This article outlines the tax impacts of investing in digital assets for investors in the DACHLI region. Through a series of further articles, we will use case studies to explain the tax implications of purchase, ownership and sale for individuals and legal entities.
Although many people believe that Liechtenstein and Switzerland have the lowest taxes on digital assets for individuals and companies, this is a myth. As long as an investor in Germany or Austria holds onto their digital assets personally, not within a company structure, and for longer than one year, they actually have lower taxes than investors in Switzerland and Liechtenstein. This is because of the bothersome wealth tax in Liechtenstein and Switzerland. On the positive side, Liechtenstein and Switzerland do not have capital gains taxes unlike Germany and Austria.
However, Germany and Austria do not have wealth taxes. So which one outweighs the other? The German and Austrian taxes are more onerous if assets are held for less than one year and less onerous if assets are held for over a year. This is why investors in Germany with a personal tax rate above 26.375% and in Austria above 27.5% actually have a tax advantage of holding a certificate or investing in a regulated fund product like an Alternative Investment Fund (AIF) or Undertakings for the Collective Investment in Transferable Securities fund (UCITS) fund if they want to speculate on short-term moves of the price of digital assets. If the investor’s personal tax rate is lower than those rates, then there is no tax advantage of holding a fund or certificate over holding the digital assets directly.
The following section contributed by Lara Olms and Matthias Langer of actus ag outlines the tax impacts on investors investing in digital assets in the DACHLI region. By using explanatory cases, the consequences on taxation of buying and holding Bitcoin over specific time periods are explained for natural and legal persons. Furthermore, the report treats cases of investors with different residences — namely Liechtenstein, Austria, Germany, and Switzerland — and specific investment strategies and structures: investing directly, via an AIF or a certificate.
Natural and Legal Persons
First of all, the terms legal and natural person as well as the term qualified investor should be defined. For the purpose of taxation, the tax law distinguishes between natural and legal persons. Every individual is a natural person and holds rights and obligations. A legal person such as corporations in contrast arises from a legal act and is considered to be a single individual for legal purposes. Dealing with natural persons, there is another important distinction to be made: It has to be defined if the assets are part of private assets or business assets. Business assets are assets that are used predominantly and directly for the company’s own business.25 Consequently, private assets are defined as assets that have little or no relation to the business of the taxpayer such as his fully privately used residence.
Qualified Investors
Qualified investors are according to Section 10 (3) of the Swiss Collective Investment Schemes Act (Kollektivanlagengesetz — KAG) supervised financial intermediaries such as banks, securities dealers, or asset managers of collective investments as well as companies with professional treasury.26 However, natural persons can also be classified as qualified investors. According to Section 10 (3bis)s of the KAG and Section 6 of the Swiss Collective Investment Schemes Ordinance (Kollektivanlagenverordnung — KKV), high-net-worth individuals can declare that they want to be considered qualified investors.27 They have to confirm in writing that they have the knowledge required to understand the risks of the investments based on personal education and have assets of at least CHF 500,000 according to Section 5 of the Swiss Financial Services Act (FIDLEG).28
Professional Investors
According to the Directive 2004/39/EC of the European Parliament and of the Council, professional investors are “entities which are required to be authorized or regulated to operate in the financial markets” like credit institutions, insurance companies, or pension funds.29 In addition, large companies and “national and regional governments, public bodies that manage public debt, Central Banks, international and supranational institutions” as well as similar institutions are defined as professional investors.
Furthermore, investors such as public sector bodies or private individual investors may be treated as professionals on request. To be qualified as an professional investor, they must satisfy two of the three following criteria: During the last year, the investor carried out transactions on the specific market with an average frequency of ten per quarter; the size of the financial instrument portfolio exceeds € 0.5 million (defined to include deposits and financial instruments); the investor has worked or works at least one year in a professional position in the financial sector that required knowledge of the specific transactions or services.
Another area we have not yet looked at is how payments with bitcoin or other cryptocurrencies are to be treated. If the cryptocurrency is a payment token and is applied in this way, it is treated differently for tax purposes than is the case with investment assets. This is the question we will address next week before we start our series on the individual countries in the DACHLI region.
25 Jonas, M., 2019, Wirtschaftsgüter: Unterscheidung von Privat- und Betriebsvermögen, July 20, 2020. Retrieved from
https://www.steuba.de/einkommensteuer/wirtschaftsgueter-privatvermoegen-betriebsvermoegen/.
26 Swiss Federal Tax Administration (EStV), Kollektivanlagengesetz, July 2020. Retrieved from
https://www.admin.ch/opc/de/classified-compilation/20052154/index.html.
27 Swiss Federal Tax Administration (EStV), Kollektivanlagengesetz; EStV, Kollektivanlagenverordnung, July 2020. Retrieved from
https://www.admin.ch/opc/de/classified-compilation/20140344/index.html.
28 Swiss Federal Tax Administration (EStV), Finanzdienstleistungsgesetz, July 2020. Retrieved from
https://www.admin.ch/opc/de/classified-compilation/20152661/index.html.
29 Official Journal of the European Union, 2004, Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004, August 2020. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32004L0039&from=DE, pp. 43 – 44.
This article is an extract from the 70+ page Discovering Institutional Demand for Digital Assets research report co-published by the Crypto Research Report and Cointelegraph Consulting, written by eight authors and supported by SIX Digital Exchange, BlockFi, Bitmain, Blocksize Capital, and Nexo.
