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Legal advice order form on the regulation of cryptocurrency activities in Switzerland

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There is a huge number of assets nowadays, ranging from ordinary money to all kinds of securities. However, their use or sale can cause their holders certain difficulties. Following the first application of blockchain technology, which took place more than ten years ago, a whole new class of assets was introduced – cryptocurrencies.

What made them unique is their ability to solve the said difficulties by eliminating the need for intermediaries who would be otherwise needed to conduct transactions or realize assets.

Such a breakthrough drew the attention of potential investors to distributed ledger (DLT) and blockchain technology. Further successes of cryptocurrencies only served to increase this interest, and today many entrepreneurs around the world are looking for an opportunity to register a cryptocurrency company or launch an ICO in Switzerland or elsewhere in the world.

The first ICO that ended up being profitable was launched by the Ethereum Fund in the Swiss city of Zug in 2014. Since then, the so-called “Crypto Valley” has emerged between Zug and Zurich, attracting a large number entrepreneurs looking to launch a crypto business in Switzerland. The Swiss government was also quick to respond to the new reality by creating the proper legislatory framework for companies engaged in cryptocurrency activities.

How Cryptocurrencies Get Regulated in Switzerland

It should be noted that Switzerland does not yet have a special law applicable to cryptocurrencies, which is why current legislation on financial markets governs these assets.

In accordance with FINMA recommendations, there are three classes of tokens in Switzerland:

  • Asset-Based Tokens – an analogue of security tokens which entitles its holders to a share of revenue of the issuing company. Such tokens are similar to stocks or securities, and are, therefore, also classified as securities. Their public offer requires obtaining permission from the regulator. For example, to issue such tokens, entrepreneurs will need to register companies under the STO and receive respective licenses.
  • Product-Based Tokens – make a product or service offered by the owner of a blockchain accessible to the holders. For instance, tokens like these can be utilized  for the purpose of purchasing tickets airline tickets, and are, therefore cannot be regarded as a security.
  • Payment-Based Tokens – traditional cryptocurrencies (e.g. Bitcoin, Litecoin, Ethereum, etc.) utilized for payment purposes in order to obtain products or services. Stablecoins (i.e. cryptocurrencies backed by real assets, such as metals, fiat currencies, minerals, etc.) can also be regarded as payment-based tokens.

If, when registering a cryptocurrency business in Switzerland, you aren’t sure what category the product you’re planning on offering falls into, FINMA may accept your preliminary assessment request, by which it can determine whether your activity falls into the category of government-regulated. If you’re considering opening a cryptocurrency business in Switzerland or launching a cryptocurrency exchange in this Alpine country, you should familiarize yourself with the following document.

Taxation of Cryptocurrencies in Switzerland

According to Swiss government agencies, cryptocurrencies should get a treatment similar to that of regular fiat currencies. Therefore, they should not and will not be liable to VAT in Switzerland.

Also, if a cryptocurrency is utilized for purchasing a product or service, the seller does have to pay additional VAT. Capital gains tax in Switzerland is also not levied in relation to cryptocurrencies if a cryptocurrency is not an asset in any business.

In general, taxation of crypto assets depends on which category they fall into: product tokens, exchange tokens or asset tokens. It must be understood that there is no single doctrine by which the taxation of crypto assets is carried out; however, federal and cantonal tax authorities are expected to publish relevant guidelines. For this reason, before selling tokens in Switzerland, it is advisable to consult with tax consultants, or get a decision from the tax authority to minimize any undesirable consequences.

How Cryptocurrencies Impact Inflation in Switzerland

Cryptocurrencies are known to have some effect on pricing.However, given that Bitcoin itself depends on external influences, that’s unlikely & only possible if the cryptocurrencies are utilized as a commonly accepted payment method, which is also unlikely due to many factors. Sellers of products or services may simply refuse to accept cryptocurrencies as a payment method, causing the latter to become unwanted and lose their value. That’s one of the possible reasons why crypto assets are usually utilized for investment.

AML & Cryptocurrencies

Registering a cryptocurrency business in Switzerland involves an indepth study of security systems and risk control. This is because many people associate blockchain and (pseudo-) anonymous cryptocurrencies with various illegal activities or fraudsters.

Despite the fact that commonly used cryptocurrencies, such as Bitcoin, have open blockchains, individuals initiating them usually remain hidden. However, it should be noted that authorities can track any transaction to its source, i.e. creation of a block in a chain.

AML in Switzerland is carried out by imposing the “KYC” obligation on legal & physical entities involved in cryptocurrency business or qualifying as mediators, particularly if they intend to do the following:

  • Issuing payment means in Switzerland (e.g. engaging in issuance of cryptocurrencies)
  • Transference of funds on behalf of one party in relation to a 3rd party;
  • Buying or selling currencies
  • Transfering money or different kinds of assets

Cryptocurrency holders are protected by anti-ДЛОРНПЕКУЦЁ Ё12cybercrime legilstaion that make offenders criminally responsible for:

  1. Unauthorized access to information or information processing systems
  2. Corruption of information;
  3. Computer-related fraud on the Internet

Conclusion

Switzerland plans to strengthen its position as a leading state in the field of blockchain and cryptocurrencies.

It also plans to bring its legislation in conformity with EU regulations, such as MiFID II or PRIIPS, which is why requirements for sale and use of tokens are also likely to change.

Please note that IQ Decision UK experts provide legal advice on registration of a cryptocurrency business in Switzerland, as well as support at all stages of registration of a cryptocurrency company in Switzerland. They can also help you open a corporate account in a Swiss bank or obtain a cryptocurrency license.