Paying tax on shares in Switzerland

How are capital earnings taxed in Switzerland?

Anyone who holds shares in Switzerland benefits from an advantageous tax law as an investor. Whereas you often pay a tax on capital earnings abroad, things are different in Switzerland. Nearly all earnings are subject to income tax, and a person must declare their securities holdings as assets in their tax return by the end of the year. In terms of exactly what securities income is taxed, the general rule is that you pay no tax on exchange gains, but you do pay tax on dividends, that is unless they constitute tax-exempt capital gains. This is because dividends are considered to be income, while exchange gains are not. In our article “Interest, dividends, return – what are they?”, you can read more about what makes up a dividend and what it means.

What you should know about dividend taxation

• Gross dividends – in other words dividends before withholding tax and tax deducted at source – must be added to your taxable income by Swiss law. This means they’re subject to income tax. This is not the case if the dividends in question are in fact distributions from capital reserves. In this instance, they are tax-exempt capital gains that are not subject to income tax.
• With Swiss shares, 65% of the gross dividend is paid out to you directly, while the remaining 35% is paid directly to the Federal Tax Administration as withholding tax.
• For domestic investors, however, withholding tax on Swiss shares is simply a safeguard. They get the money back when taxes are collected, provided certain criteria are fulfilled, such as correctly declaring income on their tax return.

Two tips on filling out your tax return

As a domestic private investor, you do not need to pay any tax on exchange gains, but only on your dividends as income, and the market price of the securities held as assets as at 31.12. Unsure of the best approach? We have two tips for you:

Enter all share packages in the list of securities

You can enter all your shares with the security number or ISIN number – including unlisted shares and those traded over the counter. The market price as at 31.12 is then displayed automatically in the tax software. If you cannot find your funds or shares in the tax software, you can look at the The link will open in a new window price list of the Federal Tax Administration at ictax.admin.ch. If you cannot find the prices there, you can enter the bank’s valuation as at 31.12. (e.g. according to your custody account or asset statement). The Tax Administration will correct the value if required as part of the assessment. Make sure you also enter shares you’ve already sold during the year if they yielded a return. These market prices are considered part of your assets. The dates of purchases and sales made during the tax year must also be entered if there have been transactions of this kind. If you hold many shares, this process may take a long time. For this reason, the majority of banks, including PostFinance, offer their customers tax statements that provide a detailed overview and help to simplify this process.

Enter income

Enter all income from shares, other securities and bank accounts in your tax return, and make sure you enter income from shares you have already sold. In the case of shares on which you’ve paid withholding tax, your canton will refund you the 35% percent by deducting the applicable amount from your cantonal tax bill.

Exchange gains in Switzerland: tax-exempt for private customers

Under Swiss law, exchange gains – unlike dividend distributions – are tax-exempt. This is good news for local investors because it can have a positive effect on their finances.

Mr. Ramírez benefits from tax-exempt exchange gains as a private investor. Things would be different if he were classified as a commercial trader in securities:

Other rules apply to commercial traders in securities

Exchange gains are tax exempt, dividends are taxable – this applies to private investors. If you are classified as a commercial trader in securities, your exchange gains are no longer tax-exempt in Switzerland. You are classified as a private investor if you invest money in shares that you earn from a different source – e.g. your main line of work. In other words, you do not live off your investments, meaning you are not a commercial trader in securities.

Five key criteria that qualify you as a private investor

As a private investor, you must meet the following criteria for the relevant tax authorities to classify you as a private asset manager. Please note these tips only apply within the context of classification by the tax authorities, and should not be viewed as general (investment) recommendations.

• You hold your assets for over six months: this criterion is usually met because, as a private investor, you’re likely to hold your assets for longer than 6 months in any case.
• The correct ratio between capital gains and net income: your capital gains should not exceed 50% of your net income.
• The correct ratio between transaction volume and portfolio value: the transaction volume you handle on an annual basis should not exceed five times the value of your portfolio. If, for instance, your portfolio is worth CHF 10,000, the transaction volume from buying and selling your shares should not exceed CHF 50,000.
• You use your own capital to invest: as a private investor, you should generally trade with your own money, and not trade on credit (e.g. with lombard loans).
• You don’t use derivatives (except to hedge your securities against exchange losses): buying and selling derivatives (options, especially) may lead the tax authorities to assume that you‘re a commercial trader in securities. Derivatives for hedging your securities against exchange losses are, however, an exception.

If these five criteria are all met, the tax authorities can rule out you trading securities commercially. If they are not all met, they will investigate and assess the circumstances of the case in question. The assessment may vary depending on the tax office. Please also note that these five criteria apply not only to shares but also to bonds, funds and other financial instruments.

If you‘re classified as a commercial trader in securities, you must pay tax on exchange gains as income from self-employment. This may result in you falling into a higher progressive tax bracket  Progressive taxation applies in Switzerland. This means taxpayers with greater financial capacity pay a proportionately higher amount of tax. The tax rates are based on a tiered system..

With that said, commercial traders in securities can include exchange losses in their tax return, whereas private individuals cannot.

Disclaimer

This article is for information purposes only and does not replace any individual tax advice. For tailor-made solutions, we recommend a consultation with a tax or fiduciary specialist.