tokens issued following an ICO/ITO

Instead of trading and holding existing cryptocurrency tokens, some companies might decide to create their own. This is typically done via a fundraising round (ICO/ITO), after which the issuer creates and distributes new tokens to investors.

Authorizations

Following significant domestic interest, the FINMA drafted guidelines regarding the applicable regulatory framework for ICOs back in 2018. In short, financial regulations are not blanketly applicable to any and all ICOs, and their applicability must be decided on a case-by-case basis. The main considerations are the intended purpose of the tokens and their tradability/transferability.

Generally speaking, FINMA considers asset-backed tokens as securities. Utility tokens are also considered to be securities unless their singular goal is to give access to a service and that they can already be used in this way when issued. This means that issuing these tokens is subject to the same legislation of other securities.

On the other hand, native tokens are not considered to be securities, however, anti-money laundering legislation remains applicable

Income tax

The tax treatment of the funds raised during an ICO/ITO will depend on the kind of token being issued. Funds raised for foreign capital tokens or asset-backed tokens with voting rights will not be taxed as income but rather as capital. Interests paid out to holders of foreign capital tokens will also be deductible as commercial expenses.

On the other hand, funds raised for an ICO/ITO for contractual basis asset-backed tokens and utility tokens are generally taxable as income. For the former, payments made based on the contractual obligations are deductible as commercial expenses.

Capital tax

Only the issuance of asset-backed tokens with voting rights should be subject to the capital tax at the level of the company. Note that some Cantons apply the income tax credit on capital tax.

Withholding tax

Assuming certain thresholds are met, the issuer of a foreign capital token is obliged to withhold tax on interest paid out (if any). Similarly, the issuer of an asset-backed token with voting rights is obliged to withhold tax on any income (qualified as dividend distributions) that relates to it in the same way it is withheld on regular shares.

Stamp duty

Issuance stamp duty is generally due by the company when issuing asset-backed tokens with voting rights, notably if the rights transferred with such a token are equivalent to the rights transferred when transferring a share. When issuance stamp duty is perceived, there is no transfer stamp tax for the investor.

Value-added tax (VAT)

As mentioned before, for the purposes of VAT, cryptocurrencies are treated like regular currencies. Therefore, there is no VAT due when issuing new tokens regardless of which category they belong to and what rights they confer to the holder.

Our Tax & Legal & Crypto Specialists