SWITZERLAND Law and Practice Contributed by: Marion Bähler, Ramona Wyss, Florian Gunz Niedermann, Fabienne Limacher and Urs Hofer, Walder Wyss Ltd
Stamp Duty Equity contributions to Swiss companies are subject to a 1% issuance stamp duty payable by the company. The issuance of newly created shares up to CHF1 million are exempt therefrom. Capital Contribution Reserves To the extent such contributions exceed the nominal value of shares created, they can be ear - marked as capital contribution reserves allowing for their redistribution to shareholders without triggering Swiss withholding tax and income tax on the level of investors holding their shares as private assets. These capital contribution reserves need to be reported to and confirmed by the Swiss Federal Tax Administration (SFTA). Dividend Distribution Dividend distributions not made out of or in excess of such confirmed capital contribution reserves (which are rarely made in the context of VC portfolio companies) would be subject to 35% Swiss withholding tax. Refund of Swiss Withholding Tax Swiss withholding tax will be fully refundable or creditable to a Swiss tax resident corporate and individual shareholder (as well as to a non-Swiss tax resident corporate or individual shareholder who holds the shares through a Swiss branch office) if such a recipient is the beneficial owner of the distribution received and the income is recognised in the income statement or reported in the income tax return of the recipient. Share - holders who are not resident in Switzerland for tax purposes (and who do not conduct a trade or business through a Swiss branch office) may be entitled to a full or partial refund of Swiss withholding tax if the country in which such a recipient resides for tax purposes has conclud - ed a double tax treaty (DTT) with Switzerland and further conditions of such a DTT are met.
Under certain circumstances, a full refund is also conceivable under the Agreement between the European Union and the Swiss Confederation on the automatic exchange of financial account information to improve international tax compli - ance (AEI Agreement Switzerland-EU). Capital Gains Upon a sale of their shares, foreign resident investors are generally not subject to Swiss capital gains tax or withholding tax according to Swiss domestic law and applicable DTT. Fur - thermore, gains resulting from the sale of shares are generally tax-free for Swiss resident found - ers and Swiss-based non-professional private investors (individuals). For Swiss resident pro - fessional or corporate investors, capital gains derived from the sale of shares are generally sub - ject to corporate income tax and capital losses are tax-deductible. The participation exemption applies to capital gains derived from a disposal of a qualifying participation of at least 10%, pro - vided that the minimum holding period of one year is met and leads to a virtual tax exemption of such qualifying capital gains. However, recap - tured depreciations (the difference between the acquisition costs and book value) on such quali - fying participations are subject to ordinary taxa - tion. Tax losses may be carried forward for the next seven years. Convertible Loans (CLAs) Convertible loans (CLAs) are instruments fre - quently used to provide start-ups with funding in Switzerland. If a CLA qualifies as a private loan, the SFTA does not levy withholding tax on interest payments. The interest payments due to the lender are subject to income or profit tax. However, if a company issues CLAs (for an amount of more than CHF500,000 in total) and applies the same terms (interest, conversion
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