Not everyone who invests in the stock market with online trading platforms or other brokers earns capital gains. If you have managed to turn a capital gain rather than make a capital loss, you have every reason to give yourself a pat on the back. Once you are through with doing that, the next thing you should do is consider possible capital gains taxes.
In Switzerland, dividends paid out to shareholders must always be declared as taxable income. Your gross dividends (total dividends before the deduction of anticipatory tax) must be added to other taxable income when you complete your tax returns.
Example: You hold 300 Swiss shares and receive a dividend of 3 Swiss francs per share. The 900 francs of dividends must be added to your taxable income when you complete your tax return. The money deducted for the 35% anticipatory tax – 315 francs in this example – is returned to you by the tax office after your tax returns are processed.
Swiss capital gains
Taxes on capital gains earned when you sell securities at a profit are less straightforward. Whether or not you pay capital gains tax on trading profits depends on whether the tax office categorizes you as a private investor or as a professional investor.
Private investors do not pay tax on capital gains achieved through investing their assets. Professional investors, on the other hand, must account for capital gains in their taxable income.
Private investor vs. professional investor: What makes the difference?
Private investors – individuals who invest their own assets in securities – may, in some cases, be categorized as professional investors by tax offices. If you are categorized as a professional investor, you will be required to pay tax on capital gains earned through trading and investing.
Whether or not you as an investor must pay tax on your trading profits depends entirely on whether you are categorized as a private investor or as a professional investor by the tax office.
The 5 criteria used to determine your tax status
Guidelines published by the Federal Tax Administration list 5 criteria to be used by municipal and cantonal tax offices in determining the tax status of investors. You can only be sure that you will not be categorized as a professional investor if you meet all of these criteria:
- You hold securities for at least 6 months before you sell them.
- The transaction volume of all of your securities trades combined (total spent on purchases and total earned on sales) is not higher than 5 times the total value of your securities at the start of a tax year.
- Capital gains generated through securities trading do not account for a significant portion of your basic income. The rule of thumb: Capital gains should account for less than 50 percent of your net income.
- You use your own assets to finance the purchase of securities. Or: Taxable returns like interest and dividends are higher than interest owed on loans.
- If you invest using derivatives – and options in particular – these can only be used to hedge your own securities.
Tax offices are free to implement these criteria in keeping with their own standard practices, so the way in which you are categorized varies between cantons and municipalities. In some cases, investors who do not meet the criteria listed above may still be categorized as private investors and not have to pay tax on their capital gains.
If you are unsure of your tax status, consider consulting a specialized tax advisor. You can also request an advance judgment on your tax status from your local tax office in order to avoid dealing with unpleasant surprises.
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