Bitcoin and crypto trading in Switzerland
Using crypto in Switzerland
Spending crypto is becoming more accepted. A number of e-commerce organisations enable the transacting of cryptocurrencies through their apps and credit cards. Switzerland has many small outlets willing to take payment in crypto, but the biggest by far is the online shop Digitec Galaxus, which was the first major multi-product brand name to begin accepting digital currency. Smaller outlets that accept crypto range from bars, restaurants, cafés, online shops and nightclubs.
You won’t be able to reduce your tax bill by gifting your cryptocurrency. Whatever gain you have made on it will be taxable up to the point at which you gift it. Whether you are liable for tax depends on your status as either an individual or business trader.
Law and crypto trading in Switzerland
Although cryptocurrency is not recognized as legal tender – the same as in most countries – it is recognised and accepted by the Swiss government. One Swiss canton, Zug, will be the first in Switzerland to begin accepting bitcoin for tax payments. Crypto exchanges are on a par with other financial institutions requiring the same levels of compliance with local AML/CTF and consumer protection obligations.
The Swiss Federal Department of Finance (FDF) has been reviewing tax law in relation to cryptocurrency. It published a report stating a likely need to have some specific legislation in place to take account of the advances in blockchain technology that would have a bearing on income tax, wealth tax and VAT.
Taxing cryptocurrencies in Switzerland
Switzerland is open to crypto and trading. Gaining interest or lending for gain on a professional basis is subject to income tax. The Swiss Federal Tax Administration (SFTA) considers cryptocurrencies to be assets: they are subject to Swiss wealth, income, and capital gains taxes and must be declared on annual tax returns. Determining whether your gains from buying and selling are of a private nature (and not subject to income tax) or of a business or professional nature (in which case it is taxable as income) needs to be sorted out with expert advice. So does the exact classification of the digital assets being bought and sold. Crypto is also considered an asset and therefore subject to wealth taxes. The value of the asset holding must be declared at the end of the year. However, the rules for declaring crypto may vary across the country and need to be checked with local advisors.
In Switzerland, crypto assets and certain capital gains must be correctly declared. How they are taxed will depend exactly on the nature of the crypto and the individual’s own status as a private or professional investor and thus part of an individual’s private or business wealth.
If you are a long-term resident of Switzerland, you are probably deemed a permanent resident for tax purposes, if not for visa purposes. If you are not a permanent resident, and your holdings are outside of Switzerland your situation will require specialist advice.
Mining cryptocurrency is perfectly legal and subject to no specific laws or regulations. Gains derived from it will be taxed in the normal way as income with allowable expenses. Additionally, mining for crypto does not qualify as a financial service.
Crypto financial services in Switzerland
Most retirement and pension funds worldwide deem cryptocurrencies to be too volatile to become part of long-term retirement schemes. Some form of cryptocurrency may well increase the yield of a pension fund portfolio but will carry higher risk and higher fees as a result. Whether organisations will be able to add crypto to an individual’s retirement planning very much depends on the classification of the crypto asset to be used. There is little certainty on this at present. Switzerland’s parliament recently passed the Blockchain Act, further defining the legalities of exchanging crypto and running cryptocurrency exchanges. The law requires compliance with local ICO, AML, and CTF requirements as soon as a token can be transferred to the blockchain infrastructure.
Switzerland’s central bank has trialed a form of digital money to settle large-scale transactions between financial institutions. There are no concrete plans to issue a digital currency. The experiment, known as Project Helvetia, was run by the Swiss National Bank (SNB) with Swiss bourse operator SIX and the Bank for International Settlements (BIS). In early 2021, SEBA, a FINMA licensed Swiss Bank began bridging digital and traditional assets. Customers are able to benefit from services including investment solutions, custody and trading.
UBS and Credit Suisse are part of a consortium behind a digital payment token project to settle trades faster. Private banks such as Maerki Baumann and Arab Bank Switzerland offer cryptocurrency services to wealthy clients.
The concepts of decentralized finance and blockchain technology are both linked to the rapid interest and growth of cryptocurrency. The Bank of Switzerland (BoJ) recognizes that there could be some positive aspects to the adoption of DeFi but there are no legislative plans at this point.
Crypto regulation in Switzerland
Improved security for your crypto assets inevitably means increased legislation and regulation. Switzerland is embracing crypto trading, and all of the major exchanges and wallets are available. While security against hacking and fraud is improving all the time, it always pays to do your own research. Find out which exchanges carry insurance, and what their record is against security failure.
Switzerland has a clear registration process for cryptocurrency exchanges. Exchanges need to be licensed by the Swiss Financial Market Supervisory Authority (FINMA) in order to operate. Swiss-based exchanges are regulated and you’ll have to provide ID to any exchange you are considering. Remember, your crypto dealings must be declared at year-end.