Switzerland Crypto Tax

SWITZERLAND CRYPTO TAXSwitzerland is home for the famous Crypto Valley which is gradually becoming a global centre for the future-oriented DLT technology businesses. Crypto companies are allured by the government’s positive approach, advanced and favourable legislation as well as a fair and efficient taxation system.

Another noteworthy advantage is that Switzerland has double taxation agreements with around 100 countries, enabling the taxpayers to protect their income from being taxed in two different countries. Furthemore, they can also eliminate double taxation on wealth, inheritance and in some cases make taxpayers eligible for reductions in the Withholding Tax.

Taxes in Switzerland are generally administered by the Federal Tax Administration (FTA), the cantons and the municipalities. Each canton has a different taxation framework which means that the tax rates will vary depending on your chosen location for your crypto company. However, in terms of the time frames, they remain nearly the same – the tax year corresponds with the calendar year across Switzerland and most cantons require tax returns to be filed by the 31st of March.

For tax purposes, the FTA classifies cryptocurrencies as assets, not as fiat money, which makes their treatment similar to financial securities (e.g. stocks or bonds).

Based on the guidance from the Swiss Financial Market Supervisory Authority (FINMA), the FTA distinguishes the following categories of cryptocurrencies:

  • Native tokens such as Ether and Bitcoin (used as a method of electronic payment)
  • Asset-backed tokens (issued during the initial offering stage to raise funds and grant rights (e.g. voting) to the holder as per the issuer’s contractual obligations) and their subcategories
    • Debt tokens obligating the issuer to repay all or part of the investment and pay interests
    • Equity tokens don’t obligate the issuer to repay the investment but the holder is entitled to a cash payment which is measured by a certain ratio to profit and/or liquidation result
    • Participation tokens don’t obligate the issuer to repay the investment but the holder is entitled to a proportional share of a certain reference value of the issuer (e.g. sales)
  • Utility tokens (instead of granting pecuniary rights to the holder in the case of the issuer’s corporate success, they grant the holder the right to use digital services, which are mostly provided on a specific DLT platform)

Companies engaging in the activities related to the above-mentioned crypto categories might be subject to the following taxes applied at the federal, cantonal or communal levels:

  • Corporate Income Tax – 12%-21%
  • Capital Gains Tax (CGT) – 0,001%-0,5%
  • Value Added Tax (VAT) – 7,7%
  • Withholding Tax (WHT) – 35%
  • Social Security Contributions – 0,5%-5,3%
  • Issuance Stamp Duty – 1%

While federal tax rates are stable, cantonal tax rates are determined annually and can be accessed on each canton’s official website.

Some of the latest crypto taxation guidelines for the most common transactions of native tokens, debt tokens, utility tokens and asset-backed tokens can be found in the working paper titled Cryptocurrencies and Initial Coin/Token Offerings (ICOs/ITOs) as Subject to Wealth, Income and Capital Gains Tax, Withholding Tax and Stamp Duty, published in 2021 by the FTA.

Corporate Income Tax

Based on the Swiss taxation framework, the Corporate Income Tax consists of the following parts:

  • Federal Corporate Income Tax
  • Cantonal Corporate Income Tax
  • Communal Corporate Income Tax

The Federal Corporate Income Tax is imposed at the rate of 8,5% on profit after tax deductions. The Cantonal Corporate Income Tax and the Communal Corporate Income Tax vary quite significantly in each canton as they all have different taxation frameworks. If you’re seeking to understand which Swiss location is the most favourable for your crypto business, the team of Regulated United Europe (RUE) will be pleased to provide a personalised consultation.

The FTA’s working paper distinguishes the following income tax related aspects of the tax treatment of native tokens:

  • The mere holding of native tokens acquired via crypto exchanges in the form of purely digital means of payment generally doesn’t generate any income or earnings that are subject to taxation
  • The capital gains from the sale of native tokens are considered commercial and are subject to taxation
  • Losses are tax deductible once submitted
  • If the service of mining or staking of native tokens is compensated with native tokens, it’s considered a source of income and is therefore taxable
  • The costs that are directly related to income generation and are necessary in the context of the management of the assets can be deducted from the income
  • Transaction costs that are directly related to the acquisition, reallocation or sale of the assets are not deductible

Tax treatment of equity tokens:

  • Funds raised through the issuance of equity tokens are considered taxable income and should be recorded as income in the issuer’s income statement
  • If the issuer has made a contractual obligation to complete a specific project, such activity can be declared as an expense, which reduces the taxable income
  • Payments to the token holders based on their entitlement to a certain share of the profit and/or liquidation result are considered tax-deductible expenses, provided that the holders are identified at the time of payment, that the issuer’s shareholders do not hold more than 50% of the issued tokens and that the payments to the token holders do not exceed 50% of earnings before interest and taxes

These are just a few examples reflecting the Swiss taxation framework. If you’re looking for comprehensive tax advice on any of the crypto categories, feel free to reach out to us and we’ll send you a tailored offer.

Value Added Tax

Transactions, including exchange, of native tokens aren’t subject to VAT as this category of cryptocurrencies qualify as a means of payment and can be treated as fiat money. Any commissions or fees charged in connection with this sort of transaction are considered fees for financial services which are VAT exempt without credit.

However, transactions of other categories of cryptocurrencies might be subject to VAT due to their different functionalities and purpose of use (e.g. provision of a particular service).

Issuance Stamp Duty

In many cases cryptocurrencies (e.g. native tokens, debt and equity tokens) are exempt from the Issuance Stamp Duty, however certain crypto categories and specific activities can incur tax charges.

For example, if a securities dealer in Switzerland, as defined in the Stamp Duty Act, is a party or acts as an intermediary, secondary market dealings in debt tokens might be subject to the securities transfer tax (up to 0,15%).

Tax Rates in the Crypto Valley

The Crypto Valley, probably the largest and the most mature DLT ecosystem, is based in the canton of Zug which boasts attractive tax rates and has a positive stance towards the cryptocurrency-related businesses which is demonstrated through the effective regulatory framework.

Crypto companies planning to operate in the Crypto Valley should take note of the following aspects:

  • VAT isn’t levied on transactions of native tokens (e.g. Bitcoin)
  • Corporate Income Tax is proportional (up to 15.1%)
  • Salaries paid in cryptocurrency are subject to the Income Tax (approx. 23%) which must be reflected in the salary statement
  • Taxes can be paid in cryptocurrency

In conclusion, although the Swiss jurisdiction is among the most favourable for crypro businesses, navigating its taxation framework might feel like wandering through a maze. If you’re determined to succeed but aren’t sure where to start, highly qualified and experienced consultants of Regulated United Europe (RUE) will be pleased to assist you.

We very well understand and closely monitor crypto-specific Swiss taxation rules and thus can guide you through the peculiarities. Moreover, we’re more than happy to assist you with the company formation, crypto licensing and accounting. Book a personalised consultation now.

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