Crypto has value, therefore it must be taxed. When a simple personal investment gamble becomes a profitable business, the Swiss taxman always awaits his share of your success.
Simple appreciation in price is irrelevant and does not constitute revenue by default, until there is a sale. Nevertheless, Swiss cantons tax your wealth at the end of every year. The FTA has actually published an exchange rate for Bitcoin, Cardano, etc and they are worth a lot.
The risks exist upon any transaction or exchange. Since crypto is considered as an alternative asset, a capital gain is earned every time you pay for something with crypto-money, provided you have bought it for less.
Occasional speculative trading is generally exempt from income tax, while individual entrepreneurs are subject to a progressive tax bracket on their trading income. This occurs merely because there is a thin line between a capital gain on private wealth and actual activity of trading. In the Swiss tax system, where private stock market gains are exempted, the reclassification of the administration of private assets as a professional activity has a considerable tax impact since gains that were initially exempted are now fully taxed.
Where simple speculation becomes a recurrent activity, we are in presence of an actual individual entrepreneur from the perspective of the Swiss tax legislation. A close relation with the actual profession is historically a very important indicator. In practice it is also relevant if special knowledge is applied. Such examples include a bank director, a stock broker or a financial lawyer.
However, it is not decisive to have any understanding in finance, let alone the technology of blockchain. It is deemed that moderate investments are of interest to individuals, whereas risks are rather borne by professionals. This likewise explains why borrowings are of a great importance in qualifying crypto trading as a taxable activity. Where gains are again reinvested into crypto, this is an additional red flag.
What is also crucially important, is the frequency of transactions. The short period of ownership of the securities is an indication that the taxpayer is aiming for a quick gain rather than the long-term preservation of his financial assets. This might impede the rapid fire-sale when necessary to preserve the value of a quickly depreciating price of your coins.
What likewise is of interest to tax administration is the importance of any such gains, even speculative, with respect to your other income. If you build your fortune on crypto, you are more likely to be considered a professional crypto trader. On the other hand, making rare and modest gains not only argues against a professional activity, but usually passes under radar, since crypto must in principle be cashed-in to be discoverable.
A dilemma occurs where you start losing money on your crypto positions. Although a trader would be able to deduct any such loss and carry them forward for up to 7 years, a private investor cannot. Private losses are non deductible and the qualification of an entrepreneur requires the pursuit of profits. Moreover, only booked losses may be subtracted. Swiss authorities have a tendency to recognise professional activity when making profits, and neglect it when making losses.
Needless to say that Swiss case law on the matter, already controversial in itself, is far from being adapted to the realities of the modern world. Access to trading is easier to anyone than it has been ever before.
Important investment is not necessary, and knowledge about the crypto behaviour is not such an enigma as the stock market used to be to the general folk some decades ago, thanks to Internet. Furthermore, while planned and systematic approach are indicators of a professional activity, many people enjoy the crypto market as a mere gamble, a speculation, a lottery.
As far as the tax practice insecurity goes, you might just want to consult a tax lawyer when cashing in a serious amount of crypto that you were so lucky to gain.
Bank secret or crypto are common ways for tax avoidance, but neither is 100% proof. The fruits of globalism beget transparency and cooperation, with OECD having as one of its main priorities to tackle offshore structures.
Some say that Swiss bank secret is already dead, while Swiss financial institutions continue to rely on this feature as their primary pole of attraction of questionable cash. One in eight Swiss banks is caught up in a recent scandal. Not a good statistic of opacity, is it?
Moreover, international pressure and cooperation become evermore important in cross-border investigations, tackling offshores like never before.
Automatic information exchange has indeed proven itself in addressing the bank secret and “lifting the veil”, with a whopping CHF 44 billion being spontaneously declared to avoid harsh penalties, most in fear of this new instrument. The numbers shall grow, the fear shall accumulate and the Swiss banks become ever less attractive.
Of course, lawyers and consultants do not fail to impress with their ever-growing creativity and invention of new and more sophisticated schemes. But so do the authorities, and their forces are now combined as never before, thanks to the considerable cooperation efforts within the OECD framework.
For Swiss, however, this is not as dangerous at a first glance, but serious suspicions of continuous and repetitive tax avoidance allow the FTA to investigate the bank accounts of the supposed taxpayer, and to retrieve such information regardless the bank secret.
Besides, even if the bank secret applies, or where offshore structures are used, there is never a guarantee that such information shall not be disclosed, including in violation of trust agreements or the law.
While it is unobjectionable that the authorities develop new instruments to tackle evasion schemes related to bank secret, crypto is the new challenge. A $7 trillion tax gap is expected in the next decade as a result, this in U.S. alone, and some refer to crypto as the “new Swiss banks“.
The connection is not unfounded, since Switzerland takes pride in its crypto-valley. While it is only recently that Switzerland has allowed financial reporting in a foreign currency, we might as well see Bitcoin balance sheets in future of Swiss e-commerce.
However, there is some note of optimism.
First, just like the bank secret is not absolutely guaranteed, crypto “is not anonymous, just harder to trace“. Second, the government knows computers too. One such example is the Operation Hidden Treasure launched by the Internal Revenue Service, in conjunction with crypto vendors.
This sets an example to other countries on the possibilities of dealing with the crypto opacity problem.
In this regard, bank secret or crypto are conceptually not too much different from one another.
Skilled financial specialist are just being gradually replaced by technology. But this works both ways. Technological advancements are sought not only by the fraudsters, but as of recent are regarded as “a must” for any authority, and Switzerland is taking up the pace in this regard, although quite slowly, taking its time.
The never-ending battle between avoidance and investigation shall continue, whether against bank secret or crypto, and both belligerents increase and improve their arsenal like never before. It will be more global, more technological and more severe.
Truly, the risk is only apparent to fraudsters if concealed funds are discovered. But if they are, the adverse material effect is beyond imaginable for Swiss fraudsters. Legally, the authorities’ duty to investigate is offset by the taxpayer’s duty to cooperate.
On one hand, Swiss law abides the concept, according to which, the person who derives rights from a fact bears the burden of proof. Tax-increasing facts are to be proven by the authority and tax-reducing facts by the taxpayer.
On the other, although authorities must be “fully convinced”, it suffices to establish such facts with “bordering on certainty” after having assessed available evidence. It is permissible and often necessary for the authorities to also rely on circumstantial evidence to draw conclusions from it (so-called, natural presumptions).
Hence, it remains up to the appellant to provide sound evidence of the non-taxable source of undeclared funds. That being said, the more concealment tools are used – the harder it becomes to prove otherwise.
As of November 1, 2020, the minimum hourly salary of around CHF 23 applies to any employee working in Geneva, regardless the place of office of the employer, and irrespective of the employee’s domicile. However, the employee should be usually performing his work in the canton of Geneva, which does not encompass irregular cases such as occasional work from home. It is nevertheless certain that full-time home-office shall qualify as regular place of work.
In essence, all the costs necessary for the performance of work must be covered by the employer, including any office material used from home. This, however, does not require the employer to contribute to the employee’s rent as it would have been due regardless any home-office. The same applies to home internet, electricity, etc.
Employment agreements generally specify the place of work of the employee. In such a case, unless the law or administrative decision requires so, the employee is entitled to perform his work from the company’s office building.
If the pandemic situation allows, and the administrative decisions do not impose mandatory home-office, then the employees are required to be present in the company’s office during working hours, as it is usually specified in the employment agreement.
If the employer makes it compulsory to wear a mask in the office, he must provide masks and pay for them. Employers are required to pay the costs incurred by their employees in carrying out their work, and the masks made available must be certified and guarantee a certain level of safety.
Before dismissing an employee, the employer must remind the person concerned that he or she must wear a mask and ask the employee to do so. If the employee persists in refusing to wear a mask, immediate termination may occur.
Immediate dismissal requires an irreparable breach of trust. If, despite multiple reminders, the employee remains often unavailable and does not answer the employer’s calls, immediate termination may occur.
Costs of commuting to work are generally deductible on a lump-sum basis. The majority of legal literature considers that the employee may claim higher effective costs, but that the administration is not entitled to refuse a lump-sum deduction in their absence.
Indeed, a room at your domicile that is exclusively equipped for working from home may be considered as a necessary cost of the employee. As such, the portion of rent is deductible insofar as work from home is mandatory, as opposed to a free choice of the employee. The employee should exclusively use this room for work, and not for personal purposes.
Office equipment should be provided or covered by the employer. As such, these are not the costs of the employee and may not be deducted from his income.
In principle, tax on employee’s income is due in his state of residence, or in the state of regular work where the duration generally exceeds 183 days. Exceptionally, countries bordering with Switzerland have signed protocols that allow Switzerland to continue to withhold tax on cross-border employees generally working in Switzerland, but who are currently working from home in other countries due to pandemic restrictions.
Unlike the situation with taxes, the employee should work not more than 25% of time from abroad to be exempt from Swiss social security. As such, this employee should not work for more than 1,25 days a week from abroad.
A conventional electronic signature is only allowed for contracts that can be concluded in verbal form, which is the majority of contracts under the Swiss law. Conversely, where the law provides for a signature, only qualified e-signatures are valid.
There is no obligation to indicate home-office days on the salary certificate (except for a few cases of employees with a company car and deducting the journey from home to work). Reimbursement of lump sum expenses and expense regulations continue to apply despite the increase in home office.
For Swiss residents, a capital gain realised on the sale of privately held shares in a Swiss or foreign limited liability company is generally exempt from income tax, while dividends and liquidation bonuses constitute taxable income. However, as some creative minds have devised complex structures to receive a dividend from their company disguised as an exempt gain, tax legislation and practice is developing accordingly to tackle these artificial arrangements. One such case is that of partial indirect liquidation.
This occurs when a shareholder sells shares in a target company to a company or an independent entrepreneur with a surplus, while the target company sold contains substantial accumulated profits that are not needed for continued operation. These profits are quickly distributed to the buyer without any tax because he can immediately write off the value of these acquired shares at a price that has been determined, in part, on the basis of the target’s substantial retained earnings. There is a suspicion of abuse when the buyer uses this profit distribution to finance the acquisition, because overall these dividends are then returned to the seller, but in the form of a capital gain, so it is a dividend, just with extra steps.
However, there are some reasonable limits to this recharacterisation. First of all, the seller must cooperate with the buyer, otherwise it is illegitimate to tax the seller who has no idea how the buyer will finance the acquisition. Nevertheless, it is sufficient that the seller has a reasonable suspicion of such an intention of the buyer.
Secondly, the sale must involve at least 20% of the share capital, although subsequent sales of packages and concerted sales by several shareholders are also relevant, provided that this threshold is reached in aggregate within 5 years. The distribution of the target’s profits to the acquirer must also occur within 5 years, but may take various forms, including an upstream merger.
If the conditions for an indirect partial liquidation are met, the taxable income logically amounts to the sale price. However, the seller cannot reasonably be expected to empty the company completely before the sale, because on the one hand some accumulated profits are still needed for the continuation of the business, and on the other hand Swiss law provides for strict rules on the distribution of dividends, since some profits have to be kept as legal reserves. As such, the taxable income is therefore reduced to the funds that could be distributed as dividends according to Swiss or foreign law governing the target company. Furthermore, we cannot reasonably object to the fact that even this disposable profit relates to significant assets of the company, as opposed to mere cash, otherwise the distribution of the disposable profit would require the liquidation of these assets and would hinder the continuation of the business. Finally, as the important criterion concerns the possible distribution of profits to the buyer to cover the purchase price, the taxable income can only be assessed up to this amount.
It is important to note that the moment of realisation of this taxable income occurs when the seller acquires a legal and certain claim for the purchase price against the buyer. Since the conditions for partial indirect liquidation may sometimes be fulfilled in subsequent years, especially in the case of successive transfers of shares, the tax authorities have to resort to reassessing the taxes of previous years.
Although the relationship between the director and the company is mainly qualified as a mandate and not as an employment contract, his fees are considered as coming from the salaried activity from a tax point of view. Thus, the fees are subject to withholding tax to be paid by the Swiss employer if the director is not a Swiss resident.
However, if his usual place of work is not in Switzerland either, the remuneration may only be subject to withholding tax to the extent that it covers his position as an administrative or supervisory body, e.g. signing the financial statements, preparing the general meeting or other inalienable rights of the board of directors. A clear and reliable division between the fees of a supreme body and the salary received as an employee, even if it is a managerial employee, is also necessary.
Depending on the residence status of the director, his place of work and his nationality, but also on his affiliation to compensation funds abroad and the rate of work carried out for the Swiss company, it may be necessary to collect and pay social security contributions from his salary or fees.
It is the Swiss employer’s duty to find out the situation of the employees and to determine whether withholding tax or social security contributions are necessary. Thus, it is recommended to analyse the situation clearly in order to avoid fines, interest on arrears and unforeseen charges.
The first consideration of every employer to avoid withholding tax is to prove that the hired personnel is not in fact an employee with an employment contract, but a director, external consultant, independent agent, that they work only part-time or on a one-time basis.
The reason for this is that the withholding tax applies in principle only to the staff carrying out employed activity, the only exception being artists, sportsmen and conference holders, whose income may be subject to withholding tax even if they are self-employed. It is also up to the employer to withhold social security charges from the salary, whereas an independent entrepreneur has to do it for himself.
However, the definition of employed personnel in tax and social security law differs significantly from employment contract definitions and encompasses other types of personal services that may seem out of scope at a first glance. It is not required to have a formalized agreement, a long-term engagement or even an employment-type remuneration. As such, withholding tax and social security obligations of the employer arise in presence of directors, part-time contractors or even long-term independent consultants whose work schedule and duties resemble that of an ordinary employee.
Another common argument is that the fees or salary are not actually paid directly to the service provider, but are reinvoiced to a different company, which in turn employs these personnel.
Provided subjugation to Swiss taxes is a requirement for the withholding tax on employees, the Swiss Confederation has recently extended anti-abuse measures and thus may consider a Swiss beneficiary of services as a de facto employer, or even retain a staff rental agreement. From the perspective of Swiss social security, it is required that the personnel is either working or residing in Switzerland.
Nevertheless, even when a service provider has no presence in Switzerland, directors and members of the board may still be subject to withholding tax and social security at the expense of a Swiss company, in some cases. Multiple international agreements precise different rules of international revenue allocation and the coordination of social security systems.
Besides, international double-taxation conventions only provide for an allocation of salaries and deductions, but do not impede the procedural application of rules. The employer still has to comply even if nothing is to declare.
Every employer or beneficiary of an independent service provider must thus carefully assess the scope of application of the above rules at the moment of signature, upon each payment and every month, as well as to review the situation on an annual basis.
At present, only over-indebtedness and a loss of capital on the balance sheet trigger the duty to act of the board of directors. The reform of the Code of Obligations now provides for the obligation to monitor solvency. Indeed, creditors only file for bankruptcy if they are not paid on time, regardless of the company’s lack of equity.
Although Swiss commercial law does not require the presentation of a cash flow statement, the lack of liquidity is the most important risk and the most common reason for the bankruptcy of a company. The board of directors is then obliged to act swiftly and take the necessary measures to ensure solvency, or even to propose reorganisation measures to the shareholders if such measures fall within the competence of the general meeting.
Among several possible measures, the legislator places particular emphasis on the possibility of applying for a debt-restructuring moratorium. It is indeed possible to apply for an instalment plan directly with the creditors whose debts cannot be discharged in time, or even to agree on a partial waiver of their claims. The debtor can apply to the judge for a debt-restructuring moratorium, provided that there are prospects of reorganisation or that the future approval of a composition agreement appears possible.
In this case it is important to be able to prove the reliable chances of the company’s survival, to reorganise the balance sheet in order to present the best situation to the creditors, but above all to be aware of the current financial situation.
Swiss labour law strictly regulates the termination of the employment contract. Except in serious cases allowing for immediate dismissal, an employee can only be fired after giving at least one month’s notice in the first year of employment, two months in the second and three months in the third. However, in the case of a trial period, which can last up to a maximum of 3 months, the notice period is shortened to 7 days.
The trial period serves as a safeguard for the employer and the employee to get to know each other better before committing themselves to a longer employment contract. Indeed, it allows the employer to assess the knowledge and skills of his new employee. Therefore, when one employment contract is succeeded by another, the probationary period is generally not applicable because there is no longer any reason for it, as the employer and employee already know each other quite well.
However, there are exceptions, in particular when the new employment contract provides for significantly different requirements or tasks compared to the old contract and the employer cannot yet form a clear opinion about the employee’s ability to take on these new responsibilities. In these circumstances, the trial period is justified and can be applied to this new employment contract.
It should be made clear that the periods of leave are counted not on the duration of each individual contract, but on the duration of service, in the sense that the duration of the probationary contract is added to the contract of indefinite duration that replaces it for the purpose of calculating the notice periods for dismissal.
Failure to comply with the conditions for dismissal often leads to employees paying additional charges and compensation, which is why we advise careful analysis of each situation before making a decision.
Dividends are decided by the shareholders at the ordinary general meeting and are based on the closed financial statements not older than 6 months. Indeed, the meeting must be held no later than 6 months after the end of the accounting year.
In principle, shareholders are not allowed to have the share capital returned to them until the liquidation is completed, but the appropriation of profits is also strictly regulated. Currently, 5% of the year’s profit must be allocated to the general legal reserve until it reaches 20% of the paid-up share capital (“first allocation”). In addition, and except for holding companies, 10% of dividends exceeding 5% of the share capital is also allocated to the reserve until it reaches 50% of the share capital (“second allocation”). Thus, only the profits remaining after these allocations can be distributed as dividends.
In addition to the distribution of profits, shareholders may have their contributions made directly to the company and recorded in the general reserve distributed, but only on the amount exceeding 50% of the share capital. The reform now provides for an increase in the first allocation to 50% of the share capital, and at the same time abolishes the second allocation. It will come into force in 2022, the date not yet set by the Federal Council.
It must be noted that there are other legal and statutory reserves that must be respected, which is why the dividend distribution must take them into account. It is therefore advisable to make a careful calculation in order to avoid a violation of the law.
Employers in Switzerland are obliged to register vacancies with the regional employment office in industries with an unemployment rate of at least 5%. This concerns one in ten jobs. However, it is not necessary to advertise if an applicant was already working in the company or if the applicant is a person close to the management, or for the duration of the work not exceeding 14 days. Apprenticeships and traineeships that are part of a training course are also not subject to the obligation to advertise, nor are jobs that are filled by jobseekers registered with the Regional Job Centre.
Where such an obligation applies, it is necessary to wait at least 5 working days after the job has been advertised at the Regional Job Centre before applying elsewhere. It should be noted that headhunters carry out these advertisements on behalf of the employer.
Within 3 working days, the Regional Job Centre proposes candidates whose files are relevant or finds that it does not have any. The employer then informs it of the candidates it has selected and invited to a job interview or aptitude test, whether it has hired any of the candidates proposed or whether the position remains vacant.
Non-compliance with the obligation to advertise vacancies is punishable by a fine of up to CHF 40,000. It is therefore strongly advised to examine on a case-by-case basis whether such an obligation should be respected in order to reduce the risks.