Crypto License in Switzerland

CRYPTO LEGISLATION IN SWITZERLAND

The Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology (the DLT Act) is one of the main Swiss laws determining how crypto activities must be carried out in Switzerland. It stipulates rules for crypto licensing, trading, anti-money laundering, financial market infrastructure for trading cryptocurrencies and bankruptcy. In essence, the DLT Act underlines the aim to protect integrity and stability of the Swiss financial market where blockchain companies are liable for any damage made to the investors which may be caused by misleading information or a breach of legal requirements.

The DLT Act names the Swiss National Bank as the protector of the stability of the financial market infrastructure. Its responsibilities include overseeing such financial market participants as DLT trading facilities, central securities depositories and payment systems in accordance with the Financial Market Infrastructure Act. Upon request of the Swiss National Bank, every regulated company must be prepared to provide all information and documentation required to identify risks threatening the stability of the financial market system.

According to the following legislation, certain crypto companies operating in or from Switzerland are legally required to abide by AML rules:

• Anti-Money Laundering Act
• Anti-Money Laundering Ordinance
• FINMA Anti-Money Laundering Ordinance

AML legislation usually applies when client assets are moved to the accounts of the crypto company or when payment transactions, currency exchange, asset based lending or leasing, private wealth management and issuance of payment instruments are included in the crypto business model.

Following are some of the crypto tokens recognized and regulated by the Swiss authorities:

• Payment tokens – A kind of electronic method of paying for something that can be utilized for monetary value transfer. Examples are Ether and Bitcoin.
• Asset-backed tokens are backed by tangible assets and are often issued in the security token offering or STO stage for raising funds.
  Debt tokens obligate the issuer to return all or part of the investment and pay interests.
  Equity tokens do not make the issuer liable for the repayment of an investment, but the holder of the token may claim a cash payment
  Participating tokens: Holder of such token is entitled to share in the profit of the issuer to be shared in proportion, but issuer is not liable to repay the investment
• Utility tokens provide digital access to a system or service; those are usually issued on a specific DLT platform, in case those are not qualified as securities, then the issuance doesn’t require any license.

Depending on the category of tokens that are issued to perform an economic function, legislation in respect of securities, banks and collective investment schemes may also be relevant as well as the AMLA. It is important to outline that even though the payment tokens are not legal tenders, FINMA does not categorise them as securities because they are used for purposes of payment.

Whether an ICO is regulated or not depends on the nature of the token being offered. Payment token ICOs are subject to the AML law, while asset-backed and utility token ICOs fall under the securities laws provided by the Swiss Code of Obligations.

CRYPTO LICENSING PROCESS IN SWITZERLAND

First and foremost, you have to make sure that your crypto-related activities are regulated and subject to licensing in Switzerland. FINMA will help you determine it prior to completing the application. To make your business case strong, we highly recommend consulting with legal experts who can help you tick all the required boxes and present your information correctly. If you need such assistance, our team here at Regulated United Europe (RUE) will be more than happy to provide guidance.

Before completing the application, you must prepare all the required documentation to your best knowledge and in an orderly manner, otherwise the licensing process might be hindered. If there are no obstacles, normally the process takes 4–6 months.

It’s mandatory to present the following documents about involved individuals:

• Copies of identification documents (passports or ID documents) of company owners and directors
• For foreign citizens – copies of residence permits in Switzerland
• Proof or residential address of each owner and director
• Copies of job references, CV’s and certificates of education of company owners and directors reflecting relevant education and experience
• Swiss criminal records certificate proving absence of criminal convictions (original copy which must be no more than six months old)
  • Foreign citizens who have lived in Switzerland for less than five years must present a criminal records certificate issued either by the previous country of residence or home country
• Debt enforcement register certificate (original copy which must be no more than six months old)

The following applicant company documents should be duly prepared:

• Corporate documents — statutes, etc.
• Business plan with budget — balance sheet and profit statement for the next three fiscal years with optimistic, realistic and pessimistic scenarios, and geographical coverage, group structure and target market
• Business premises, infrastructure and personnel information
• Proof of source of funds and information on public deposits
• Detailed equity information — structure, distribution, nominal value, among others
• Provide documented operating model-AML policy, data security, etc., which is to be developed. This has to include a review of hardware and software utilized in conducting economic activities, including but not limited to third-party systems.
• Detailed information about the storage of clients’ deposits. If the application is submitted by the legal representative, the power of attorney shall be required-certified copy of the power of attorney.
• Application for incomplete and completed trials.
• List of all shareholders holding at least 5% of the direct and indirect equity up to the level of the beneficial owner with voting and capital
• Chart showing all participants who, directly or indirectly, hold a qualification up to the level of the beneficial owner–including level of participation by voting shares and capital
• Information on any agreements and other means of control or material influence on the applicant

Another basic step is the payment of the administrative and licensing fee. Application fees start from 1,750 EUR, while successful applicants will also have to pay an annual supervisory fee of at least ​​3,500 EUR.

Since crypto licenses are issued to those companies that are registered in Switzerland, you will also have to take out some time to establish one for your crypto project. Several beneficial Swiss corporate structures exist that would let you start your venture without going through endless red tape.

When a new company is established, and all the fees are settled, it will be time to file a crypto license application with all the required documentation with FINMA, which may also request additional information, documents, or an audit. You will also have to make an appointment with the authority to present your business case for licensing.

Although applications can be filed either in one of Switzerland’s official languages or in English, some of the documents-for example, the Articles of Association and organizational structure documentation-can only be filed in one of Switzerland’s official languages. If you need a certified translator, we will gladly arrange such service for you.

Once licensed, the licensee will have to consider the requirement to notify FINMA of any structural and activity changes relating to the key documents, senior management, technical setup, amongst others. In cases of material changes, approval from the Authority is necessary prior to proceeding with the commercial activity.

How to Open c Crypto Company in Switzerland

By now, you are convinced that there is value in opening a crypto business in Switzerland, and your business model falls under one of the crypto licenses. The next immediate step will be to incorporate a Swiss company. This may take up to four months, depending on the legal business structure chosen and the quality of the documents.

The most frequent legal forms, which a Swiss company can take by way of crypto activities performance, are GmbH and AG. Both can be founded by a sole shareholder legally residing in Switzerland, not necessarily a Swiss citizen, but one in possession of permit B, entitling them to start economic activities or to be employed in the country.

Following are the major features concerning incorporation for both GmbH and AG crypto company:

• It can be formed by signing a notarial deed.
• Incorporation may cost 1,500-2,000 CHF (approx. 1,475-1,967 EUR) which includes the notarial deed.
• At least one shareholder and a board member, each of them being fit and proper
• Audit authority needs to be appointed in most of the cases
• To have a registered office and also to employ local staff is a must
• Appointing of Swiss corporate lawyer is obligatory. Design of internal AML and other risk policies, related to the specifics of the planned economic activities is obligatory. To have an operational corporate bank account in a foreign bank is not prohibited.
• Shareholders do not need to be Swiss citizens

Standard requirements for initial share capital are as follows:

GmbH – 20,000 CHF (approximately 19,668 EUR) to be transferred to a Swiss bank account or contributed such contribution with crypto or other assets. AG – 100,000 CHF (approximately 98,352 EUR), out of which minimum 20% and at least 50,000 CHF (approximately 49,176 EUR) must be covered by payments into a Swiss bank account or contributed such contribution with crypto or other assets.

However, the initial share capital requirements may vary depending on the type of crypto license or, in certain cases, multiple licenses you are applying for. For instance, applicants of the Fintech license have to transfer the full amount of 300,000 CHF (approximately 289,000 EUR) into the initial share capital account.

Documents required for the incorporation of a company in Switzerland:

Identification documents of the founders

Residence permits

A copy of a rental agreement proving the existence of the registered office in Switzerland

Articles of Association

A company bylaws

The Stampa declaration proving that no other contributions in kind and recoveries of assets exist apart from those listed in the Articles of Association

The Lex Friedrich declaration which is a permit granted to a foreign citizen to buy real estate in Switzerland

CRYPTO TAX IN SWITZERLAND

The tax treatment of crypto companies is determined by the nature and purpose of their economic activities. Generally, cryptocurrencies aren’t treated as fiat money. Instead, most of them are classified as assets and are therefore subject to the relevant taxation law.

Another determining factor – tax residence status. Tax residents are subject to paying taxes on their worldwide income, while non-resident companies are taxed on their income sourced in Switzerland.

The Swiss tax administration system is multilayered as the responsibility is shared between the Federal Tax Administration (FTA), the cantons and the municipalities. Federal tax rates are stable, whereas cantonal tax rates are defined annually and are published on every canton’s official website. Although the taxation frameworks differ depending on the location, the tax year generally remains the accounting year.

Most licensees of crypto are obliged to pay the following taxes at the federal, cantonal, or communal level, respectively:

It is levied on federal, cantonal, and communal levels. Federal Corporate Income Tax is levied at a rate of 8.5% on the profit after tax deductions. The Cantonal Corporate Income Tax and Communal Corporate Income Tax, however, would vary considerably as different taxation frameworks are applied in the various cantons and municipalities.

For example, in Zug, where Crypto Valley is headquartered, the Cantonal Corporate Income Tax is as low as 11.85%, which happens to be among the lowest in Switzerland. In contrast, the canton of Bern presently charges 21%. If you are not sure which Swiss location is most favourable to your crypto business model, then our team here at Regulated United Europe will be happy to provide a personalized consultation.

The Capital Gains Tax at the cantonal level subjects to taxation only certain gains sourced from specific crypto activities. First of all, capital raised for an initial coin offering isn’t treated as income of the issuer, and the issuance of new tokens isn’t treated as a transfer for the purposes of taxation of capital gains. Should the transfer of payment tokens not amount to a trading transaction, they could fall under the purview of the securities regime under the provisions concerning the taxation of capital gains under the Income Tax Act.

VAT application is one of the very few exemptions when cryptocurrencies are treated as fiat money. Transactions, including exchange, of payment tokens are VAT-exempt since this category of cryptocurrencies qualifies as a means of payment and thus is treated analogously to the traditional currency. All commissions and fees applied in relation to these transactions are considered fees for financial services, which aren’t subject to VAT.

With around 100 international agreements on the elimination of double taxation, Switzerland enables its taxpayers to shield their income sourced outside of Switzerland from double taxation. Ordinarily, Swiss law provides for the credit method whereby certain conditions of the companies are met.

Apart from this, companies which under specific prerequisites have been predominantly foreign business are given the status of exemption on the level of cantonal and communal taxes at an effective tax rate of 7,83% -11% on such kind of income received from foreign sources.