Cryptocurrencies like Bitcoin are no longer the reserve of tech experts or specialist investors. Easy access to digital currencies and wide coverage in the press has increased awareness across demographics, especially once the value of tokens exploded. Here’s what you need to know to ensure real-world tax compliance of your virtual assets.
Both private and institutional investors have started investing heavily in this relatively new field, while start-ups are increasingly discovering cryptocurrency as part of their incentive packages. With a significant asset value tied up in the cryptosphere, the Swiss tax authorities have been quick to issue guidance on the taxation of Bitcoin and other cryptocurrencies, including income derived from mining .
Besides trading, income can also be generated by mining Bitcoin and other cryptocurrencies, i.e. through provision of computing power for a fee by a natural person. This may result in taxable income from self-employment – income which needs to be declared accordingly.
2. Trading of cryptocurrencies
As with regular share transactions, a distinction is made between private asset management and professional trading. The guidelines defined in Circular 36 EStV of 27.7.2012 are applied analogously. Essentially, an individual may qualify as a professional trader depending on the transaction volume (frequency of transactions and short ownership), use of substantial foreign funds to finance trading activities, and significant use of derivatives (exceeding the hedging of risks). As qualification thresholds vary from canton to canton, it is worth seeking independent advice for a case-specific analysis.
Any further income generated through cryptocurrencies is generally taxable according to the type of income it represents (e.g. wage or income from self-employment, interest or quasi returns from movable assets or other income).
Profits made through sales transactions with cryptocurrencies fall under capital gains from movable assets and from a Swiss tax perspective are considered tax-exempt capital gains. Capital losses derived from trading with cryptocurrencies are typically not tax-deductible.
3. Wealth tax
In general, terms the Swiss tax authorities consider cryptocurrencies held by private individuals to be equivalent to holding cash or precious metals and are to be treated as such from a tax perspective. Under Swiss tax law, assets are generally subject to wealth tax. As cryptocurrencies also have a market value, this value has to be declared in your Swiss tax return (irrespective of where the cryptocurrencies are held) in the assets and securities section.
Cryptocurrency should be stated at its value as of 31 December of the year in question. This can be determined as follows:
- The SFTA publishes the year-end rates of major currencies including Bitcoin and other main cryptocurrencies here.
- Alternatively, proof of value can be provided with a screenshot of the “crypto wallet” as of 31 December of the relevant year.
It is important to note some differences between the cantons with regard to declaration requirements. In Basel-Stadt, for example, the privately owned cryptocurrencies are to be declared under position 835 “Cash, precious metals and other assets”. Securities in cryptocurrencies on the other hand need to be declared in the securities and assets section of the tax return . The cantonal information sheets provided with your tax return forms should offer guidance on the practice in your canton of residence.
The factsheets published by the tax authorities are a good start in developing clear practice on the treatment of mainstream cryptocurrencies. However, the market continues to be flooded with alternative cryptocurrencies – know as “altcoins” – and as the technology supporting cryptocurrencies develops, new assessments will need to be made. For example, what rights does the owner of the tokens have to the underlying digital information unit? If the asset acquisition relates purely to ownership rights to the digital item, the tokens may be treated the same as other cryptocurrencies. But once ownership rights become diluted a more careful analysis is needed to determine the correct taxation approach.
Building on our in-depth knowledge of the tax landscape and a lead-by-example approach to innovative technology, KPMG can help you ensure compliance, whatever shape your cryptocurrency assets take.