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