Introduction
Startups are usually financed either through debt (via venture debt or convertible loans) or – more commonly – via equity capital. When raising equity, the fund raising is usually subject to a Swiss stamp duty unless there is an exception.
The following article highlights the most important aspects of the Swiss stamp duty in connection with financing rounds of Swiss startups and provides you with information regarding tax declaration.
A. Ordinary Capital Increase by raising cash
When raising equity, the share capital of the Company registered in the commercial register is usually increased, and new shares are issued and allocated to investors. This process is subject to a stamp duty according to Article 5(1)(a) of the Federal Act on Stamp Duties (StG).
The respective stamp duty of 1% is generally levied on the amount that the company receives as consideration for the newly issued shares, but at least on the nominal value of the issued shares. If the payment is not in cash but in the form of assets or rights, the stamp duty is calculated based on the market value of these assets or rights at the time of the share issuance.
In case the new shares are issued at an issuance price above the nominal value, the basis for calculating the stamp duty is the total consideration minus the notarial and commercial register fees, as well as the stamp duty itself. An example will be presented below.
In addition, depending on the amount raised in the current and in past financing rounds, the company may be able to utilize the exemption of CHF 1 million (1 million-exemption). More details are provided below.
Tax Declaration
The obligation to pay the stamp duty arises when the shares are registered in the commercial register and becomes due for payment thirty (30) days after the end of the (business) quarter in which the stamp duty obligation arose (Article 7(1)(a) in conjunction with Article 11(b) StG).
The tax declaration is done using Form 3 for settling Swiss stamp duties from the Federal Tax Administration (FTA). In case of a late declaration of the stamp duty, default interest is generally due without reminder.
B. Ordinary Capital Increase by offsetting convertible loans
When existing convertible loans are converted into equity during a financing round, stamp duty is levied on the amount that the company receives as consideration. This corresponds to the amount of the loan (including any accrued interest) that is converted.
Since the new shares are usually issued at an issuance price above the nominal value, the basis for calculating the stamp duty is the total consideration minus the notarial and commercial register fees, as well as the stamp duty itself. In addition, depending on the amount raised in the current and in past financing rounds, the company may be able to utilize the 1 million-exemption as explained above.
Tax Declaration
The obligation to pay the stamp duty arises when the shares are registered in the commercial register and becomes due for payment thirty (30) days after the end of the (business) quarter in which the stamp duty obligation arose (Article 7(1)(a) in conjunction with Article 11(b) StG).
The tax declaration is done using Form 3 for settling Swiss stamp duties from the FTA. In case of a late declaration of the stamp duty, default interest is generally due without reminder.
C. Example
The startup Lightning AG was founded in 2022 with a share capital of CHF 100,000.00, divided into 1,000,000 registered shares with a nominal value of CHF 0.10 each. Twelve months after its incorporation, the company conducts a financing round at a pre-money valuation of CHF 4,000,000. The company raises a total of CHF 1,500,000 and issues 375,000 new registered shares with a nominal value of CHF 0.10 and an issue price of CHF 4.00 in an ordinary capital increase.
The corresponding notarial and commercial register fees amount to a total of CHF 5,000.00.
What kind of stamp duty is levied?
- No stamp duty is levied at the incorporation due to the exemption which provides that no tax is levied until the amount of equity raised reaches CHF 1 million (1 million-exemption).
- For the capital increase, stamp duty is levied on an investment of CHF 600,000.00. The first CHF 900,000.00 are exempt due to the 1 million-exemption. The rest is fully subject to the stamp duty.
- Since the shares are issued at an issuance price above the nominal value, the stamp duty is calculated as follows:
1% of (CHF 600,000.00 - CHF 5,000) / 101 x 100 = CHF 5,891.10
- The tax is due within 30 days after the end of the (business) quarter in which the capital increase was registered in the commercial register, using Form 3 from the FTA. Note that the settlement must be made on time, otherwise default interest will be charged.
Furthermore, the following provision of the withholding tax law must be noted: Since the shares are issued above the nominal value, reserves from capital contributions (KER) can be formed. Accordingly, the balance of the reserves from capital contributions changes, and the company must report such change using Form 170 from the FTA (Capital Contributions) within 30 days after approval of the annual financial statements.
D. Stamp Duty on Shareholder Contributions
Shareholder Contributions also fall under the category of taxable events. Such contributions refer to payments made by a shareholder without receiving a corresponding consideration such as newly shares. While such considerations strengthen a company's financial position, they do not alter the ownership structure. Although "classical" considerations are relatively rare in startups, the rules concerning contributions are still practically significant during financing rounds.
In the event that companies formally issue shares at their nominal value during a financing round but agree with investors that the premium (Agio) should be separately transferred to the company's account (e.g., to have access to the cash), the premium is sometimes not explicitly recorded in the publicly notarised documents for the capital increase and the tax administration qualifies such payments as a shareholder contribution.
For contributions, the stamp duty of 1% is calculated based on the total value of the contributions. It is irrelevant whether the contribution is in cash, as a credit, contribution in kind, or waiver of claims. Importantly, in the case of a contributions, the CHF 1 million-exemption cannot be applied, and notarial and commercial register fees, as well as the stamp duty itself, cannot be deducted from the calculation basis.
Tax Declaration
In the case of contributions, the tax becomes due for payment 30 days after the end of the (business) quarter in which the tax obligation arose (Article 7(1)(e) in conjunction with Article 11(b) StG) and the tax declaration is done by using Form 4 from the FTA.
E. Exceptions – when is no stamp duty levied?
The CHF 1 Million-Exemption
Shares issued against consideration are exempt from the stamp duty, provided that the contributions of shareholders collectively do not exceed CHF 1 million. This 1 million-exemption can be used for both the incorporation and subsequent financing rounds. If the contributions of shareholders exceed CHF 1 million, however, the stamp duty becomes due. Additionally, the exemption only applies to share issuances against consideration. It does not apply to shareholder contributions.
Restructuring
No stamp duty is usually due for restructuring cases, i.e., cases in which a company has real losses and raises equity capital to eliminate these losses. Relevant in this context is Article 12 StG, which is applied when the stamp duty would constitute an obvious hardship, and Article 6(1)(k) StG, which is of greater importance for startups.
Article 6(1)(k) StG stipulates that the issuance of shares, the increase of the nominal value of shares as well as shareholder contributions in the context of restructurings, are exempt from the stamp duty, provided that (i) existing losses are eliminated and (ii) the contributions of shareholders collectively do not exceed CHF 10 million.
The question of when existing losses are considered to be eliminated was recently decided by the Federal Court in a decision dated September 7, 2023. According to the Federal Court, the elimination of a loss means the "actual write-off of the loss carried forward", i.e., the loss must be offset in the accounts with the capital contribution reserves resulting from the equity contribution (i.e., the capital contribution reserves disappear).
This decision by the Federal Court, which follows the practice of the ESTV (Federal Tax Administration), means that a company must decide whether it wants to offset the capital contribution reserves with the losses (and thus save on stamp duties levies) or pay the stamp duty and continues to be able to keep the capital contribution reserves.
Which option makes sense must be decided on a case-by-case basis
Take Home Messages:
- If a startup raises equity in a financing round, the 1% stamp duty should be considered.
- For share issuances, there is a CHF 1 million-Exemption below which no stamp duty is levied. This exemption does not apply to shareholder contributions (without considerations).
- If participation rights are issued above their nominal value, the notarial and commercial register fees, as well as the stamp duty itself, can be subtracted from the amount of consideration relevant for calculating the stamp duty.
- The obligation to pay stamp duty arises in the case of capital increases with the registration of the increase in the commercial register and becomes due for payment 30 days after the end of the (business) quarter in which the stamp duty obligation arose. The tax declaration is done using Form 3 from the FTA, and in case of late settlement, default interest is generally due without reminder.
Disclaimer: The information contained in this article is for general information purposes and does not constitute legal or tax advice. In specific individual cases, the present content cannot replace individual advice from expert persons.
