Regulation of cryptocurrencies in Switzerland

Switzerland has one of the most progressive economics in the world. It is a very popular place to establish crypto-related companies, canton of Zug is also known as the “crypto valley” among local people. At the same time, the regulation of cryptocurrency in Switzerland is one of the most incomprehensible, but it is still one of the most sought-after places for initial coin offerings (ICOs) and securities token offerings (STOs).

Legal framework

Switzerland is known as the “crypto-friendly” jurisdiction, although it doesn’t have specific regulations regarding crypto separately. Swiss crypto regulation is one of the most restrictive  AML/KYC policies in Europe. Swiss law defines cryptocurrencies as virtual assets, virtual property. In the special report of 2014, the Swiss federal government defines cryptocurrency as “a digital representation of a value which can be traded on the Internet and although it takes on the role of money; virtual currency exists only as a digital code and therefore do not have a physical counterpart…”

There are no restrictions regarding buying/selling of cryptocurrencies or their use to pay for goods or services, no special approval is needed for this. However, trading in this currencies require special approval or license issued by Swiss Financial Market Supervisory Authority (FINMA).

As we know, all cryptocurrencies are based on blockchain technologies, and everyone who intends to provide services that require blockchain-based technologies is subject to licensing by FINMA. Those activities will be regulated by the Federal Law to Developments in Distributed Ledger Technology (DLT Bill), which will come into force in the second quarter of 2021. For now, FINMA has published ICO Guideline, which prescribes types of tokens:

• Payment tokens (also defined by FINMA as “pure cryptocurrency”. These tokens are used as a payment instrument for purchase transactions. Those tokens do not have the ability to raise any profit for the issuer or holder. An example of this type of token is Bitcoin.
• Asset tokens. These tokens are used to ensure the rights of the issuer, for example, debts, dividends, bonds.
• Utility tokens. These tokens are intended to furnish access to services or an application.
• Hybrid tokens. These tokens can include financial functions of few types of a single type of tokens.
• Stable tokens. This type of token has a stable value. Their purpose is to limit the volatility of the token’s price. These tokens also can be connected to a bunch of cryptocurrencies, real estate, securities.

In case of offering of Utility, Asset and Stable tokens, the issuer has to be licensed by FINMA due the requirement of fulfilling of Swiss AML/KYC regulation.

Taxation

If the cryptocurrency is converted to fiat money, such as CHF, EUR, USD, is comparable to a regular asset, deposits in the bank, in this case, it is a subject of wealth tax and must be declared.

Income tax

If the cryptocurrency is a part of the assets of the company, which belongs to the beneficiary owner, and it rises profits – it becomes a subject of income tax.

Capital tax

In case of buying of cryptocurrencies by an entity, it has to be declared annually at cost of the purchase.

To summarize, cryptocurrency in Switzerland is compared to the assets and it is a subject of taxes mentioned above.

Finally, Swiss regulation is being developed by the authorities to keep it up to date with international regulation of crypto. It will be further developed in accordance with international compliance rules.

If you wish to find out more details about the Swiss regulation of cryptocurrencies, do not hesitate to contact us.