Cryptocurrencies like Bitcoin are no longer the reserve of tech experts or specialist investors. Both private and institutional investors have started investing heavily in this relatively new field, while start-ups are increasingly discovering cryptocurrency as part of their incentive packages.
With a significant asset value tied up in the cryptosphere, the Swiss tax authorities have been quick to issue guidance on the taxation of Bitcoin and other cryptocurrencies, including income derived from “mining.”
Besides trading, income can also be generated by mining Bitcoin and other cryptocurrencies (i.e., through provision of computing power for a fee by a natural person). This may result in taxable income from self-employment—income that needs to be declared accordingly.
As with regular share transactions, a distinction is made between private asset management and professional trading. Essentially, an individual may qualify as a professional trader depending on the transaction volume (frequency of transactions and short ownership), use of substantial foreign funds to finance trading activities, and significant use of derivatives (exceeding the hedging of risks). Qualification thresholds may vary from canton to canton.
Any further income generated through cryptocurrencies is generally taxable according to the type of income it represents (e.g., wage or income from self-employment, interest or quasi-returns from movable assets or other income).
Profits made through sales transactions with cryptocurrencies fall under capital gains from movable assets and from a Swiss tax perspective are considered tax-exempt capital gains. Capital losses derived from trading with cryptocurrencies are typically not tax-deductible.
In general terms, the Swiss tax authorities consider cryptocurrencies held by private individuals to be equivalent to holding cash or precious metals with the resulting tax treatment. Under Swiss tax law, assets are generally subject to wealth tax. Because cryptocurrencies also have a market value, this value has to be declared on a Swiss tax return (regardless of the location where the cryptocurrencies are held) in the assets and securities section.
Cryptocurrency needs to be stated at its value as of 31 December of the year in question reflecting either:
There are some differences among the cantons with regard to declaration requirements. In Basel-Stadt, for example, privately owned cryptocurrencies are to be declared under position 835 “Cash, precious metals and other assets.” Securities in cryptocurrencies on the other hand need to be declared in the securities and assets section of the tax return. The cantonal information sheets provided with the tax return forms would be expected to offer guidance on the practice in your canton of residence.
The factsheets published by the tax authorities are a good starting point for developing a clear practice on the treatment of mainstream cryptocurrencies. However, the market continues to be flooded with alternative cryptocurrencies (known as “altcoins”) and as the technology supporting cryptocurrencies develops, new assessments will need to be made. For example, what rights does the owner of the tokens have to the underlying digital information unit? If the asset acquisition relates purely to ownership rights to the digital item, the tokens may be treated the same as other cryptocurrencies. But once ownership rights become diluted, a more careful analysis may be needed to determine the correct taxation approach.
Read a March 2019 report prepared by the KPMG member firm in Switzerland
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