The Swiss securities transfer tax, or stamp duty, was introduced in 1917 and is still levied today. It is owed on the trading of certain securities – such as shares, bonds, or fund shares – if a domestic securities dealer is involved in the transaction.
This article outlines when taxes are owed, who might be impacted, and typical situations investors encounter. Its purpose is to provide investors with a better understanding of possible tax cost.
How can foreign investors be affected by Swiss securities transfer tax?
The Swiss securities transfer tax is a classical transaction tax levied on certain legal transactions. It applies to both exchange-traded and off-exchange trading of domestic and foreign securities (secondary market).
The tax is only levied if the following conditions are met, cumulatively:
Transfer of ownership for consideration;
Taxable domestic or foreign security;
Involvement of a Swiss securities dealer as a contracting party or intermediary; and
No tax exemption applies.
The tax is calculated based on the consideration for the security and amounts to 0.15% for securities issued by Swiss issuers and 0.3% for securities issued by non-Swiss issuers.
By design and interpretation, the Swiss securities transfer tax is broader in scope than other European financial transaction taxes. For example, the French financial transaction tax applies only to listed shares of French companies, whereas the Swiss tax is owed on a variety of instruments by Swiss or non-Swiss issuers, as long as a Swiss securities dealer is involved.
If no domestic securities dealer is involved in a transaction, neither as a contracting party nor as an intermediary, no tax is due, even if taxable securities are sold or purchased. For instance, the direct sale of shares in a domestic company by a domestic seller that is not a securities dealer to a foreign investor is not subject to securities transfer tax. If a Swiss securities dealer such as a Swiss bank participates as an intermediary in the same transaction, the securities transfer tax is due.
Transfer for consideration
No tax is levied if there is no price paid for the transfer of the securities. This includes stock dividends to shareholders. However, if the shareholder can choose whether to receive a stock or cash dividend, this is treated as a taxable purchase of shares with the cash dividend.
A transfer of legal ownership qualifies as a transfer of ownership for transfer tax purposes if it occurs for consideration.
Transfers of taxable securities to a fiduciary or a trustee are without consideration, which is the reason such transactions are not subject to transfer tax, even if the legal ownership is transferred to the fiduciary or the trustee. If a Swiss fiduciary or trustee acts as a securities dealer by buying and selling securities for the principal, these transactions will trigger the securities transfer tax. Any transfer to the principal will again not be subject to transfer tax.
In a recent change of practice, it was decided that the transfer of shares to employees is not considered a transfer for consideration if the employees do not pay a purchase price. If a lower purchase price is paid, only the purchase price paid is relevant for stamp tax purposes. The benefit that employees receive by paying no or a lower purchase price for the employee shares is not subject to securities transfer tax.
A trade in which one security is exchanged against the other contains two taxable transactions for stamp tax purposes. An exemption applies in the case of a legally recognised tax-neutral restructuring. In takeovers, shareholders of the target often receive shares of the offeror, which usually qualifies as a tax-exempt transaction under the Stamp Tax Act.
Taxable securities
Taxable securities are equity interests, bonds, and shares in collective investment schemes, including exchange-traded funds. It does not matter whether the securities are issued by domestic or foreign issuers or whether any physical securities are issued.
Equity interests include not only voting and non-voting shares of companies limited by shares or limited liability companies but all other instruments that entitle the holder to a share in the profits of the company, such as profit participation rights. However, interests in partnerships do not qualify as taxable securities.
For stamp tax purposes, bonds are not limited to standard debt instruments. Convertible bonds and warrant bonds are also subject to securities transfer tax. In addition, any debt instrument the term of which exceeds one year and that is placed with a certain number of investors is a taxable security. In practice, such instruments are often securitised but securitisation is not necessary to trigger the transfer tax.
Derivatives such as futures or options do not qualify as taxable securities. However, if they result in a transaction of taxable securities as underlying assets, this subsequent transaction will trigger transfer tax. The tax treatment of structured financial instruments depends on their composition. For example, bond certificates and reverse convertibles are subject to securities transfer tax. Cryptoassets can also be qualified as taxable securities if an asset-backed token is based on a taxable security. Tokens that are linked to the performance of a company are usually not considered taxable securities.
Who owes the tax?
The party liable for declaration and payment of the tax is the securities dealer involved in the transaction, whether as a contracting party or as an intermediary. If the counterparty is exempt, the involved securities dealer only owes half the tax.
If both parties qualify as securities dealers, each party is liable for half of the tax. This rule can result in double taxation in cases where there is no documented proof that only half of the tax has to be paid by both parties. In the case of regulated banks or central counterparties, a public register provides that proof. In all other cases, physical evidence has to be provided to the counterparty within three days.
Where a securities dealer acts as an intermediary, it is liable for half of the tax for each contracting party that is neither a securities dealer nor an exempt investor.
The law does not oblige the tax to be borne by a certain party, which means that the tax can be charged to any of the parties without impacting the amount of tax. In practice, the tax is often shared between or charged to the contracting parties. Therefore, an investor would expect to bear half of the transaction tax in a taxable transaction.
Who qualifies as a securities dealer?
For securities transfer tax purposes, the definition of a domestic securities dealer is broad and includes:
Regulated Swiss banks and bank-like financial institutions;
Regulated Swiss dealers (brokers);
Swiss investment advisers and asset managers who facilitate the purchase and sale of taxable securities as part of their business activity; and
Domestic corporations and cooperatives with taxable securities of CHF 10 million on their balance sheet.
Foreign investors do not qualify as securities dealers for stamp tax purposes and are therefore not directly liable for the tax. However, they may be indirectly affected if a Swiss securities dealer is involved in the transaction, either as a counterparty or as an intermediary. In such a case, any exposure to securities transfer tax would depend on the agreement between the parties of the transaction or between the investor and the intermediary.
Should the investor use a Swiss company as an investment vehicle, the Swiss company could qualify as a securities dealer due to the value of the taxable securities already held by the Swiss company.
Particularly concerning M&A transactions where the tax amount can be substantial, the question of qualifying as an intermediary and therefore as a securities dealer has repeatedly sparked discussions with the federal tax administration.
M&A advisers qualify as investment advisers and thus as securities dealers if their involvement is causal to the transaction, either by providing the opportunity to conclude a contract or by participating in contract negotiations. Other advisers that provide the same services, such as lawyers or private equity boutiques, may also qualify as securities dealers, provided they are causal to the transaction. Mere advisory services such as due diligence or legal advice do not count as qualifying intermediary activity.
Group internal management companies that act as intermediaries in M&A transactions for the group do not qualify as securities dealers because they do not perform this service as part of their commercial activity, as, by definition, a commercial activity requires an external market presence. The same applies to single family offices that only manage the assets of one family.
Group companies that are securities dealers because of their holdings qualify as intermediaries in M&A transactions if they are causal to the transaction. This is typically the case if employees of the parent company make up the deal team and the seller/buyer is a group company that does not qualify as a securities dealer. Should the group have engaged a Swiss bank to act as an intermediary, only the external intermediary will be obliged to remit stamp tax as a broker of the transaction. Commercially, the tax liability will be the same because the bank will charge the transfer tax entirely to the client.
Exemptions
To strengthen the competitiveness of the Swiss financial centre, the Stamp Duty Act provides for various exemptions. Depending on the applicable exemption, the transaction may be fully or partially exempt from securities transfer tax.
Exempt parties
Exempt parties include domestic and foreign collective investment schemes, foreign occupational pension institutions, foreign social security institutions, foreign life insurance companies, foreign banks, foreign listed companies, and foreign stock exchange agents. Such investors are exempt from their half of the tax.
Where a securities dealer acts as an intermediary in a transaction between an exempt party and a non-exempt party, it is required to account for only half of the tax. For example, where a securities dealer intermediates a transaction between an investment fund and a private investor, it is liable for only half of the tax attributable to the private investor.
Exempt transactions
Transactions in the primary market are exempt from securities transfer tax. Capital contributions in kind of securities to corporations and investment funds are also exempt.
Issuances of non-Swiss fund shares are not exempt. If the foreign investment fund works with capital commitments, the capital calls are subject to securities transfer tax, but not the commitment itself.
The redemption of securities is also exempt from securities transfer tax. The same applies to share buy-backs if they are made for the purpose of reducing the company capital. If the share buy-back is made without capital reduction, the transaction is subject to securities transfer tax. This includes share buy-backs from employees.
The transfer of securities in group-internal restructurings such as mergers, demergers, and business transfers to Swiss group companies qualifies as a tax-exempt transaction. Intra-group sales of shares are also exempt, provided these shares constitute 20% of the company capital of the target company.
Practical conclusions concerning Swiss securities transfer tax
Swiss securities transfer tax remains a significant consideration for both domestic and foreign investors, given its broad scope and the expansive definition of a Swiss securities dealer. The decisive factor for triggering the tax is not the residence of the investor or the issuer of the securities but the involvement of a Swiss securities dealer as a contracting party or intermediary.
Although foreign investors are not directly liable for Swiss securities transfer tax, they may bear the economic burden where the tax is contractually passed on by the involved Swiss securities dealer.
Given the potentially relevant tax amounts, especially in complex investment structures or M&A transactions, an early assessment of securities transfer tax implications can help mitigate unexpected tax consequences.
