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.

The following crypto tokens are recognised and regulated by the Swiss authorities:

• Payment tokens – a means of electronic payment that can be used for monetary value transfer (e. g. Ether and Bitcoin)
• Asset-backed tokens – backed by tangible assets and often issued during the security token offering (STO) stage to raise funds
  • Debt tokens obligate 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 token holder is entitled to a cash payment
  • Participation tokens don’t obligate the issuer to repay the investment but the token holder is entitled to a proportional share of the issuer’s future profit
• Utility tokens provide digital access to a system or service, mostly available on a specific DLT platform (if not classified as securities, they don’t require a license)

Depending on the type of tokens used to carry out economic activities, legislation aimed at securities, banking and collective investment may also be applicable. It’s worth noting that even if payment tokens aren’t recognised as a legal tender, FINMA doesn’t classify them as securities since they’re designed to be utilised as a means of payment.

The regulation of initial coin offerings (ICOs) is dependent on the type of offered tokens. ICOs involving payment tokens are subject to the AML laws, while ICOs involving asset-backed or utility tokens must comply with securities regulations stipulated in 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 documents concerning the applicant company should be properly prepared:

• Corporate documents (such as statutes)
• Business plan including budget (balance sheet and profit statement) for the next three fiscal years, with optimistic, realistic and pessimistic scenarios, as well as geographical coverage, group structure and target market
• Information on business premises, infrastructure and personnel
• Evidence of the source of funds and information on public deposits
• Detailed information on equity (structure, distribution, nominal value, etc.)
• Documented operating model (AML policy, data security, etc.), which should include a review of hardware and software used for economic activities, including third-party systems
• Detailed information on the storage of clients’ deposits
• If the application is submitted by the legal representative, their power of attorney is required (certified copy of the power of attorney)
• Application for incomplete and completed trials
• List of all participants with at least 5% direct or indirect ownership (up to the level of the beneficial owner with voting and equity)
• Figure showing all participants directly or indirectly qualified at the level of beneficial owner (including information on level of participation), by voting shares and capital
• Information on any agreements and other means of control or material influence on the applicant

Paying administrative and license fees is another essential step. The application fees start from 1,750 EUR and successful applicants are also subject to paying an annual supervisory fee of at least ​​3,500 EUR.

Since crypto licenses are granted to companies registered in Switzerland, you also have to take the time to establish one for your crypto project. There are several advantageous Swiss corporate structures that will allow you to start a business without having to go through endless red tape.

When a new company is established and all the fees are settled, it’s time to submit a crypto license application along with all the required documentation to FINMA who can also request further information, documents or audit. You’ll also have to arrange an appointment with the authority to present your business case for licensing.

Although applications can be submitted either in one of Switzerland’s official languages or in English, some of the documents (e.g. the Articles of Association and organisational structure documentation) can only be submitted in one of Switzerland’s official languages. If you need a certified translator, we’ll be pleased to arrange such a service for you.

Once a license is granted, it’s imperative to keep in mind that any changes in the licensee’s structure and activities (key documents, senior management, technical setup, etc.) must be reported to FINMA. In case of material changes, an approval has to be obtained from the authority before resuming commercial activities.

HOW TO OPEN A CRYPTO COMPANY IN SWITZERLAND

If you’re already convinced that there’s value in starting a crypto business in Switzerland and your business model is eligible for one of the crypto licenses, incorporating a Swiss company is an imminent step. Depending on your chosen legal business structure and quality of documents the incorporation may take up to four months.

The most common legal structures of a Swiss company that can be used to carry out crypto activities are Limited Liability Company (GmbH) and Company Limited by Shares (AG). Both can be established by a sole shareholder legally residing in Switzerland who doesn’t have to be a Swiss citizen but must possess permit B allowing them to start economic activities or be employed in the country.

Key aspects pertaining to the formation of both GmbH and AG crypto company:

• It can be established by signing a notarial deed
• Company formation can cost 1,500–2,000 CHF (approx. 1,475–1,967 EUR) which is inclusive of the notarial deed
• At least one shareholder and a board member are required who must be fit and proper
• Appointing an auditor is mandatory in most of the cases
• Having a registered office and employing local staff is mandatory
• Appointing a Swiss corporate lawyer is mandatory
• Designing internal AML and other risk management policies related to the specifics of the intended economic activities is mandatory
• Having an operational corporate bank account in a foreign bank is permitted
• Shareholders don’t have to be Swiss citizens

Standard initial share capital requirements are as follows:

• GmbH – 20,000 CHF (approx. 19,668 EUR) which must be transferred to a Swiss bank account or contributed with such contribution as crypto or other assets
• AG – 100,000 CHF (approx. 98,352 EUR), at least 20% of it and no less than 50,000 CHF (approx. 49,176 EUR) must be transferred to a Swiss bank account or contributed with such contribution as crypto or other assets

However, initial share capital requirements may vary depending on the type of the crypto license or multiple licenses if you’re applying for more than one. For instance, Fintech license applicants must transfer a full amount of 300,000 CHF (approx. 289,000 EUR) into the initial share capital account.

The following documents are required to establish 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 crypto licensees are obligated to pay the following taxes at the federal, cantonal or communal levels:

• Corporate Income Tax (CIT) – 12%-21%
• Capital Gains Tax (CGT) – 0.001%-0.5%
• Value Added Tax (VAT) – 7.7%
• Withholding Tax (WHT) – 35%
• Social Security Contributions (SSC) – 0.5%-5.3%
• Issuance Stamp Duty (ISD) – 1%

The Corporate Income Tax is levied at the federal, cantonal and communal levels. The Federal Corporate Income Tax is imposed at the rate of 8,5% on profit after tax deductions. Since cantons and municipalities have different taxation frameworks, the Cantonal Corporate Income Tax and the Communal Corporate Income Tax vary quite significantly.

For instance, in Zug, where Crypto Valley is based, the Cantonal Corporate Income Tax is only 11.85% which is one of the lowest rates in Switzerland. The canton of Bern, on the other hand, currently imposes 21%. If you’re not sure which Swiss location is the most favourable for your crypto business model, our team here at Regulated United Europe (RUE) will be delighted to provide a personalised consultation.

The Capital Gains Tax is levied at the cantonal level only on certain gains sourced from specific crypto activities. To start with, capital raised for an initial coin offering (ICO) 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. If the transfer of payment tokens isn’t a trading transaction, they might be treated as securities, regulated by provisions on the capital gains taxation under the Income Tax Act.

One of the rare exceptions where cryptocurrencies are treated as fiat money is VAT application. Transactions, including exchange, of payment tokens are VAT-exempt since this category of cryptocurrencies qualifies as a means of payment and is therefore analogous 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.

Switzerland has around 100 international agreements on the elimination of double taxation, which enables the taxpayers to protect their income (wealth, dividends, etc.) sourced outside of Switzerland from being taxed twice. Normally, the credit method is applied where companies meet certain conditions.

Also, under certain conditions, companies with a predominantly foreign business may be eligible for cantonal and communal tax exemptions and be taxed at an effective tax rate of 7,83%-11% on profits received from foreign sources.