Capital gains on shareholdings: the taxation

Selling a shareholding at a profit immediately raises the decisive question: how much is left after tax? In Switzerland the answer depends almost entirely on who holds the shareholding and in which assets it sits. The very same transaction may be fully exempt or fully taxable. Mapping it out helps avoid costly mistakes.

Individual: the private capital gain

For a resident individual who holds the shareholding within their private assets, the gain realised on the sale is in principle a private capital gain exempt from income tax. It is one of the cornerstone principles of the Swiss tax system: someone who sells at a profit the shares of their own company, held privately, pays no tax on that gain.

The exemption, however, is not unconditional. It lapses in a few clearly identified situations:

• Professional securities dealing: if the buying and selling activity takes on the features of a gainful activity — by frequency, financial leverage and organisation — the gain becomes taxable income and subject to social security contributions.
• Indirect partial liquidation: if the buyer distributes, within five years, non-operating assets already existing at the time of the sale, and the seller contributed to it, the proceeds are reclassified as taxable income.
• Transposition: if shareholdings are contributed to a company controlled by the same seller in return for a price above nominal value, the difference may be taxed as income.

These exceptions are the reason why an apparently “exempt” sale must always be examined within the concrete structure of the transaction.

Shareholding within business assets

When the shareholding is recorded within business assets — because it is held by a sole proprietor, by a partnership, or because the activity qualifies as commercial — the capital gain is taxable as business income and subject to social security contributions. Here the private capital gain exemption does not apply.

To mitigate double taxation, however, under certain conditions the participation deduction applies to the portion relating to the nominal value and to accumulated earnings, through mechanisms that must be checked case by case.

Corporations: the participation deduction

If the seller is a company (AG or GmbH), the capital gain flows into profit and is in principle taxable. But the system provides for the participation deduction, which sharply eases the burden when the conditions for qualifying participations are met:

• a stake of at least 10% of the capital of the company sold, or
• a market value of the participation of at least CHF 1 million, and
• a holding period of at least one year.

Where these requirements are met, the profit tax is reduced in proportion to the weight of the participation proceeds within total profit. In many configurations the disposal gain on qualifying participations turns out to be largely relieved in practice, which explains why holdings and groups structure their disposals with an eye to these parameters.

The choice of structure matters

The practical difference is stark. The same company can be sold:

• directly by the individual shareholder, with the possibility of a tax-exempt private capital gain (barring the exceptions seen above);
• through an intermediate holding company, with the participation deduction on the profit but the advantage of being able to reinvest the proceeds without immediate taxation at the personal level.

There is no universally better answer: it depends on the reinvestment objectives, the time horizon and the personal situation. Setting up the holding structure before the shareholding appreciates is almost always more effective than acting on the eve of the sale.

In brief

Capital gains on shareholdings may be exempt (private capital gain), fully taxable (business assets) or heavily relieved (participation deduction at company level). The exceptions — professional dealing, indirect partial liquidation, transposition — are where things get complicated.

Every disposal must be analysed on the basis of the actual structure and cantonal practice. SIH ONE supports shareholders and companies in the tax planning of shareholdings and sale transactions. Talk to our Tax Desk.