Switzerland, cryptocurrencies tax treatment as investment instruments

We continue our analysis of cryptocurrencies by looking at cryptocurrencies used as investment instruments (investment tokens).

Investment tokens are money-valuable rights against the issuing entity, which can consist of a fixed allowance or an investor's participation in a certain benchmark of the issuing company (e.g. EBIT - operating profit).

To define it from a tax perspective, it is necessary to understand the characteristics of the basic legal relationship that exists between issuer and investor.

Specifically, we have:

- Third-party capital-based tokens

- Contract-based investment token

- Investment tokens with participation rights

Third-party capital-based tokens entitle the subscriber to a redemption of part or all of the investment and any interest payment.

Third-party capital tokens can be equated with bonds and represent movable assets. They are subject to cantonal wealth tax (estimated at the end of the tax period at market value or purchase price).

Income, which can be equated with interest received periodically or with a one-time remuneration (e.g., issue discount), is subject to income tax upon realization.

In the case of buying and selling, if they fall within the private substance of individuals, the profits are exempt from tax. If, on the other hand, they are part of a business-type activity, the profits will be subject to income tax.

Proceeds from tokens on third-party capital will also, like bonds on the other hand, be subject to withholding tax and stamp duty.

Investment tokens on a contractual basis provide no obligation for the issuer to repay the investment. They are comparable to derivative instruments and the investor is entitled to a financial benefit calculated according to a certain value of the issuer (e.g., turnover).

Investment tokens (on a contractual basis) are to be considered securities and are subject to cantonal wealth tax.

Payments received in connection with investment tokens are to be considered in full as income from securities subject to income tax (since investors are not entitled to repayment of what is invested).

The purchase and sale is not subject to tax if classified as private substance. Trading carried out as an independent gainful activity will be subject to tax.

Payments from investment tokens are not subject to withholding tax and stamp duty.

Investment tokens with participation rights are equivalent to participatory rights (e.g., shares) and usually entitle to profits based on what is stated in the bylaws.

Investment tokens (with participation rights) represent movable assets and are subject to cantonal wealth tax.

Payments received as a function of holding tokens, are comparable to a dividend distribution and subject to income tax.

In buying and selling the general rule applies: if it is the private property of individuals we will have exemption, if it is part of a professional activity we will have application of income tax.

Income from investment tokens with participation rights is subject to withholding tax and transfers to stamp duty.