Cryptocurrencies are a relatively new asset class which has experienced explosive growth in popularity and use over the last few years. With many taxpayers now holding tokens and cryptocurrencies in their personal investment portfolios, we provide an overview of what to consider when filing your personal Swiss tax return.
Background
Based on the workpaper issued by the Swiss tax authorities regarding crypto taxation, this blog explains what tax implications arise for Swiss taxpayers when filing their Swiss tax return.
Tokens are inextricably linked to blockchain technology and have proven to be very versatile in their use. There are three main categories: payment tokens, utility tokens and Initial Coin Offerings (ICO) resp. Initial Token Offerings (ITO). This blog covers the tax implication of payment tokens in the broader sense as tokens with a value that can be held by private individuals and used for payments between different parties.
Wealth tax
For Swiss tax purposes payment tokens can be defined as tradable, intangible assets and fall into the category of movable assets, subject to Swiss wealth tax.
Cryptocurrencies are consequently subject to cantonal and communal wealth tax and the balance of tokens held per 31 December needs to be declared in the wealth section in the Swiss tax return at fair market value. If no current valuation is given, the cryptocurrencies have to be declared at the original purchase price (converted into Swiss francs). For some of the cryptocurrencies the Swiss tax authorities (ESTV) publish the tax value at the end of the year (e.g Ethereum or Bitcoin).
Income tax
The mere holding of cryptocurrencies generally does not generate income or revenue that would be subject to income tax or withholding tax. In Switzerland, any gains or losses resulting from buying or selling cryptocurrencies typically constitute tax-free capital gains or non-deductible capital losses (Other rules apply to professional traders or securities dealers).
Taxable Income coming from Tokens
Through Proof-of-Work (Mining) and Proof-of-Stake (Staking) token holders have a means of generating income from their tokens.
Miners provide hardware to generate new cryptos and are usually compensated for their efforts with tokens from the mining pool. Such earnings represent income that needs to be declared in the Swiss tax return and are subject to ordinary income tax rates. The earnings are generally considered income from a self-employed activity.
For Proof of Stake (Staking) tokens are provided to validators to bond their tokens in the network. Validators are compensated for this service with a portion of the rewards passed on to the staker. These earnings generally qualify as income from movable assets and are subject to income tax. For validators managing the staking pool, consideration needs to be made of whether the activity should be considered self-employment, with the respective tax implications.
Another method to earn income with tokens is through Airdrops. Airdrops are tokens distributed to parties linked to a given company or project and allocated free of charge, with the individual receiving further cryptocurrencies without paying for them. For tax purposes Airdrops are considered income and subject to income tax from movable assets at the time of their allocation to the extent that they have a market value at the time of the drop. Depending on the situation, airdrops may also be considered tax-exempt or fall under Swiss gift tax – for example, if they could be seen at a promotional gift or giveaway.
For any other tokens received or granted, the tax consequences need to be assessed on a case-by-case basis. We recommend consulting a professional advisor.
Income Tax Deductions
Not many deductions can be made against the income derived from actively managing tokens. If the tokens are held in an investment portfolio, asset management expenses are a potential deduction. Also, if Mining or Staking activities can be considered self-employment, expenses for this activity could also be claimed as a tax deduction.
Deloitte's View
Switzerland acts as a hub for numerous blockchain companies and has a growing ecosystem driving innovation and change within this field. Expertise and publications from the Swiss tax authorities provide an up-to-date analysis of the current technical developments and clarity with respect to the tax implications for cryptocurrencies. Taxpayers with more complex positions are recommended to file a tax ruling with the respective tax authorities.
If you have any questions on blockchain and cryptocurrencies please reach out to us and our team will be glad to offer our support.
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