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The truth about Capital Gains and Taxes in Switzerland

Baptiste Wicht | Updated: |

(Disclosure: Some of the links below may be affiliate links)

When you invest in the stock market, you expect capital gains. But you do not want to lose your hard-earned capital to taxes, right? So, Swiss investors need to know how Switzerland taxes capital gains.

Capital gains are something that many people do not understand correctly. And this is especially true when it comes to Capital Gains Taxes. I have received many questions regarding how Switzerland taxes capital gains. I am specifically talking about capital gains and the stock market.

So I decided it was time to dedicate an entire article to Capital Gains and Switzerland taxes them. It is not a very difficult subject. But it is an essential subject!

Hopefully, this will help more people understand how this works! Fortunately, we have a country where we can avoid taxes on capital gains, but the rules are unclear.

Capital Gains in the Stock Market

Capital Gains are the gains you make when you sell stocks at a price higher than the amount you bought.

For instance, you purchased ten ETF shares at 100 USD and sold them at 200 USD. As a result, you have realized 1000 USD capital gains (10 shares times 100 USD gain per share) in this example.

Capital gains are based on the appreciation of value. And they are only counted when you sell. So if you have not sold yet, you could say you have unrealized capital gains. But we are focused on realized (sold) capital gains.

In this article, I mainly talk about stocks. But the same rules apply to bonds. There is no difference in capital gains between stocks and bonds.

Capital gains do not only apply to the stock market. They also apply to everything that appreciates. The other important area is real estate. Theoretically, you could even have capital gains when you sell anything at a higher price than when you bought it. However, for this article’s sake, we will focus on capital gains in the stock market.

Capital Gains Tax

Most countries have taxes on capital gains. So it means you need to consider this tax when you invest.

However, in Switzerland, capital gains are generally tax-free. Investing in the stock market in stocks or ETFs is very efficient. You can double your money without paying taxes on it.

This appreciation will still increase your wealth tax. But it means that income through capital gains is one of the only forms of income that will not be taxed twice in Switzerland.

Not having to pay taxes on capital gains can make it much easier to retire early in Switzerland. Most countries will tax your capital gains. And in some countries, capital gains tax is very high. For instance, in France, you will pay a third of your capital gains as taxes! In Russia, you would pay 20% in taxes. But in our great country, you generally pay 0% in capital gains tax!

You can read more about this on the official website of Switzerland. The website states that gains in the value of privately owned shares and bonds are tax-free if the investor is not classified as a professional investor.

Indeed, I said that capital gains are generally not taxed in Switzerland. Indeed, by default, they are tax-free. But if you qualify as a professional investor, you must pay a tax on your capital gains (counted as income). In that case, your capital gains will be added to your taxable income and taxed.

Professional Investor status

Tax offices consider people to be private investors by default. A private investor invests the money he is earning through other sources of income in the stock market. This means he is not living from his investments; he is simply using the stock market to make more money.

The federal tax office uses five different criteria for differentiating private investors and professional investors:

  1. Private investors should hold securities for at least six months before selling them.
  2. Capital gains of private investors do not account for more than 50 percent of their net income.
  3. The total volume of transactions (purchases and sales) of a private investor does not account for more than five times the value of the investment portfolio at the beginning of the tax period.
  4. Private investors invest with their own money, not with loans.
  5. Private investors do not use derivatives (especially options) unless they are for hedging the risks on their securities.

If you pass all these criteria as a private investor, your capital gains will not be taxed. On the other hand, if an investor does not pass all these rules, he may be considered a professional investor.

When you fail all the rules, tax offices do a thorough review to decide whether they are professional investors or not. An investor will likely be a professional investor when failing all these criteria.

If someone ticks only some rules, the local tax office will decide whether they are professional investors. In practice, you must violate at least two of these rules to be considered a professional investor.

Local tax offices use these criteria as rules of thumb. It means that tax offices can use their own rules. But generally, they use these five or a subset of these rules. The first three rules are the most important to tick.

The third rule is straightforward to avoid: hold your securities and do not try to time the market. If you invest passively in a few ETFs, the total transaction volume will always be much less than five times the value of your securities.

The first rule should also be easy. If you are a long-term investor, for instance, pursuing Financial Independence, you want to buy your shares with the intent to sell them for a very long time. So, you should have no issues with this rule.

The second rule is generally not bad. When you are working, you will likely get significantly more income than your capital gains. Therefore, your capital gains will not be taxed.

If you do not meet one of these rules, you will not be considered a professional investor. Ultimately, a human will still decide on your status.

For instance, if you held some of your securities for only five months, but all the other rules are fine, you will not be considered a professional investor. Or, if you invest more than five times your portfolio in a year but generate minimal capital gains, you will not be considered as such either.

It is also important to remember that few people are considered professional investors in Switzerland. This means you need to trade a lot to be considered as such. I am not saying you should not be careful. But I am saying the risks are minimal as long as you are a passive investor.

Since every canton can work around these five rules, you may want to contact your local tax office if unsure of your status.

But this may be different if you are trying to become Financially Independent and live out of the stock market.

Are FI People Professional Investors?

When you are Financially Independent and retired, you will not have much income. You may even have zero income for a long time. It means you will live out of your capital gains. But you do not want them to be taxed.

But since your capital gains make for more than half of your income, should you be considered a professional investor?

In theory, you could, yes. But in practice, you will only have one failed criterion. Generally, people are not considered professional investors only by a single criterion. You should meet several of these criteria for your capital gains to be taxed. Again, you can contact your local tax office if you want to be sure about that.

And there is something else as well: dividends. If you invest in the global stock market, you will receive dividends. Dividends are counted as income. So if you live half on your dividends and half on your capital gains, you should be fine.

In general, most ETFs have about a 2% dividend rate. Since most people retire on the four percent rule, they only need 2% of capital gains. This is a good split. But this can vary significantly yearly, so we must be careful.

Now, this is one place where distributing ETFs are much better than accumulating ETFs. If you only own accumulating ETFs, you will need to sell more of them to pay your bills. As such, you will generate more capital gains. Realized income is why I prefer distributing ETFs over accumulating ETFs.

Also, even if you sell 2% of your net assets yearly to live, this will not be entirely capital gains. Some of the money you get is the money you paid to buy the shares. But over the long-term, you want capital gains, not invested money. But still, this will reduce the risk of having too much income from capital gains.

When you are in retirement, a little income will go a long way in helping you retire. So, if some income stream covers a quarter of your expenses, you only need dividends and capital gains for the other three quarters. In that case, it is improbable that your capital gains exceed your dividends and the side income.

And if you use a more conservative withdrawal rate, it will be even easier to have half of your income in dividends.

Finally, there is something good with capital gains. You can control them. It means you decide when you gain capital gains. So, based on the 50/50 split, you can control how much capital gains you realize not to be considered a professional investor. Of course, this is not always possible. If you need the money for essential expenses, this should not prevent you from selling.

Given all this, early retirees in Switzerland do not have to worry much about capital gains tax. If you want to be sure, contact your local tax office. But in practice, it is extremely rare for people to be classified as professional investors unless they are self-employed traders.

Conclusion

We can assume that capital gains will not be taxed in Switzerland. It is excellent because this means much of your income will not be taxed in retirement.

Now, we still have to be careful not to be qualified as professional investors. Indeed, professional investors will have their capital gains taxed as income. But most rules are simply the rules of long-term passive investors (hold for more than six months and do not do many transactions).

The only thing that could happen is to be qualified as a professional investor in retirement because our capital gains make for more than half of our income. But in practice, this should not happen. Indeed, you should also receive dividends. And you may have a side income that will help in that matter.

Moreover, very few people are classified as professional investors. Unless you are day-trading, making many transactions, or using options to trade, you should not worry much about your investor status.

Too many people are worried about capital gains taxes. Most people should not worry about that because they will not fall into the category of professional investors. Hopefully, this article helps clarify capital gains and taxes in Switzerland.

If you are interested in capital gains, you are likely interested in the best brokers for Swiss investors.

If you want more tax information, I have an entire article about taxes in Switzerland. For instance, we should not forget that our wealth is taxed.

The best financial services for your money!

Download this e-book and optimize your finances and save money by using the best financial services available in Switzerland!

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Baptiste Wicht started thepoorswiss.com in 2017. He realized that he was falling into the trap of lifestyle inflation. He decided to cut his expenses and increase his income. This blog is relating his story and findings. Since 2019, he has been saving more than 50% of his income. He made it a goal to reach Financial Independence. You can send Mr. The Poor Swiss a message here.

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190 thoughts on “The truth about Capital Gains and Taxes in Switzerland”

  1. Thanks alot, i must say, there isnt a topic that i need to know about and you havent covered! thank you so much for making things so clear, easy to understand and then even take the discussion further in comments for people to read further from. YOU’RE AMAZING.

    My Question – I have a 3 month old position in nvdia which has soard by 13K profit (total portfolio value incl. profit – 75K) and I was thinking of closing the position because the stock is very volatile, once it sheds and returns to normal levels, i plan to rebuy and with the remaining profit, i plan to buy other stocks (Capital gain isnt withdrawn) – My questions is – Can you buy/sell –> make such profits every 3 to 4 months but keep the money within the platform to buy more positions or take advantages of a dip ? does that raise any eye brows or make the authorities think that they need to tax me as a prof. trader?

    Moreover, I do have 1.5 year old positions (built over time but well over 6 months old). whereby i have made about 7K in profit from some positions (total portfolio value incl. profit – 32K) , I was thinking of selling, withdrawing money and using it to buy a motorbike, does that raise eye brows too?

    My tax is @ source, partner has decent income, i am unemployed and on chomage.

    1. Hi,

      this is a very important question for retail investors.
      Generally there are 5 rules used by Switzerland
      cantonal tax authoritities:

      If not a single one of these criteria is active in your case,
      you will not be taxed for capital gains (not applying to
      dividends tax, though), which is rare on a global perspective. Obviuosly you must hold the stocks at least
      6 months, currently. Details here:

      “Accordingly, tax-free private asset management is always present if the following requirements are met cumulatively (preliminary examination according to Kreisschreiben Nr. 36 of July 27, 2012):
      • The securities sold have been held for at least six months.
      • The transaction volume (corresponds to the sum of all purchase prices and sales proceeds) per calendar year does not total more than five times the securities and credit balance at the beginning of the tax period.
      • The achievement of capital gains from securities transactions is not necessary to replace missing or lost income for living expenses. This is usually the case if the realized capital gains are less than 50% of all taxable income in the tax period.
      • The investments are not financed with debt or the taxable investment income from the securities (such as interest, dividends, etc.) is greater than the proportionate interest on debt.
      • The purchase and sale of derivatives (particularly options) is limited to hedging one’s own securities positions.

      If these criteria are not met cumulatively, the
      qualification as a professional securities dealer cannot be
      excluded and an assessment is made based on the circumstances of the specific individual case.

      links:
      (Edit: Broken local links)

      My takes:
      -if single criteria apply to your case, the cantonal tax authority will judge you still on an individual basis, and differen Cantons can handle this different. I know
      that for the ‘normal’ private retail investor some tax authorities are very relaxed.

      -congrats for your Nvidia success. However empiric scientific studies demonstrate that with a market timing approach like your idea, retail investors are very rarely longterm-successful. So Buy&Hold and diversification generate more successful and stable success (on average).

      bye, good luck, thank You Baptiste for your super
      efforts here,
      Frank

      1. Hi FrankieS, thanks for taking the time to respond, your response doesnt cover my question related to, what if i sell and buy more with capital gains made from a single sale, does that also raise eye brows? case to case basis still applies?

        For NVDIA, thanks and i know timing the market isnt the best strategy. However, i do have other investments that i am holding since long, i am not very experienced , this is just a lucky shot that i was planning to cash out. Actually with NVDA, it was all extra cash that i had and i invested iwth the intention to pull if the stock surges, so its like, i had reserves…. over and above the long term holding portfolio and i invested it for small moves.. :) Thanks for the advise, all this tax business makes me scared as i am new to swiss and also unemployed @ the moment with my tax being handled by a third party for filing so just contemplating…

        Although i do want to find a way to make decent capital gains like 20-30K with nvdia like moves within 2024…. :) – Timing with extra cash reserves (but still playing it safe)

    2. Hi Ats,

      Thanks for your kind words :)

      I would say that it’s very unlikely you get taxed in this case. However, you are going to meet some criterias for professional investors. But unless this total profit makes a significant difference in your total income, I would be surprised if this was an issue. But again, the ultimate decision is left top the tax office.

  2. Hello Baptiste, just to understand things a bit better.
    If somebody has 100k in the bank and pays wealth tax for that. If he invests them in ETF, and their value becomes 110k in one year, he will still have to pay the wealth tax for 110k? Right? These 10k, will not be taxed as income/profit, unless he decides to sell the stocks. Correct? When in the future, one decides to sell, and the new value of the initial 100k after years is 200k. What tax does he pay? 35% of the profit? so 35% of 100k, 35k and gets 165? Or how does it work?
    I have around 400k in cash, which I do not plan to use for at least 15year and I do not want to buy real estate. Should I invest 300-350k of that and still have a respectable cussion? What would be your suggestion?

    1. Hi

      Correct, wealth tax is due on the current tax, including capital gain.

      As indicated in the article, if you sell for a profit and are not a professional investor, these capital gains will not be taxed as income.
      And IF you are a professional investor, this is taxed at your marginal tax rate, not at a fixed rate.

      I can’t say for you whether you should be investing, because it depends on your risk capacity and financial situation. However, in most cases, over 15 years, money is better invested than let in cash.

  3. Is it always better to be a private investor or having professional investor status gets some advantage too?

  4. Hi, do you know how the situation is like when from one year to the other you only started out with your investment journey? Say, while in the previous years you were not active on the stock market, but this year you are (e.g. with ~100,000 CHF), would they consider you a professional investor? Technically this only breaks the five times investment portfolio at the beginning of the tax year (assuming all other rules are taken into account), right?

    1. Hi Jason,

      I think adding money is fine. The money added should be counted towards the value. So, if you add 100K CHF in one year, you should be allowed to trade up to 500K according to the rule. This is only my interpretation, but I really don’t believe this case should be an issue. These criteria are really here to find professional investors, people that do this professionally. Most people should not worry too much about these.

  5. Hi thanks for the information.
    I’m just wondering if ETFs do not break the 5’th rule as they are kind of derivatives.
    If not how about leveraged ETFs like QLD or TQQQ? Will theses ETFs make me as a professional investor?

    1. Hi Joym

      ETFs are not derivatives, no.
      However, there are some derivative ETFs. And leveraged ETFs would break the rule in my opinion. Using these will not necessarily make you a professional investor. However, it still means you don’t fit all the criteria and as such, the tax office may decide to look into your situation and which may lead to a professional investor classification.

    1. I have a similar question. I own bonds that will pay an interest at maturity. What if I sell them just before maturity date. Will it all be considered cap gain?

      1. Yes, if you sell bonds at a higher price than you bought it, this should be a capital gains and will be taxed as such (in most cases, not taxed).

  6. Great article but I’m unsure of the rules regarding holding a portfolio in Switzerland longterm while being a tax resident of the Caribbean (0% tax).
    If I sell the portfolio after a few years & make substantial gains (more than any income) will I pay Swiss capital gains tax on the profits… while still being resident in the Caribbean?

    1. Hi TB,

      I have no idea, I don’t know how taxes in the Caribbean will work. This article is about Swiss tax payers, the rules are likely very different in other countries.

      1. I think you misunderstand.
        Do the SWISS authorities charge CGT or withhold CGT on profits of portfolios held by foreigners resident elsewhere ?

        Of course I know the Caribbean side of this equation…just trying to find out if profits are taxed at source in Switzerland before being sent abroad.

      2. I believe they do for dividends, but this will still depend on tax treaties between Switzerland and the Caribbean. And I don’t know about all the treaties done by Switzerland.
        You can try to start from here.

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