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Swiss Regulation on Cryptocurrencies

Switzerland has one of the most progressive economies in the world. It is a very popular place to establish crypto-related businesses, the canton of Zug is also known as the “crypto valley” among the local population. At the same time, the regulation of crypto-currency in Switzerland is one of the most incomprehensible, but it remains among the most sought-after locations for initial coin offerings (ICOs) and security token offerings (STOs).

Regulation with the law

Switzerland is known as the “crypto-friendly” jurisdiction, although it does not have any specific regulations regarding crypto separately. Swiss crypto regulation is one of the most restrictive AML/KYC policies in Europe. Swiss law defines crypto-currencies as virtual assets, virtual goods. In the 2014 Special Report, the Swiss federal government defines cryptocurrency as “a digital representation of value that can be exchanged over the Internet and although it assumes the role of money; virtual currency exists only in digital code form and therefore has no physical counterpart…”

There are no restrictions on buying/selling cryptocurrencies or using them to pay for goods or services, no special approval is required for this. However, trading in these currencies requires a special authorization or license issued by the Swiss Financial Market Supervisory Authority (FINMA).

As we know, all cryptocurrencies are based on blockchain technologies, and anyone who intends to provide services requiring blockchain-based technologies is subject to a license from FINMA. These activities will be governed by the federal Distributed Ledger Technology Development Act (DLT Bill), which will go into effect in the second quarter of 2021. For now, FINMA has issued the ICO Directive, which prescribes the types of tokens:

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

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

Taxation

If the crypto currency is converted into fiat currency, such as CHF, EUR, USD, is comparable to an ordinary asset, the bank deposits, in this case, are subject to wealth tax and must be declared.

Income tax

If the cryptocurrency is part of the company’s assets, which belong to the beneficial owner, and increases profits, it becomes subject to income tax.

Capital tax

In case of cryptocurrency purchase by an entity, it must be reported annually at the cost of the purchase.

To summarize, crypto currency in Switzerland is compared to assets and is subject to the above mentioned taxes.

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

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