Cryptocurrencies: taxation in Switzerland

Cryptocurrencies have generated a great deal of interest in recent years, both among financial experts and investors. The exponential growth of this market has been a turning point for the world economy, creating a need to revisit fiscal paradigms, from rules to taxation.

Although this environment is still in flux, it is already possible to identify places where investing in cryptocurrencies can be particularly advantageous, thanks to more favorable tax conditions than others. The most significant ones, classified as "the five European countries on the taxpayer's side", are Germany, Portugal, Malta, the Netherlands and Switzerland.

By now everyone knows that cryptocurrencies are a universally recognized form of digital money that uses cryptography to ensure the security of transactions and the creation of new units. Characterized by not needing any intermediary, cryptocurrencies make use of a particular platform, that of the blockchain, which has laid the foundation for decentralized finance.

Switzerland: the "European Crypto Hub"

Switzerland, which has been awarded the name "European Crypto Hub", is known as a promoter of blockchain innovations. In fact, a pioneer in the fintech field, it was one of the first states to regulate this area thanks to the proactivity of FINMA (Swiss financial market supervisory authority).

Switzerland's commitment to integrating digital money into its economic fabric is also evident at the regional level: on the one hand, the canton of Zug is famous for its cryptocurrency business, with corporate income taxes among the lowest in the country and the ability to pay taxes with digital currencies. On the other hand, the city of Lugano, with the Lugano Plan ₿, aims to transform itself into a center of excellence for cryptocurrency innovation. Indeed, Lugano's intention is not only to implement cryptocurrencies as a payment method for taxes and access to public services and events, but also to encourage local businesses to include cryptocurrencies among their payment methods.

In summary, as much as cryptocurrencies have already been regulated by imposing direct federal tax, withholding tax and stamp duty, Switzerland is still considered a cryptocurrency-friendly tax heaven, in part due to its much more favorable laws than the United States or the European Union, and has seen their use in investment, trading and as a means of payment steadily increase over the years, thus integrating into the local economy.

Benefits and risks of cryptocurrencies

Born in response to the global economic crisis of 2008, cryptocurrencies are a fairly recent invention, certainly destined to endure over time marking a clear economic evolution. However, in order to know how to manage them properly and protect your portfolio, you need to be aware of both their benefits and the risks they entail.

THE BENEFITS

• Cryptocurrencies are based on secure technology
  The decentralized structure of blockchain not only provides users with autonomous and independent management of their wallets, but also safeguards them from hacker attacks. In fact, because it is precisely decentralized across so many computers, hackers cannot simultaneously assault the entire network, keeping information safe.
• A transparent financial system
  The performance of cryptocurrencies is visible to everyone and everywhere, making it possible to get a crisp view of the financial markets and their flow.
• A market that is "open" 24 hours a day
  Tokens can be bought, sold or traded anytime and anyhow: they are not dependent on the classical "opening hours" of banks.
• Global demand representation
  Unlike traditional currencies, cryptocurrencies are not tied to a particular national economy. In fact, they represent global demand and not national inflation, resulting in greater resistance to inflation risk.

THE RISKS

• Cryptocurrencies are volatile
  A change in market sentiment can easily result in sudden, even considerable, swings in price. The risk of a significant and random loss in value is high.
• Possible scams or fraud
  Unlike traditional credit cards and payment systems, cryptocurrency payments have little legal protection. The creation of fake apps, fake wallets or fake accounts is very common in a system that is still young and that users are now learning how to handle.
• Cryptocurrency transactions are irreversible
  Once a payment has been made, there is no turning back. Thus, to every mistake there is an immutable consequence.
• There are no intermediaries
  While this is a big advantage and one of the main reasons why blockchain was created, it also poses a big risk. Indeed, with the absence of an intermediary there is also a lack of an interlocutor or support system when needed: in the case, for example, of having forgotten the private key to access the wallet, there will no longer be any way to gain access to cryptocurrency assets.

In short, this is a very interesting landscape, even more so in Switzerland where the regulations in place are in favor of the taxpayer. However, given the young history of this asset, it is still difficult for users to manage it and not run into risks or mistakes - a risky move to delve into such a broad field as blockchain without fully understanding it.

At NFS Group we offer tax and legal advice aimed at mitigating these risks by providing expert support to protect you legally in your investments.

Have you sensed the benefits of cryptocurrencies and decentralized finance but want to safeguard your investments in such a volatile and uncertain market?