Based on the profit potential Cryptocurrencies have taken over an important role in the entire financial world. As such, tax authorities worldwide are starting to establish guidelines for collecting taxes on gains from various cryptocurrency activities. Switzerland has been among the countries that recently developed its crypto taxation regulations.
In this overview, we will highlight the Swiss tax policies for cryptocurrencies. We will see how the Swiss Federal Tax Administration (FTA) treats cryptocurrencies in terms of taxation. We will also discover the principles on activities such as mining, staking, and others, last but not least, it will be provided an overview of the declaration process in the annual tax return of selected cantons.
How are cryptocurrencies taxed in Switzerland?
The FTA is the most important taxation government agency of Switzerland. The FTA develops policies on taxation, especially those for the new emerging asset such as cryptocurrencies.
Now, the FTA treats cryptocurrencies similar to assets. This is in line with the Swiss Federal Council’s 2014 report explaining cryptocurrencies’ legal treatment, potential risks, and economic significance. However, cryptocurrencies are completely different assets from fiat money and cannot be treated similar for taxation purposes.
A working paper from the FTA was released on 27 August 2019 contains details on Swiss tax guidelines for cryptocurrencies and other blockchain-based coins and tokens. Under the policies, cryptocurrencies are grouped under these classifications:
- Payment Tokens/Native Tokens
- Asset-Backed Tokens
- Debt Tokens
- Equity Tokens
- Participation Tokens
- Utility Tokens
Every token has different taxation rules on a communal and cantonal level. Similarly, each canton has different rates on the individual income tax as well as on the individual wealth tax level.
Switzerland generally subjects cryptocurrencies to Swiss wealth tax and income tax (where appropriate) based on the worldwide income and the worldwide wealth tax values. People must declare their cryptocurrencies in the annual tax returns alongside their other monetary assets, income, and properties (assuming one has an unlimited tax residency in Switzerland).
Wealth Tax Principles for Cryptocurrencies
Cryptocurrencies are viewed as foreign currencies under the Swiss wealth tax context. Crypto holders shall be taxed depending on the rates published by the FTA by the end of the fiscal year (31 December), if available. The rates are based on different trading platform’s average prices. If no official rate according to the overview of the FTA is available, the value as per 31 December of the corresponding year should be used based on the disclosed rates of a crypto platform (i.e. coinmarketcap.com).
Income Tax Principles for Cryptocurrency Activities
The principles for the taxation of the various cryptocurrency transactions and activities can be summarized as follows. We will include regulations for both individuals and companies where appropriate.
Any income generated from cryptocurrency trading from the private wealth is qualified as capital gains from movable assets (under the assumption that the underlying asset has been sold and as exchange an alternative cryptocurrency has been purchased). Basically, such transactions are treated as tax-exempt capital gains. Capital losses arising from crypto trading are not tax-deductible.
Trading must be assessed and classified either as income from private asset management or commercial trading. A person who cumulatively fulfils the criteria of Circular 36 of a professional securities trader is not considered to be engaged in professional activities. As soon as one of these criteria is no longer fulfilled, the competent tax authority may consider the activity to be commercial.
The following criteria provide rough indications as to whether you qualify as a professional securities trader. Please note that the assessment is made on a case-by-case basis and that in controversial cases it is recommended that a ruling be submitted to the competent tax authorities in advance:
- The income (incl. investment income) – generated from crypto-assets/securities is at least approximately 50% of your annual salary.
- Transaction volume – The assets are only in your possession for a short time before disposal and you trade frequently.
- External funds – In order to realize the transaction volume, you trade with external funds (e.g. loans).
The amount of the transaction has no influence on the qualification as a professional crypto trader.
Mining and Staking
Income from cryptocurrency mining and staking is declared as taxable income for tax purposes. Mining considerations can qualify either as employment income or as income from self-employment.
Salary Payments in Crypto
An employee who received bitcoins or other cryptocurrencies as salary and/or benefits should declare them under taxable earned income. The cryptos’ equivalent Swiss Franc value at the time the amout was received by the employee should appear on the salary statement.
Meanwhile, individuals who receive crypto as part of self-employment may declare them under principal or additional income. The cryptos’ Swiss Franc value should also be recorded at the time it was received, in line with regular salaries.
Fees for administration can be deducted at a flat rate depending on the canton. Should the effective fees exceed the flat rate, it has to be checked whether the higher amount can be deducted for tax purposes, considering the effective burden of proof.
The tax handling of cryptocurrencies in selected cantons
Below are the declaration principles from seven selected Swiss cantons for cryptoassets.
Canton of Berne
Crypto assets need to be declared in your tax return using form 3 (“Wertschriftenverzeichnis und Rückerstattungsantrag Verrechnungssteuer”)
Canton of Basel-Stadt
Principally, crypto assets need to be declared in your tax return using code 835 (“Bargeld, Edelmetalle und übrige Vermögenswerte”).
Canton of Zug
Residents of the Canton of Zug declare their crypto assets in the list of securities (tax return: code 160 for the crypto – assets related income and code 600 for the assets) in their tax returns.
Canton of Lucerne
For cryptocurrencies without an official market value, the purchase price can be declared as an asset. The declaration is made in the list of securities as other assets. An extract from the wallet (digital wallet) must be enclosed with the declaration as evidence in the tax return.
Canton of Zurich
Cryptocurrencies must be declared in the securities and assets register as “other assets”. Proof must be provided with a copy of the wallet. The mining of cryptocurrencies by a natural person by providing computing power against payment leads to taxable income from self-employment.
Canton of Aargau
Cryptocurrencies are moveable items that can be valued for tax purposes. In the interest of a simple and easily comprehensible declaration, cryptocurrencies must be listed in the annual tax return in the form “List of securities and credit balances” (form 101.05). The code “UE other assets” must be entered in the first column. The holdings of cryptocurrencies can usually be proven with a printout of the year-end holdings in the “wallet”, i.e. the digital wallet
Canton of St. Gallen
Cryptocurrencies must be declared in the list of securities and credit balances. In the event of a change in the holdings of securities and receivables (acquisition, sale, repayment or conversion), the date of the addition or disposal must be entered in the corresponding columns and the bank documents must be attached.
Here you can find a list of all tax administrations to learn more about the crypto tax specifications in your canton. If you have specific questions about your tax situation, you are welcome to contact the tax experts at BDO Switzerland.
Non-punishable voluntary declaration
If your cryptocurrencies were unintentionally not declared in previous tax returns, it is possible to subsequently report your cryptocurrency portfolio to the tax authorities by filing a non-punishable voluntary declaration. The non-punishable voluntary declaration is a one-time process and can only be used under certain limited conditions.
It is therefore strongly recommended that all assets and income (including crypto-assets and income from crypto-assets) are declared proactively and transparently in the annual tax return from the beginning of the relevant investments.
Summary of Swiss Crypto Taxes
In general, Swiss residents are obliged to pay wealth taxes on their cryptocurrencies. Wealth taxes are regulated on a cantonal basis, resulting in different wealth tax rates on cantonal level. Income taxes are levied on crypto activities such as mining, staking and receiving cryptocurrencies as taxable capital gains. For all these activities, it is strongly recommended to consolidate your crypto data and declare your transactions to the relevant tax authorities in your annual tax return. An efficient and country-specific crypto tax tool such as ACCOINTING can assist you with the resulting tax declaration obligations.
Navigate the world of cryptocurrencies with us as a reliable partner at your side for all questions around portfolio management and crypto taxes. – ACCOINTING.COM. If you have any questions about your tax declaration obligations, BDO Switzerland is an experienced and trustworthy partner at your side. Do not hesitate to contact us if you have any questions.