Investment income — significance and taxation in Switzerland
What is investment income? - The definition
Under investment income This is income generated by investing capital. These include dividends, interest, and Price gains. The profit is calculated as the difference between the sale and purchase price of the securities minus trading fees. A capital loss, on the other hand, occurs when the assets are sold below their purchase price. In Switzerland, investment income is subject to Withholding tax (VST), a withholding tax that is withheld directly when disbursed or credited. This can be reclaimed as part of the tax return.
Types of capital gains from financial investments
Investment income comes from various assets:
- Price gains: These arise when buying and selling stocks, securities, cryptocurrencies and ETFs.
- dividends: Companies pay out dividends to their shareholders as a share of profit.
- Foreign exchange gains: Investments in foreign currencies can generate income through exchange rate gains.
- interest income: Interest income is generated by investing in bonds, call money accounts or fixed-term deposit accounts. The amount depends on the investment amount, investment period and interest rate.
How are investment gains taxed?
Many countries have a Capital gains tax on these earnings. In Switzerland, capital gains on movable assets are taxed through withholding tax (35%). However, private capital gains are effectively tax-free when certain criteria are met, such as a minimum holding period of the securities of six months or a limit on the annual transaction volume. The withholding tax is only intended to ensure that the assets are properly declared and is refunded. However, this only applies to private investors.
When will capital gains remain tax-free?
Capital gains are then considered to be tax-freeif the Federal Tax Administration (FTA) classifies the investment as private. For tax exemption, an investor must meet certain conditions:
- The securities were held for at least 6 months.
- Capital gains do not exceed 50% of net income.
- The annual transaction volume is a maximum of five times the initial portfolio of securities.
- Derivatives are only used to hedge own securities.
Anyone who does not meet these conditions can be classified as a professional trader and thus loses the privilege of realizing investment gains in private assets tax-free!
Calculation of withholding tax (VST)
The withholding tax is 35% of capital gains and is deducted directly upon disbursement.
instance: If an investor buys 50 shares at a price of 10 CHF each and later sells them at 50 CHF each, the result is a capital gain of 2,000 CHF. The withholding tax on this amounts to 700 CHF (35%), leaving the investor with 1,300 CHF after deduction. However, the CHF 700 will then be offset against his tax claim for this period.
Reimbursement and double taxation
The withholding tax is paid to the Federal Tax Administration carried away. Investors can do it through a tax return reclaim, although a refund is usually higher than the income tax rate. If the investor is not in Switzerland, he can pay the tax through a double taxation agreement Lower it to the rate in the country of residence. Alternatively, it is possible to file a request for recovery.
A Tax Ruling can provide additional security to avoid tax misunderstandings and subsequent claims
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