Tax Classification
a. Income and Wealth Tax
As to income tax treatment, particular token classification is not decisive (unlike in some countries):
- The FMV (fair market value) of a token is subject to annual wealth tax of up to 1% (regardless of token’s classification).
- Capital gains from sale of tokens held as (1) private property by (2) Swiss resident individuals are tax free.
- For tokens held by a Swiss resident corporation (that qualifies as a professional securities/token dealer) of a Swiss individual, capital gains will be subject to income tax (and social security in the case of an individual) regardless of token classification.
b. VAT
Unlike the above, token classification matters for VAT.
Any classification of tokens by FINMA is not binding for VAT. Tokens may be qualified differently for VAT purposes even though FINMA terminology is used for VAT.
Payment Tokens: VAT
Pure payment tokens are used as a means of payment for goods or services and, therefore, do not entitle the customer to receive certain or determinable services – they only represent agreed means of payment.
The use of a payment token as payment does not constitute a taxable service itself (exempt from VAT), as it is equivalent to the use of legal tender.
Utility Tokens: VAT
Utility tokens entitle to receipt of certain or determinable services or a right of access to a platform (license-like right).
The use of a utility token is taxable at the time the service is provided (actual performance) so long as the service does not fall under a tax exemption and was not already taxed at issuance (e.g. advance payment).
Asset Tokens: VAT
Asset tokens do not constitute a participation under company law and do not entitle the holder to repayment of the amount originally paid in.
Purchase and sale of asset tokens are exempt from VAT.
Governance / Native Tokens: No issued guidelines on VAT.
Absent the guidelines, it is likely that tokens will be qualified by predominant function.
- If the token gives voting rights to a platform but is not otherwise intended to access the utility of a platform, it would likely be treated as an asset token.
- If the main reason to own the token is to access the platform’s functionality, it could be considered a utility token and, hence, a taxable (or exempt) service.
Hybrid Tokens: Predominant service
- Asset token with additional utility: per predominant service, it is assumed that the investment function is the main value; the token will be treated as an asset token for VAT.
- Asset or utility token with additional payment function: additional payment function does not constitute a combination of several services for VAT; such a token will be qualified, therefore, either as a utility or asset token.