Tax return
Tax Return
We help you to complete your tax return
Unsolicited reports
Voluntary Tax Disclosure
We support you in case of undeclared assets
Crypto-company creation
Crypto Company Creation
Creation of a company dedicated to your activity
What taxation for cryptocurrencies?
Seen as purely technological tools for some, crypto-currencies have nonetheless become financial assets that can generate capital gains. Some particularly well-informed investors, or risk-takers, have actually generated very large gains.
Thus, the question of the taxation of these gains raises questions. However, on this point, although sometimes bordering on each other, the countries do not apply the same regime at all. Thus, although it provides for some interesting exceptions, France applies for example a flat tax of 30% to each sale of cryptocurrencies against a legal tender. Generally speaking, there is an assimilation of the taxation applicable to stock market capital gains or dividends.
To avoid confiscatory taxation, some investors prefer not to touch their portfolio, waiting for a potential change in the taxation of cryptocurrencies in their country. However, some people would like to take their capital gains, or cash out as they say in the jargon.
On this point, with its lack of capital gains tax for private individuals or individuals, Switzerland is extremely attractive.
Seen as purely technological tools for some, crypto-currencies have nonetheless become financial assets that can generate capital gains. Some particularly well-informed investors, or risk-takers, have actually generated very large gains.
Thus, the question of the taxation of these gains raises questions. However, on this point, although sometimes bordering on each other, the countries do not apply the same regime at all. Thus, although it provides for some interesting exceptions, France applies for example a flat tax of 30% to each sale of cryptocurrencies against a legal tender. Generally speaking, there is an assimilation of the taxation applicable to stock market capital gains or dividends.
To avoid confiscatory taxation, some investors prefer not to touch their portfolio, waiting for a potential change in the taxation of cryptocurrencies in their country. However, some people would like to take their capital gains, or cash out as they say in the jargon.
On this point, with its lack of capital gains tax for private individuals or individuals, Switzerland is extremely attractive.
No taxation for non-professionals when selling cryptocurrencies (cash out)
Whether you’re talking about cryptocurrency, Bitcoin (BTC), Ethereum (ETH), NFT or decentralized finance (DeFi), the taxation is the same. If your cryptocurrency portfolio management is considered private, you don’t have to worry about taxation, since there is none! Thus, an individual Swiss tax resident is completely exempt from his or her cryptocurrency gains.
This truly accommodating regime is not a surprise in Switzerland. Indeed, it is the same that applies to stock market capital gains and more generally to financial assets… as long as it is a private asset.
However, the whole question is to know what exactly is the management of private assets in order not to be considered as a professional. On this point, the jurisprudence of the courts, as well as the tax doctrine of Switzerland, allow us to determine with more or less accuracy what is considered as professional asset management.
How do you determine that someone is considered a professional when making a cryptocurrency sale (cash out)?
In Switzerland, everything depends on what is called private wealth. This criterion is essential because article 16, paragraph 3 of the federal law on direct federal tax (LIFD) states that capital gains from private assets are not taxable. In principle, the federal law considers that a capital gain is firstly derived from private assets. It is now necessary to know what makes it possible to link it to non-private assets.
As a preamble, it should be noted that wealth tax is due by any Swiss tax resident, whether you are an individual or a professional. Thus, the amount of your cryptocurrency holdings counts towards the tax base.
Screening to exclude any independent activity: the 5 criteria of the private investor
So what earnings can be derived from an independent gainful activity? According to the FTA Circular No. 36 on Professional Trading in Securities of July 27, 2012, the existence of a professional trading in securities is excluded a priori. It is according to certain criteria that it may or may not be considered a professional activity.
The first question is whether this circular applies to cryptocurrencies. Indeed, they are not mentioned in the circular. However, by analogy, it is believed that the principles of this circular are applicable to digital assets.
Under this circular, there is a prerequisite test to state with certainty that it is a simple management of private wealth and therefore capital gains are not taxable. These criteria are as follows:
- Holding for at least 6 months,
- Trading volume that does not reach five times the total value of your different portfolios (e.g. CHF 100,000 if your portfolio was worth CHF 20,000),
- Gains representing less than 50% of the taxpayer’s other income,
- No financing from foreign funds,
- Very minimal use of derivatives.
It should be noted that the clumsy wording of the circular suggests that if one of the criteria is not met, the taxpayer will be considered a professional. However, this is not the case! The preliminary examination simply excludes the automatic application of the private wealth management regime.
Indeed, if one of the criteria is not met, it is quite possible that the gains in cryptocurrencies are still considered as private management.
If one of these five criteria is not met, the situation must be analyzed on a case-by-case basis.
No automatic exclusion from self-employment: general criteria for a case-by-case analysis
According to the above-mentioned circular, when the purchase and sale of private assets exceeds the simple management of the private assets, it is considered that there is an independent gainful activity, the income from which is taxable. However, the circular adds that the analysis is made on a case-by-case basis.
This analysis takes into account several secondary criteria, such as the volume of transactions, the length of time the assets are held, the financing by foreign funds or the use of derivatives, in order to determine whether or not it is an independent gainful activity.
It is interesting to note that the “systematic or planned manner of acting” or the “close connection between the transactions and the taxpayer’s professional activity” are criteria considered of secondary importance.
If the administration considers that the purchase and sale of cryptocurrencies exceeds the mere management of private assets, it is an independent gainful activity taxable under income tax according to Article 18 of the LIFD.
Selling cryptocurrencies and expatriation: is Switzerland a solution?
Good news: by virtue of the freedom of establishment of persons and international tax treaties, you can legally become a Swiss tax resident! But, of course, you must respect a certain number of criteria, more or less strict depending on the country.
The first two are the same for all countries:
- Need to establish your tax residence in Switzerland BEFORE selling the cryptocurrencies (cash out),
- Not to have any legal ties with your previous tax residence.
We will take the example that will concern a majority of people who will come across this article: France. There is a tax treaty between the two countries to avoid double taxation. However, this does not answer the question of establishing your tax residence in Switzerland.
According to Article 4 of the French General Tax Code, you are considered a French tax resident if you meet one of these criteria:
- Personal and family ties (e.g.: your spouse or minor children stay in France, you spend most of your time in France, etc.)
- Main professional activity (e.g.: you live in Switzerland but manage a company established in France
- Economic criteria: more complex to determine, but if you have a majority of your investments in France, you are considered a French tax resident.
Contrary to what we can read elsewhere, having a French bank account or a real estate in France is not a priori a sufficient criterion to be considered as a French tax resident. The analysis must be done on a case-by-case basis and will depend on many other factors in the balance.
In France, for now, there is no exit tax on cryptocurrencies. This means that you won’t pay tax on your cryptocurrency gains when you leave (unlike ordinary securities). So you should take advantage of this while this rule lasts… This avoids you paying flat tax on unrealized capital gains!
Selling cryptocurrencies and expatriation: call on our firm!
We accompany many individuals wishing to establish their tax residence in Switzerland. If the taxation of cryptocurrencies in your country is heavy and you are considering living in Switzerland, call on Mr Alex Naray and his team.
Thanks to his experience and his links with French tax lawyers, Mr Naray is the right person to help you in your expatriation project.
Contact us now to get more information about our tax and legal services in the field of cryptocurrency in Switzerland!