Share Deal / Swiss Tax Consequences

Preliminary remarks

The tax consequences of the sale of shares of a corporation are presented in a simplified form below. As each case is unique, engaging a tax expert is recommended in order to assess the tax implications of each transaction. 

Chart

 
Checklist - Swiss tax consequences of the sale of shares of a corporation (Share Deal)
       Taxes for 


Types of taxes
Sold corporationIf Seller (shareholder) - individual, shares held as a private asset (private investor)If Seller (shareholder) - individual, shares held as business assetsIf Seller (shareholder) - legal entity without a participation reliefIf Seller (shareholder) - legal entity qualifying for participation relief Purchaser
Income taxes 
(FITA/CCITHA)
- In principle no tax consequences

- Sale does not result in higher amortization potential 


 in a subsequent (i.e. post- acquisition) merger, interest owed on acquisition loan can usually for the first five years not
 be entirely deducted form income generated by A Corp.
In principle capital gains are tax free (Article 16 (3) FITA), except in the following cases:
Taxable capital gains (difference between the market value of the shares and their book value at the time of realization), at the most partial taxation pursuant to  Art. 18b FITATaxable capital gains (difference between the market value of the shares and their book value at the time of realization)

- On a cantonal level a privileged taxation might apply (Article 28 CCITHA)
- The capital gains realized (difference between the earnings from the sale of shares and the cost of the investment) generally qualify for relief on capital gains (i.e. the capital gains are not subject to most corporate income tax)
- Reintroduced deductions will be taxed

- On a cantonal level a privileged taxation might apply
 (Article 28 CCITHA)
Possible restrictions on distribution under clauses of the purchase contract relating to indirect partial liquidation
Real estate capital gains tax / Real estate transfer tax
For real estate companies and if shareholder a non-Swiss seller, check if due to the economic transfer there is a potentially neutral revaluation of real estate values on the basis of the double tax treaty (see here the specific treaties listed in Article 13 of the Swiss Income Tax Treaties). 
 
Taxable sale of a real estate company?


Taxable sale of a real estate company?
 
 
Taxable sale of a real estate company?
 
 
Taxable sale of a real estate company?
Contractually ensure no mortgage must be registered to provide security for taxes on real estate capital gains taxes
 
 
Withholding tax (WHTA)   Provided sale below fair market value to a related party purchaser a deemed dividend possible (Art. 4 WHTA)Provided sale below fair market value to a related party purchaser a deemed dividend possible (Art. 4 WHTA)

- Application of the "old reserves" theory? 

- Provided sale above fair market value to a related party seller a deemed dividend possible (Art. 4 WHTA)
Stamp tax (STA)
(Stamp issuance tax
Stamp transfer tax)
 
Stamp issuance tax: sale of a shell company (Art. 5 Abs. 2 lit. b STA)

Stamp transfer tax: In case of a contracting party or intermediary (e.g. investment advisor) who qualifies as a securities dealer , the transfer stamp tax is in principle 0.15% (or 0.3% for foreign shares)
 
Stamp tax on turnover: In case of a contracting party or intermediary (e.g. investment advisor) who qualifies as a securities dealer, the transfer stamp tax is in principle 0.15% (or 0.3% for foreign shares)Stamp tax on turnover: In case of a contracting party or intermediary (e.g. investment advisor) who qualifies as a securities dealer, the transfer stamp tax is in principle 0.15% (or 0.3% for foreign shares)Stamp tax on turnover: In case of a contracting party or intermediary (e.g. investment advisor) who qualifies as a securities dealer, the transfer stamp tax is in principle 0.15% (or 0.3% for foreign shares)Stamp tax on emissions: in principle tax-exempted (for purchaser which is a corporation and transactions involving parent company, to check if there is a hidden capital contribution (Art. 5 Abs. 2 lit. b STA)

Stamp tax on turnover: In case of a contracting party or intermediary (e.g. investment advisor) who qualifies as a securities dealer, the transfer stamp tax is in principle 0.15% (or 0.3% for foreign shares)
Value added tax (VAT)  Sale of shares as exempted transaction  (Art. 21 para. 2 VAT Act); at most a tax adjustment, except Art. 29 para. 2 VAT Act (to be checked, but not likely)SSale of shares as exempted transaction  (Art. 21 para. 2 VAT Act); at most a tax adjustment, except Art. 29 para. 2 VAT Act (to be checked, but not likely)Sale of shares as exempted transaction  (Art. 21 para. 2 VAT Act); at most a tax adjustment, except Art. 29 para. 2 VAT Act (to be checked, but not likely) 

 



Tax Objectives of the Buyer and Seller in a Share Deal

Facts


Mr. X., domiciled in Switzerland, has built a successful Business in Switzerland . He is now in the phase in which he plans the future of his company. Because he has no descendants who are interested in leadingthe business, he has sought and found a buyer. The company is not directly held by Mr. X., but indirectly operated by Y. AG in which Mr. X. holds all shares. A foreign group of companies would now like to acquire this company at an attractive price. Mr. X. and the group agreed on a share deal in which Mr. X. would sell all his shares in Y. AG to the acquiring entity. 

Advantages and disadvantages of a share deal

 Mr. X., Share capital of Y. AG in his private assets Buyer, foreign group of companies
AdvantagesPossibility of realizing a non-taxable capital gain 

The offsetting of losses is contingent on continuing the business operation of the indirectly purchased business in Y.-AG is, since in this case the losses remain preserved by the purchase of Y. AG.  


DisadvantagesThere is a risk that such a non-taxable capital gain would be re-qualified as taxable investment income due to the so-called indirect partial liquidation theory.1

- As part of a share deal, the group of companies assumes all tax risks of Y. AG2

- The group acquires Mr. X.'s shares in a share deal. It is thus not possible to offset income of the company in Y. AG with the interests on debt payable on the group level, as well as in another company. 

- No additional deduction potential, as the asset value in Y. AG remains unchanged with the share deal.


Mr. X. can minimize the risk of such a qualification as an indirect partial liquidation, by requiring the group in writing in the purchase agreement to refrain from effecting any harmful substance distributions within the five years following the sale (for instance dividends from existing sale, distribution of reserves that are not necessary to the business and that are distributable within the meaning of commercial law at the time of sale). 

2 Therefore, in the purchase agreement the group must ensure that the risks, which are inter alia discovered in the course of the tax due diligence, are covered in the future by Mr. X. despite the sale, or adjust the purchase price accordingly to reflect such risks.   

Conclusion

Natural persons such as Mr. X. prefer a share deal structure because of the possibility of realizing non-taxable capital gains.
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