The truth about Capital Gains and Taxes in Switzerland
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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:
- Private investors should hold securities for at least six months before selling them.
- Capital gains of private investors do not account for more than 50 percent of their net income.
- 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.
- Private investors invest with their own money, not with loans.
- 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.
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Hi
Thanks a lot for this interesting article.
When we see those rules, it’s seems almost impossible to make swing trading in switzerland without beeing defined as professional trader, specially rule 1 uand 3. is this true ?
are there private swing traders in switzerland ?
1/ Private investors should hold securities for at least six months before selling them.
-> fail since swing trading occur between 1 – 8 weeks
2/ Capital gains of private investors do not account for more than 50 percent of their net income.
-> could be ok, but here you are limited to the half of you income as gain, not more
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.
-> very diffcult to respect, because the value of investments you have at beginning of the tax period can not be managed as a swing trqader, it can be high, low or even 0
4/ Private investors invest with their own money, not with loans.
-> ok
5/ Private investors do not use derivatives (especially options) unless they are for hedging the risks on their securities.
-> ok
Hi Rolf,
I am not an expert, but I would think that any swing trader doing a significant volume would be qualified as a professional trader and be taxed as such. I don’t see why a swing trader would not be qualified professional investor.
Thank you Baptiste for your reply.
Yes you are right, i share the same option. But in case of a bull period it’s quite easy to keep positions for a long period, in today’s case with a bearish market which can stay for 2-3 years we have just few short bear market rallies. Long term investors with big accounts (> 200k) could be also flagged as professionals. All in all it’s normal to pay taxes when the gains are high. For my case i have just a small account and as a beginner i found your interesting article about the subject and asking myself how the other side looks like. what will happen if you are flagged as professional trader ? do you know someone or do you have heard about experience of people being selected as professional trader ?
If you are flagged as professional investor, every capital gain will be taxed as income. That should be the only difference. If you have a small account and are playing around, you are unlikely to be qualified as a professional. Now, keep in mind that the tax office is unlikely to differentiate between your different investments. If you have a large ETF portfolio and are doing swing trading on the side, the entire set of investments could be qualified as professional investment and you would be paying capital gains on your ETF gains as well.
hi,
i have question i live in the canton of Geneva, if retire and want to live of my invesments in this case i think the smart choice will be to have an ETF or several and sell the amount you need each year and in theory as you said i should paid 0 income tax eventhough i will paid a decent amount in wealth tax, my question in this example i am only breaking the 50% rule but all the other rules i follow as retire person they would put me as a professional investor ?
thank you.
Hi Michele,
I would think it would work, just like I explained in the section “Are FI People Professional Investors?”. You can count on dividends to have some income (and pay some income taxes) but you should not have to pay capital gains taxes.
Hi,
First thank you for this great website. I have a question concerning capital loss and tax statement. As this year the market is going pretty poorly in general, I unfortunately will end up with a rather large capital loss (value dropped from 2021 to 2022). On my 2022 tax statement, is it true that my “fortune” won’t reflect this negative change and I will be taxed as if the market was just as good as end of 2021?
If that’s the case, would it be smart to sell everything and buy it back at the current price just to “reset” my fortune for the tax statement ? Or are there maybe disadvantages of doing it that I don’t know of?
Thanks in advance for your help!
I met a swiss tax attorney for this reason a week ago and as far as i understand it, the special situation in switzerland is that you are able to cancel out realized gains in the capital market with unrealized losses. That means in switzerland it is not necessary to “tactically sell” anything at a certain point in time because the taxoffice will only check if your net worth (realized + unrealized gains/losses) in december increased compared to january.
–> If you made a net plus over the year, the realized gains leading to a net plus will be taxed.
–> if you made a loss you won’t be taxed. Instead you can discount the loss from your taxable income.
In short: you can not evade the tax in switzerland.
The above reasoning only applies if you are already considered a professional trader by the taxoffice. And as long as you lose money the taxoffice will not consider you to be a professional trader even if you break all the rules from the Kreisschreiben36. They dont want to risk giving you the option to deduct taxes when you keep losing money.
Please dont take this info as granted. I might be wrong.
Hi Alice,
I am not sure I understand but I don’t think it’s true no. Your taxable wealth is your wealth at December 31th. So in your 2022 tax declaration, your wealth will be much lower and as such you will pay lower wealth tax.
Thank you for the article.
However “Tax Loss Harvesting” is a topic i can find no information on for swiss residents considered to be professional investors.
1) You are a professional investor. You trade Stock “A” 30 times via different Derivates. You have “net realized capital gains” of 10.000 USD. Is it possible to “realize capital losses” in Stock B with the aim of reaching an “overall net zero gain/loss” and not get taxed?
2) Same case as above but after reaching an “overall realized net loss” in your account, can you deduct your “realized net loss” from the taxable overall income? If yes, is the maximum amount to deduct from your income capped?
3) When you “realize losses” in the US, you can buy back the same shares 30 days later and still make use of this “realized loss” even if you buy the shares back cheaper than you sold them. Does this also work in Switzerland? If yes whats the timeframe to wait before buying back the same shares and still be able to deduct the realized losses from your income?
Thanks you very much!
Hi Tobias,
I am not a professional investor (actually recommend against it) and I am not a lawyer, so I won’t take in detail about tax loss harvesting.
If you want the correct answer, ask a professional.
That being said, here is my take
1) Once you a professional investor, you should be to declare losses and gains. If these two cancel each other, I would think you would not be taxed
2) No idea
3) No idea
I am a swiss resident and pay taxes in Switzerland. As per the post I understood that I need to pay 0% taxes on the capital gain on the stock portfolio.
Does it mean that capital gains are tax-free only for swiss company’s stocks, or foreign stocks as well?
For example, I buy Apple’s (US company) stocks, and have some capital gains. Will it be tax free?
Hi Ankush,
No, all capital gains are tax-free (as long as you are not a professional investor), regardless of where the stocks come from. So, in your example, capital gains from Apple should also be tax-free.
Hello!
First of all – thank you very much in advance if you will take time to answer this question. I cannot find an answer to it anywhere in the net and when I tried to reach out to some of the tax advisors, the request to have a 30 min consultation is usually met with a smile and comment that after 30 min they can introduce me to approximate costs of our future, expensive relationship :) Not a problem, but I am still very young and just starting and it is kinda unachievable for me yet. Anyways, if you have any remote idea about the answer – much appreciated!
here comes the question:
If you are classified as a professional investor (you day trade a lot and generate income that way and live off of it) but you do have some long holdings (as day traders also save for retirement) – are you taxed on those gains when they become realized given they were intended for a longer hold? To be more specific, here is an example: in 2020 you have a professional trader status. You have your realized gains taxed as income for day trading positions – pretty normal stuff. But this tax year, you also entered some ETF longer-term and you have some UNRELIAZED capital gains from it at the end of 2020. I assume (correct?) you are not taxed on those unrealized gains in 2020. Now, lets say in 2021 you were also a professional trader (same activity as year before), but you exited the ETF position in October 2021 (half year period – checked) to buy a house and you have a realized gain of X on it which you would like to reinvest as a normal ‘wealth management’ operation. Questions:
1) are this gains tax-free as part of wealth management aside from trading activity? or:
2) are you taxed on ALL gains from this position? or:
3) your wealth “status” is booked for 2020 at 31 Dec 2020 and you are only taxed on the gains from 1st Jan 2021 to the moment you sold the position?
Or in other words – if you are a financial professional, are you excluded from building your wealth because you will always be taxed on your whole portfolio? It does not seem fair to me, so I hope that answer number 1 is applied here.
Hey, great website, lots of good info, much, much appreciate what you are doing. Have a good day!
Hi Steve,
For me, as soon as you are considered a professional investor, there won’t be any distinction between your long-term and short-term positions. So, I would expect all realized gains to be treated as income. I would think you are taxed on ALL gains from this position when you realize them, regardless of where you entered that position.
And yes, unrealized gains should not be taxed, but the current wealth will be taxed with the wealth tax.
Obviously, that’s only my interpretation of the rules, I am no advisor but I would be surprised if the tax office did the distinction. On the other hand, you could realize your gains on a year where you are not taxed as a professional investor (in retirement for instance).
Now, if you want to know about that for sure, you should contact your local tax office.
Thank you very much for taking the time to respond. Appreciate it!
Hi Baptiste
My question is very straight. If I am a Cayman hedge fund trading stocks in Switzerland stock market. the fund is professional investor for sure. Is the fund Liable of any capital gain tax? if yes, what is the tax rate?
Thanks
That’s a question for a professional tax advisor. I don’t deal with hedge funds.
I live in Sweden and I am a day trader. In Sweden I have to pay 30% capital gains tax. I am earning around 2-4 million dollars per year. If i move to Switzerland I need to pay 50% tax ? Or will they see me as a private investor. I don’t hold stocks for a long period of time max a few days on each trade. Private or professional?
If you are a day trader, earning most of your income from day trading, they will consider you a professional investor.
As to how much you will pay, it will depend on which canton you are going to live in. But I would say that at this income level, it’s going to be significantly higher than 30%.
I’m from Switzerland and am currently going through the same issue as you. From my understanding based on my own research and after meeting with two trusted fiduciaries is that you would pay 11% federal tax (over 755,000 CHF), and based on the canton you choose anywhere from (11 to 30%) cantonal tax. So on the low end you would pay 22% and high end 41%. If you’re a corporation you pay 14% corporate tax on money earned, you choose a salary that is correct for your job (so a banker can’t choose CHF 5,000 yearly salary etc), you pay income tax on that salary (income tax that i explained above), and you can choose to distribute the rest of the money to yourself as dividend where you pay 15% tax on. The catch is you can’t pay yourself more dividends than salary. So if you make 1 Million, you can pay yourself 200k salary (for example) and pay income tax on that, then pay yourself 200k in dividends and pay 15% on that (if i remember correctly only a part of those dividends are taxed, not the whole amount). The rest of the 600k has to remain in your company account, so you can’t make 1 Million, pay 200k salary and 800k dividends, they won’t like that.
Hope that helps a bit.
What is the actual rule that defines use of loans for investing?
If I take a loan and use it to finance something completely different (purchase of a car, a holiday, house renovation etc.) does that count as using my money for investing?
If yes, how does one even prove where the money for stock investments comes from (Whether the loan money was used to for stocks or income money for example)
Hi Philip,
I would say that if you get a loan to increase your returns, this would qualify as a loan for investing. So, if you take a 100K loan at IB and put in VT, this is a loan for investing, you are investing with leverage.
As for your second question, I don’t know exactly. But if you invest through a broker, you will have to present a report to the tax authorities and this report will likely contain the margin loan.
Hi Mr. The Poor Swiss,
I have a question. I plan to start day trading in my free time, this means that I’ll surely break the 1st rule. Having said that, I’m talking about 500CHF max of capital gain in a month, I wonder if I’ll be classified as a professional.
Will the local tax office contact me if such a thing happened? I don’t want to find a fine in the mailbox out of the blue…
Best regards.
Hi Nicola,
I would be really surprised if you would be classified as a professional with such amounts. It’s not impossible, but unlikely.
They will not contact you but you will not get a fine. Your taxes will simply increase since your capital gains will be taxed as income.