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Old 06.03.2018, 02:58
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Short term capital gains taxes in switzerland

Hi Im new to this forum and switzerland.

I trade US stocks and I have short term (same day to a few months) capital gains and losses

I heard that switzerland has no capital gains tax but does that apply to foreign(to them) stocks traded short term?

does that apply only to citizens or residents with b and c permits dont pay that either?

Thanks
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Old 06.03.2018, 10:03
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Re: Short term capital gains taxes in switzerland

Private individuals do not normally pay capital gain taxes on sale of "moveable objects" such as securities in Switzerland to the extent that the trading is not considered a business activity.

The document "Kreisschreiben Nr. 36 Gewerbsmässiger Wertschriftenhandel" lists five "safe haven" tax-free trading rules whereby an individual would not be considered a busines trader. If some of rules are not complied with, classification as a business trader can not be ruled out:

1. The holding period of the sold securities is at least 6 months.
2. The transaction volume (corresponds to the sum of all purchase prices and sales proceeds) per calendar year is no more than five times the amount of the securities and credit balances at the beginning of the tax period.
3. Obtaining capital gains from securities transactions is not a necessity to replace missing or lost income for living. This is usually the case when the realized capital gains amount to less than 50% of the net income in the tax period.
4. The investments are not leveraged or the taxable investment income from the securities (such as interest, dividends, etc.) is greater than the proportionate interest on debt.
5. The purchase and sale of derivatives (especially options) is limited to hedging own securities positions.
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Old 06.03.2018, 10:16
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Re: Short term capital gains taxes in switzerland

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Hi Im new to this forum and switzerland.

I trade US stocks and I have short term (same day to a few months) capital gains and losses

I heard that switzerland has no capital gains tax but does that apply to foreign(to them) stocks traded short term?

does that apply only to citizens or residents with b and c permits dont pay that either?

Thanks
You indicate you are resident in the USA. So isn't it irrelevant what the Swiss tax system is (except for withholding tax) as you pay your taxes to Uncle Sam??
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Old 06.03.2018, 10:22
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Re: Short term capital gains taxes in switzerland

Everything Mullhollander has said is correct. Just to add a little:

These 5 items are at the discretion of the person who is evaluating your tax return after you submit it. If their decision goes ' against' you, then you can appeal. The directives might seem a bit woolly/imprecise, but that is really for YOUR benefit, as it allows some discretion for the taxman in their evaluation.

If the 'Business Activity' is triggered, not only is income tax liable but you are also liable for AHV/AVS etc. (state pension i.e. P1 at least, not sure about P2 ) contributions as well.

Last edited by bill_door; 06.03.2018 at 10:27. Reason: spelling
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Old 06.03.2018, 18:03
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Re: Short term capital gains taxes in switzerland

Thank you everybody for your replies

Quote:
Private individuals do not normally pay capital gain taxes on sale of "moveable objects" such as securities in Switzerland to the extent that the trading is not considered a business activity.

The document "Kreisschreiben Nr. 36 Gewerbsmässiger Wertschriftenhandel" lists five "safe haven" tax-free trading rules whereby an individual would not be considered a busines trader. If some of rules are not complied with, classification as a business trader can not be ruled out:

1. The holding period of the sold securities is at least 6 months.
2. The transaction volume (corresponds to the sum of all purchase prices and sales proceeds) per calendar year is no more than five times the amount of the securities and credit balances at the beginning of the tax period.
3. Obtaining capital gains from securities transactions is not a necessity to replace missing or lost income for living. This is usually the case when the realized capital gains amount to less than 50% of the net income in the tax period.
4. The investments are not leveraged or the taxable investment income from the securities (such as interest, dividends, etc.) is greater than the proportionate interest on debt.
5. The purchase and sale of derivatives (especially options) is limited to hedging own securities positions.
I dont meet number 1, 5 and I think 2 as well so its not looking good

Quote:
You indicate you are resident in the USA. So isn't it irrelevant what the Swiss tax system is (except for withholding tax) as you pay your taxes to Uncle Sam??
It could be worth it to change that although its not easy. Im also a citizen of one of the EU27 countries
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Old 08.12.2018, 00:14
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Re: Short term capital gains taxes in switzerland

I don't want to open a new topic so here is the question...

The rules to avoid being classified as a professional look pretty extreme. Anything more than "buy and hold for many years" could be problematic. However, I read this forum a lot and know that some of you guys are much more than "buy and hold" investors. Were you ever approached by the tax services?

I don't mind paying taxes but this is a bit too much. I don't see a good reason, to risk my money just to be classified as professional and lose large portion of capital gain because of some low volume option contracts. Better to spend that money on beer.

One more thing... one is alowed to hedge his own position but not to sale them before 6 months. That makes hedhing useless.

Last edited by IceCold; 08.12.2018 at 00:30.
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Old 08.12.2018, 11:29
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Re: Short term capital gains taxes in switzerland

it's the cost of doing business and everyone wants their cut, including the tax office. you are informing yourself of all the costs upfront. if you don't like them then don't get involved.

as i said before the capital gains is unlikely to be an issue, depending on your strategy. and as I said above the "5 rules" are deliberately woolly for YOUR benefit. it is the individual tax return assessor assigned to your tax assessment that will decide if you are considered a professional trader. you have the right to appeal the classification. it is seems to be the experience that they are pretty lenient because the rules are deliberately woolly (in combination!). you could in fact contact this person and see what they think of your approach and how un/likely you are to be classified.

i could see myself arguing that somewhere between 1-3 month covered calls would be about the limit i.e. in SPY/IWM/QQQ, sell 45 days out 30 delta call, let it expire, or roll it to the next 45 days out. or same for 90 day (3 month plan) or 135 days (4 month) etc. SPY has weekly Wed and Fri expirations now! If I am using those to hedge continuously then it becomes more difficult to justify it as nothing more than an income strategy. 3/4/12 hedges a year would be reasonable, and the tax office IS reasonable in CH.

the main issue I have with the attempt to classify traders is that they focus on 'profits' when in fact what you want to achieve is cost-basis-reduction. it's backwards in my opinion and most authorities I have dealt with don't get it.

Oh, and the paper work! If you start doing anything more that a few trades a month, come year end and tax return time ALL those trades have to be entered in the return software. That is a real pain and an actual real cost of my time!
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Old 08.12.2018, 11:57
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Re: Short term capital gains taxes in switzerland

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The rules to avoid being classified as a professional look pretty extreme. Anything more than "buy and hold for many years" could be problematic. However, I read this forum a lot and know that some of you guys are much more than "buy and hold" investors. Were you ever approached by the tax services?
individually perhaps, but they are used in combination so overall the result is a pretty vague directive! the end result is not absolute!

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I don't mind paying taxes but this is a bit too much. I don't see a good reason, to risk my money just to be classified as professional and lose large portion of capital gain because of some low volume option contracts. Better to spend that money on beer.
well, get drunk then! it should be clear to you now that capital-gain is very unlikely to be an issue if you are (as we think) a 'small time' trader like many here. what will happen is that your profits from trading will be added to your gross income and your marginal personal tax rate will go up accordingly. and an AVS/AHV adjustment will be needed. you are not going to lose more than a few percent of you profits, if even 1--2 per cent.

perhaps you should actually measure the risk and the cost. i would suggest it is more likely you will loose all your trading money than the tax office will take more that 10% of your profits!

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One more thing... one is alowed to hedge his own position but not to sale them before 6 months. That makes hedhing useless.
6 months relates to the underlying security. hedging is not part of that. consider my example previously. 1/3/4 months covered calls would be an example of what I think is an acceptable hedging approach. If your in the weeklies every week then it is harder to justify.

as you described you seem to be a classic covered call type person. if you are doing this in a limited number of underlyings with1/3/4 month options I don't see an issue. if you are more than that or an active day trader and using all the instruments then you have the additional cost of doing business.
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Old 08.12.2018, 11:58
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Re: Short term capital gains taxes in switzerland

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Oh, and the paper work! If you start doing anything more that a few trades a month, come year end and tax return time ALL those trades have to be entered in the return software. That is a real pain and an actual real cost of my time!
I think CS has a format now that you can upload into your tax return. Hopefully others will follow.
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Old 08.12.2018, 14:23
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Re: Short term capital gains taxes in switzerland

bill_door, tnx for the good answers. The sttategy you describe is what i'm planning to do - selling covered calls on my 3 long term ETFs. I don't have time for weekly trading so I would set them up once per month. Maybe this could be understood as hedging, thou, its more than that if we are being honest.

I also don't mind paying taxes on sold puts and calls. It's normal. Lets say I make 10% capital gain on my long portfolio by simple buy and hold strategy. And on that I make few thousand CHF on selling/buying options. As I said, please tax my options, but leave my capital gain alone. Would this be something that tax authorities would understand?

I also have a B visum so I'm taxed at the source.
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Old 08.12.2018, 18:01
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Re: Short term capital gains taxes in switzerland

it's good to see you asking the questions and trying to understand what goes on before committing, but you might be way over thinking this! the 5 'rules' are woolly and it is not easy to give you a definitive answer until the year end list of transactions are known. what i have described up to now would be a general scenario and in my opinion would not classify as a professional trader. and ultimately it rests with the personal opinion of the tax return assessor in the end, with whom you can discuss.

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bill_door, tnx for the good answers. The sttategy you describe is what i'm planning to do - selling covered calls on my 3 long term ETFs. I don't have time for weekly trading so I would set them up once per month.
repeat after me: There is no CGT on regular securities trading in CH!
(unless you use the CGT to fund your extravagant lifestyle i.e. large CGT disappear from your tax estate. even if your CGT is comparable to your salary or more, and the funds stay in your bank accounts i don't think this would trigger professional status.)
Either you have the security in your portfolio, or you have the cash in the account. (or you've spent it!) year-on-year when you report for your taxes, the portfolio contents and the account liquid cash balances should more or less be stable, within reason. but even if you are lucky and hit it good with a good trade all the data is transparent to the taxman, open date, price then close date, price gives the gain! both of these situations are reflected in the wealth tax calculation.
if you liquidate a large position and the cash disappears from your overall estate then the taxman might want to know where the money went. to me that seems civilised and common sense. in CH the threshold for an interesting difference between tax returns and what is 'large' could be many several thousand francs!
with what you suggest, you might have a bigger problem with the frequency of your trades. if you are scalping in and out of stock and or options more frequently than once a month (<-- my opinion) then that will lean towards professional. if you are doing as I suggest long stock, selling 1 month (or 2/3/4 months out in time) calls as a hedge (or as a cost-basis reduction strategy!) then I think that would be about fine. At least I think i could argue with the taxman that i am hedging (as i said before i think the common sense threshold would be about 30--45 days perhaps). even if your stock gets called away and you re-establish the same position then you are just creating again your long term position which you have had. and no CGT! all these transaction will be documented by your broker and they must be reported to the tax man.

and in advance you can ask the tax man what would be the limitations around what you plan to do.

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Maybe this could be understood as hedging, thou, its more than that if we are being honest.
exactly and the tax man knows that. and that is why the 'rules' in combination are so woolly to give YOU some benefit of doubt and some chance at opportunity. the CH taxman really is quite civilised!

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I also don't mind paying taxes on sold puts and calls. It's normal. Lets say I make 10% capital gain on my long portfolio by simple buy and hold strategy. And on that I make few thousand CHF on selling/buying options. As I said, please tax my options, but leave my capital gain alone. Would this be something that tax authorities would understand?
repeat after me: There is no CGT on regular securities trading in CH!
depending on the frequency of trades this is exactly what I think would happen. There is no CGT! if you can determine the frequency limit from the tax man you may not even have an issue! and even if you do, your tax on the 'revenue' piece will be quite low.

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I also have a B visum so I'm taxed at the source.
really! really? are you required to make a tax return? do you earn >120k? have you already told the taxman you have a portfolio of any size, additional world assets? everything I have said till now assumes you actually HAVE to make a tax return. you may not even have to declare these trades at all unless you are required to make a tax return! or if you want to reclaim the US/EU 15/30% withholding tax on dividends that you can only get back from the CH government or reduce your profits by deducting the the trade costs.
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Old 08.12.2018, 20:44
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Re: Short term capital gains taxes in switzerland

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as you described you seem to be a classic covered call type person. if you are doing this in a limited number of underlyings with1/3/4 month options I don't see an issue. if you are more than that or an active day trader and using all the instruments then you have the additional cost of doing business.
Is selling covered calls considered hedging for real? I thought the idea behind selling covered calls was gereating income
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Old 08.12.2018, 21:50
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Re: Short term capital gains taxes in switzerland

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Is selling covered calls considered hedging for real? I thought the idea behind selling covered calls was gereating income

from a general consensus and buy-and-hold perspective, yeah you're right but i didn't want to confuse the issue too much. personally i don't look at it like income, i prefer to strictly look at as cost-basis-reduction on the stock purchase. in a best case scenario, sometimes you end up with a stock position essentially for no cost. a subtle difference, but a significant mental change when approaching a trade. And I would argue it that way if challenged by the tax man.


buying options is usually defined as hedging but it depends on the underlyings total position and on your overall portfolio. you could in fact be hedging your entire portfolio not just the individual stock (where is that in the 5 'rules' ! (c; woolly, woolly. ) and in any case nearly all positions can be are synthesised in something else e.g. long stock can be synthesised by a short put but with significantly lower buying power requirements i.e. much more capital efficient. but that's a tangent to the topic (c;
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Old 09.12.2018, 14:50
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Re: Short term capital gains taxes in switzerland

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really! really? are you required to make a tax return? do you earn >120k? have you already told the taxman you have a portfolio of any size, additional world assets? everything I have said till now assumes you actually HAVE to make a tax return. you may not even have to declare these trades at all unless you are required to make a tax return! or if you want to reclaim the US/EU 15/30% withholding tax on dividends that you can only get back from the CH government or reduce your profits by deducting the the trade costs.
I earn less than 120k and my dividends are below the threshold so I don't have to make a tax return. This year... next year I'll have to do it probably (net worth > 75kchf).
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Old 10.12.2018, 23:40
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Re: Short term capital gains taxes in switzerland

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from a general consensus and buy-and-hold perspective, yeah you're right but i didn't want to confuse the issue too much. personally i don't look at it like income, i prefer to strictly look at as cost-basis-reduction on the stock purchase. in a best case scenario, sometimes you end up with a stock position essentially for no cost. a subtle difference, but a significant mental change when approaching a trade. And I would argue it that way if challenged by the tax man.

I see your point, but IMHO it is a bit of a stretch
Nevertheless I would really be interested in hearing the feedback you get from the tax man, so please keep me posted.
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Old 16.12.2018, 16:22
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Re: Short term capital gains taxes in switzerland

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if you are doing as I suggest long stock, selling 1 month (or 2/3/4 months out in time) calls as a hedge (or as a cost-basis reduction strategy!) then I think that would be about fine. At least I think i could argue with the taxman that i am hedging (as i said before i think the common sense threshold would be about 30--45 days perhaps). even if your stock gets called away and you re-establish the same position then you are just creating again your long term position which you have had. and no CGT! all these transaction will be documented by your broker and they must be reported to the tax man.
First, thanks for all the good info in this great.

Just to follow up on this,

1. Can you confirm that you report the selling of the call options as any other trade ?
2. Do you confirm that the premiums received count as "capital gain" (i.e. not income) ?

(obviously, as long as you somewhat follow the '5' rules)
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Old 30.12.2019, 12:47
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Re: Short term capital gains taxes in switzerland

If someone makes let's say 145k a year and decides to open a CFD account.

He makes around 40k profit this year, most criteria are met so it would be up to the tax officer to decide?

What if you never include that account on your tax return? It's not a crime, but do those brokers tell the tax authorities anyway who is trading with them or is it just what you declare on the tax return?

Since it's not a crime I wonder how people usually deal with that.
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Old 14.03.2020, 21:05
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Re: Short term capital gains taxes in switzerland

I trade options overseas. I have never cared about the tax situation as you can take your eyes off the ball trying to ensure your strategies are tax minimising rather than maximising gain. It is better to make $50,000 and pay tax than to make $10,000 and pay no tax. The aim of the game is the highest net gain after tax and not , not paying tax. I treat real estate the same way but the holding period is of course longer due to time required to value add .
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