Switzerland Cryptocurrency Laws

Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology

The Swiss Canton of Zug is trying to establish itself as a hub for cryptocurrencies and Fintech start-ups. On November 2, 2017, the Commercial Register Office in the Canton of Zug started accepting bitcoin and ether as payment for administrative costs.[473]Furthermore, the Commercial Register accepts cryptocurrencies as a contribution in kind for purposes of forming a company.[474] In the city of Zug, municipal services (resident registration) of up to CHF200 (about US$210) can be paid with bitcoin.[475]

On January 1, 2018, the municipality of Chiasso, in the Swiss Canton of Ticino, started accepting bitcoin as tax payments for amounts of up to CHF250 (around US$263).[476]

On February 16, 2018, the Swiss Financial Market Supervisory Authority (Eidgenössische Finanzmarktaufsicht, FINMA) published guidelines on the regulatory treatment of ICOs,[477] which complement its earlier FINMA Guidance from September 2017.[478]Currently, there is no ICO-specific regulation, nor is there relevant case law or consistent legal doctrine.[479] FINMA stated that due to the fact that each ICO is designed in a different way, it must be decided on a case-by-case basis whether and which financial regulations are applicable.

In an ICO, investors receive blockchain-based coins or tokens in exchange for the funds they transfer. The tokens are created and stored either on a blockchain specifically created for the ICO or on a pre-existing blockchain.[480] FINMA differentiates between payment tokens (cryptocurrencies), utility tokens, and asset tokens. Payment tokens (cryptocurrencies) are defined as tokens that are used as a means of payment or as a means of money or value transfer. Utility tokens are those that provide digital access to an application or service by means of a blockchain-based infrastructure. Asset tokes represent assets such as a debt or an equity claim against the issuer. According to FINMA, asset tokens are analogous to equities, bonds, and derivatives.[481]

Operators of financial market infrastructures are subject to authorization by FINMA.[482] If the tokens received in an ICO qualify as securities, trading will require authorization. Securities are defined as “standardised certificated or uncertificated securities, derivatives and intermediated securities which are suitable for mass standardised trading,”[483] meaning they are “publicly offered for sale in the same structure and denomination or are placed with more than 20 clients, insofar as they have not been created especially for individual counterparties.”[484] FINMA does not treat payment tokens or utility tokens whose sole purpose is to confer digital access rights as securities. However, utility tokens that have an additional investment purpose or a sole investment purpose at the time of issue, as well as asset tokens that are standardized and suitable for mass standardized trading, are classified as securities.[485]

Funds raised in an ICO generally do not qualify as deposits within the meaning of the Banking Act. However, if there are liabilities with debt capital character, for example a promise to return capital with a guaranteed return, then such an ICO would require the organizer to obtain a banking license.[486] When assets collected as part of the ICO are managed externally by third parties, the provisions of the Collective Investment Schemes Act apply.[487] Provisions on combating money laundering and terrorist financing, which give rise to a range of due diligence requirements, apply to the ICO of a payment token (cryptocurrency) as soon as the tokens can be technically transferred on a blockchain infrastructure.[488] In addition, the exchange of a cryptocurrency for fiat money or a different cryptocurrency as well as the offering of services to transfer tokens if the service provider maintains the private key (custody wallet provider) equally trigger the due diligence requirements according to the Anti-Money Laundering Act.[489]

In September 2017, FINMA closed down the unauthorized providers of the fake cryptocurrency “E-Coin”, liquidated the companies, and issued a general warning about fake cryptocurrencies to investors.[490] Furthermore, three other companies were put on FINMA’s warning list due to suspicious activity and eleven investigations were conducted into other presumably unauthorized business models relating to such coins.[491]

In Switzerland, the individual cantons, the Swiss states, are obligated to levy income tax and wealth tax on the total property (assets and rights with a cash value) of taxpayers that are resident in their canton.[492] Tax rates vary between the individual cantons. Cryptocurrencies are treated like foreign currencies for tax purposes and are subject to wealth tax.[493] Holders of bitcoin or other cryptocurrencies are taxed at the rate determined by the tax authorities on December 31 of the fiscal year. As an example, the tax rate for bitcoin determined on December 31, 2017, by the Swiss Federal Tax Administration was CHF13,784.38 (about US$14,514).[494] This rate is a recommendation for the cantonal tax authorities.

In January 2018, the Swiss State Secretariat for International Finance (Staatssekretariat für internationale Finanzfragen, SIF) reported that it would set up a working group on blockchain and ICOs.[495] The working group will work together with the Federal Ministry of Justice and FINMA and involve interested businesses. It will study the legal framework for financial sector-specific use of blockchain technology with a particular focus on ICOs and report back to the Federal Council, the Swiss government, by the end of 2018.

Is cryptocurrency legal in Switzerland?

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[473] Press Release, Kanton Zug [Canton Zug], Handelsregisteramt Zug akzeptiert Kryptowährungen Bitcoin und Ether als Zahlungsmittel [Commercial Register Office Zug Accepts Cryptocurrencies Bitcoin and Ether as Means of Payment] (Nov. 2, 2017), https://www.zg.ch/behoerden/volkswirtschaftsdirektion/handelsregisteramt/ aktuell/handelsregisteramt-zug-akzeptiert-kryptowaehrungen-bitcoin-und-ether-als-zahlungsmittel, archived at http://perma.cc/384H-BEUE.

[474] Press Release, Kanton Zug, HR Zug lässt Kryptowährungen als Sacheinlage zu [Commercial Register Office in Zug Accepts Crytocurrencies as a Contribution in Kind] (Sept. 4, 2017), https://www.zg.ch/behoerden/ volkswirtschaftsdirektion/handelsregisteramt/aktuell/bitcoin-als-sacheinlage? searchterm=bitcoin, archived at http://perma.cc/H5A7-AUJH.

[475] Press Release, Stadt Zug [City of Zug], Von Bitcoin zu Blockchain-Anwendungen [From Bitcoin to Blockchain Applications] (Nov. 15, 2016), http://www.stadtzug.ch/de/ueberzug/ueberzugrubrik/aktuelles/aktuelles informationen/welcome.php?action=showinfo&info_id=351680&ls=0&sq=&kategorie_id=&date_from=&date_to=, archived at http://perma.cc/LZL9-CNHR.

[476] Possibilità di pagamento imposte in Bitcoin [Possibility to Pay Taxes in Bitcoin], Comune di Chiasso [Municipality of Chiasso](Feb. 1, 2018), https://www.chiasso.ch/possibilita-pagamento-imposte-bitcoin/, archived at http://perma.cc/2VR9-STWR.

[477] FINMA, Guidelines for Enquiries Regarding the Regulatory Framework for Initial Coin Offerings (ICOs) (FINMA ICO Guidelines) (Feb. 16, 2018), https://www.finma.ch/en/~/media/finma/dokumente/dokumenten center/myfinma/1bewilligung/fintech/wegleitung-ico.pdf?la=en, archived at http://perma.cc/PV9L-5AEK.

[479] FINMA ICO Guidelines, supra note 477, at 2, no. 3.

[480] Id. at 1, no. 1.

[481] Id. at 3, no. 3.1.

[482] Finanzmarktinfrastrukturgesetz [FinfraG] [Financial Market Infrastructure Act] [FMIA], June 19, 2015, Systematische Rechtssammlung [SR] [Systematic Collection of Laws] 958.1, art. 4, https://www.admin.ch/ opc/de/classified-compilation/20141779/201708010000/958.1.pdf, archived at http://perma.cc/5F64-2WFF, unofficial English translation available at https://www.admin.ch/opc/en/classified-compilation/20141779/ 201708010000/958.1.pdf, archived at http://perma.cc/WT73-EMWN.

[483] FMIA art. 2, let. b.

[484] Finanzmarktinfrastrukturverordnung [FinfraV] [Financial Market Infrastructure Ordinance] [FMIO], Nov. 25, 2015, SR 958.11, art. 2, para. 1, https://www.admin.ch/opc/de/classified-compilation/20152105/201708010000/ 958.11.pdf, archived athttp://perma.cc/NW3S-JAGZ, unofficial English translation available at https://www.admin. ch/opc/en/classified-compilation/20152105/201708010000/958.11.pdf, archived at http://perma.cc/2423-R4HG.

[485] FINMA ICO Guidelines, supra note 477, at 4, no. 3.2.1-3.2.3.

[486] Id. at 6, no. 3.4; Bankengesetz [BankG] [Banking Act], Nov. 8, 1934, SR 952.0, arts. 1, 3, https://www.admin.ch/ opc/de/classified-compilation/19340083/201601010000/952.0.pdf, archived at http://perma.cc/R5N5-E4KE.

[487] FINMA ICO Guidelines, supra note 477, at 6, no. 3.5; Kollektivanlagengesetz [KAG] [Collective Investment Schemes Act] [CISA], June 23, 2006, SR 951.31, https://www.admin.ch/opc/de/classified-compilation/ 20052154/201607010000/951.31.pdf, archived at http://perma.cc/9HHP-QTY6, unofficial English translation available at https://www.admin.ch/opc/en/classified-compilation/20052154/201607010000/951.31.pdf, archived at http://perma.cc/8NAX-442E.

[488] FINMA ICO Guidelines, supra note 477, at 6, no. 3.6; Geldwäschereigesetz [GwG] [Anti-Money Laundering Act] [AMLA], Oct. 10, 1997, SR 955.0, https://www.admin.ch/opc/de/classified-compilation/19970427/20160 1010000/955.0.pdf, archived athttp://perma.cc/E9UX-3EBW, unofficial English translation available at https://www.admin.ch/opc/en/classified-compilation/19970427/201601010000/955.0.pdf, archived at http://perma.cc/M4M6-UW5U.

[489] FINMA ICO Guidelines, supra note 477, at 7, no. 3.6.

[490] Press Release, FINMA, FINMA Closes Down Coin Providers and Issues Warning About Fake Cryptocurrencies (Sept. 19, 2017), https://www.finma.ch/en/news/2017/09/20170919-mm-coin-anbieter/, archived at http://perma.cc/VN3C-2ZUK.

[491] Id.

[492] Bundesgesetz über die Harmonisierung der direkten Steuern der Kantone und Gemeinden [StHG] [Federal Act on the Harmonization of Direct Taxes Levied by Cantons and Municipalities], Dec. 14, 1990, SR 642.14, art. 2, para. 1, https://www.admin.ch/opc/de/classified-compilation/19900333/201801010000/642.14.pdf, archived at http://perma.cc/5QP8-2NXP.

[493] See as an example Kanton Zug. Finanzdirektion. Steuerverwaltung [Canton Zug. Finance Directorate. Tax Administration], Kryptowährungen (Bitcoin, Ethereum, Tokens usw.): Merkblatt Steuern für Privatpersonen [Cryptocurrencies (Bitcoin, Ethereum, Tokens etc.): Explanatory Leaflet for Private Persons] (Nov. 30, 2017), https://www.zg.ch/behoerden/finanzdirektion/steuerverwaltung/krypto waehrungen/download/Kryptowaehrungen%20-%20Merkblatt%20def.%20-%2030.11.2017.pdf/download, archived at http://perma.cc/VGX2-C5HS.

[494] Course Listing Federal Income Tax 2018, Federal Tax Administration, https://www.ictax.admin.ch/extern/ en.html#/ratelist/2018(last visited Apr. 5, 2018), archived at http://perma.cc/9JCD-MHSE.

[495] Press Release, Arbeitsgruppe Blockchain/ICO wird ins Leben gerufen [Working Group Blockchain/ICO Set Up], Eidgenössisches Finanzdepartement [EFD] [Swiss Federal Department of Finance], Jan. 18, 2018, https://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-69539.html, archived at http://perma.cc/2WJV-XXPD.