Regulation of cryptocurrencies in Switzerland in 2024

Cryptocurrencies that are not considered securities

A payment token is a classic cryptocurrency (Bitcoin, Ethereum) that is used as a means of payment and store of value. Payment Token can be used for settlement in transactions if the parties have agreed on it in advance.

A Utility Token is similar in characteristics to a coupon. The owner of the Utility Token can exchange it for products or services that the issuer provides within the ecosystem.

Separately, a hybrid token, which combines the features of the main types, is worth mentioning. It also complies with the legal requirements applicable to each category of cryptoasset. In addition, FINMA reserves the right to change the classification of tokens over time.

Taxation

Cryptocurrency in Switzerland is correlated with fiat money, for which there is no VAT. Companies related to the circulation of digital coins pay taxes at the federal level. But taxes related to capital gains or income are levied by the cantonal authorities. The accounting registers define digital coins as assets subject to taxation on the grounds provided for in the Finsa law. The document regulates the collection of income taxes at rates of 7.83% at the federal level and 6-12% in the cantons.

Mining is taxed only when users join pools for commercial cryptocurrency mining. An indication of entrepreneurial activity is making a profit from the sale of coins. Private mining is considered a hobby.

Taxation of cryptocurrencies in Switzerland directly depends on the category of assets. If the coins were manipulated, which led to the formation of profits, a rate of 7.83% is applied to them. Capital gains tax is imposed on the sale of bitcoin at a price higher than the purchase rate. Crypto coins are accounted for at their book value recorded in the company’s financial register. If the digital currency is not recognized as an asset in a separate project, capital gains tax does not apply to it.

Regulation of tokens and ICOs

In the official guidelines for initial coin offerings, the regulator has defined the requirements for companies planning to issue digital currency:

• Payment token. The developer has an anti-money laundering (AML) obligation.
• Service unit. Not subject to AML regulations. However, a cryptoasset may be recognized as an investment asset if it is intended to be used in part for investment.
• Proprietary token. The issuer must publish a prospectus or information document outlining the characteristics and functions of the asset.

In order to conduct an ICO in Switzerland, a foreign company must confirm legal status with FINMA. If payment tokens are to be issued or placed on the primary market, a tokensale license is required.

The issuance of digital assets takes place in several stages:

1. Pre-investment. The issuer accepts deposits under the obligation to transfer an agreed number of coins after the launch of the project.
2. Pre-sale of tokens. Investors receive tokens that confirm their right to receive or buy at a discount the underlying asset at later stages of the ICO.
3. Pre-Operation phase. Developers finalize the functional base for crypto-coins.
4. Start of operations. Blockchain and tokens can be used as intended.

Separate rules govern the issuance of investment assets (STO):

• Only professional investors can participate in the tokensale.
• The offer can be used by up to 500 participants.
• The investment amount is from CHF 100 thousand ($109.59).
• The minimum issue is 100 thousand tokens.
• The maximum amount of the offer is CHF 8 million ($8.76 million).

According to the Swiss cryptocurrency organization Crypto Valley Association, during the ICO phase of 2017-2018, local companies raised more than $550 million, second only to American startups, which raised $580 million. The world’s first coin offering was held in Zug by the Ethereum Foundation project.

Regulation of cryptocurrency activity

The use of crypto-coins to pay for goods does not require special authorization. However, commercial companies engaged in cryptocurrency trading and other activities related to profiting from the manipulation of koins are required to comply with the requirements of the anti-money laundering law. In this regard, verification (KYC) for customers of the business is mandatory.

Trading platforms must also comply with AML regulations. According to FINMA guidelines, exchanges must join a self-regulatory organization (SRO) or apply to the authority for a supervised financial intermediary (DSFI) permit before they can operate.

If the company accepts money from investors, deposits it in its accounts or manages crypto-assets for investors, it must obtain a banking license.

Once authorized, the company comes under the supervision of FINMA. The regulator checks the company’s operations for compliance with the established rules, as well as capital adequacy in accordance with the requirements applicable to banks.

Cryptocurrency custody

In Switzerland, custodial services (asset placement and management) for institutional and private investors are provided by banks and commercial companies. As an additional option, exchanges and trading brokers offer storage of crypto-coins.

If clients’ assets are comparable in function to money, companies can place them without banks’ authorization. However, the financial organization must provide a guarantee against default. In some cases, cryptocurrency storage is also regulated by the Financial Services Act (FinSA). For example, a user can conduct token transactions through custodial accounts. This means that the company must comply with the regulations defined by FinSA.

Future regulations

In September 2021, the Swiss regulator announced its intention to introduce mandatory verification for users who conduct cryptocurrency transactions of more than CHF 1,000 ($1095). FINMA expects the new restrictions to reduce the risk of crypto coin fraud and prevent high-volume money laundering.

Since the beginning of 2021, several criminal cases have been filed in the country regarding violations of AML policies. Therefore, the authorities have strengthened control over the activities of trade operators and commercial companies. In particular, the regulator refused to grant Bitcoin Suisse broker Bitcoin Suisse a banking license, citing insufficient protection against money laundering. The new regulatory framework is planned to be adopted based on the results of observations of technical features and market trends in the circulation of cryptocurrencies, which are conducted by the national bank of the country.

Swiss State Post

Having created one of the most progressive ecosystems for the development of the cryptocurrency industry, Helvetia (this is the old Latin name used on the country’s postage stamps) continues to experiment with the application of blockchain technology. In May 2021, Swiss postal operator PostFinance launched Yuh to invest in BTC, ETH and 11 other digital coins. Users can also trade securities remotely. It is a joint development between PostFinance and Swissquote Bank that combines account management, payments, peer-to-peer transfers, investments and asset trading.

The commission for buying and selling crypto coins is 1% of the transaction, shares – 0.5%. Simultaneously with the launch of the app, the partners introduced a new cryptocurrency Swissqoin. When making a deposit of 500 CHF ($547.95) with Yuh, customers will receive the same denomination of digital coins. Additional Swissqoin will be distributed among active users of the app.

In October 2021, PostFinance announced the release of a cryptocurrency stamp for collectors. According to the company, the postal artifact will consist of 2 parts: physical and digital. The first one can be used for its direct purpose. The second will be released in the form of NFT, designed for storage and trading. The stamp will go on sale on November 25 in a limited number of 175 thousand pieces. The price of the stamp is CHF 8.9 ($9.53). A total of 13 different designs will be issued, the 50 rarest stamps will become artifacts.

How to start a cryptocurrency business in Switzerland

Since 2013, the canton of Zug has been an international center for blockchain developments. It is the capital of the Swiss Crypto Valley, which has created favorable conditions for the development of cryptocurrency projects. The cantons of Lucerne, Zurich and Geneva can be considered for fintech activities. Favorable legislation attracts teams from different countries to Switzerland. New companies can count on tax benefits and a loan of up to 70% of the project cost.

To set up a cryptocurrency business in Switzerland, it is necessary to obtain authorization from the financial regulator or join an SRO. The requirements for issuing a license from FINMA include:

• Share capital of CHF 20-100 thousand ($21.91-109.58) depending on the organizational form.
• Local office in the canton of incorporation.
• One of the directors must be a resident of the country.
• Preparation of documents describing potential risks of operations.
• Compliance with established liquidity and capital adequacy standards.

To join the SRO it is necessary to provide a business plan for the development of the company for the next 3 years, a financial model and a strategy for entering the European market. It is also worth providing for the payment of certain fees:

• SRO participation – CHF 1,850 ($2027).
• Acceleration of the application review – CHF 1050.
• Project audit – 800-3050 CHF.
• Membership annual fee – 450 CHF.
• Annual fee depending on company turnover – 500-1550 CHF.
• Standard member preparation for SRO membership – 650 CHF.

Company formation includes:

1. Selection of the type of authorization.
2. Consultation with lawyers on licensing, peculiarities of doing business in different cantons, taxation.
3. Registration of a legal entity.
4. Organization of the office.
5. Preparation of documents for FINMA (SRO).
6. Obtaining authorization.

FINMA license or membership in SRO will allow the company to trade in coins equivalent to securities, make payment transactions and open accounts for clients.

Summary

Switzerland was one of the first countries to clarify its position on cryptocurrencies. While other states were considering the uses and risks of bitcoin, Bern passed a number of important laws aimed at integrating the technology into the real economy. The small administrative district of Zug has become a stronghold for the crypto industry and a center for technology development. A large financial sector, a stable political environment combined with low taxes attract large companies and startups from all over the world to the country.

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