Property taxes and start-ups

In addition to income tax, Switzerland also levies a tax on the assets of taxpayers at the cantonal and communal level. Wealth tax is due on the value of all assets at the end of the tax period (reference date). The valuation of the individual assets on the reference date is therefore of great importance. What is possible without problems with bank accounts or cash is associated with a great deal of uncertainty and inaccuracy with many other assets.

Tax law has therefore issued rules for the valuation of individual assets, which should give taxpayers a certain degree of legal certainty. In the following, we highlight the provisions on the determination of the value of a start-up company, which has been repeatedly criticised in recent years and ultimately regulated anew.

According to Art. 14 para. 1 StHG, assets are in principle valued at market value. However, the Tax Harmonisation Act does not prescribe the rules according to which the market value is to be determined. In the valuation of "companies" it is undisputed today, that the value is influenced by the substance (asset value) and also by the income (income value). However, the form in which these two elements are included in the calculation of the market value, is not clearly regulated and is the subject of technical discussions. The Tax Harmonisation Act does not specify exactly how these values are to be included in the calculation of the market value. In this sense, the inclusion of the capitalised earnings value is designed as a so-called "optional provision", which does not comment further on the weighting of the capitalised earnings value. This gives the cantons a great deal of discretion.

In the case of debt and equity securities with a stock market price, this is generally considered to be the market value and is therefore decisive for wealth taxes. In the case of assets without a market value, e.g. shares in a non-listed company, there is usually no market value. The relevant value is therefore determined according to a "suitable and recognised method". According to KS SSK 28, the so-called practitioner method is used in practice.

Rule: Practitioner Method

In the practitioner method, the enterprise value results from the weighting of two company variables, namely the earnings value on the one hand and the net asset value on the other hand.

In the case of the capitalised earnings value, the earning power of the company is decisive. To calculate the capitalised earnings value, future profits of the company are taken into account with an appropriate capitalisation interest rate on the valuation date. The estimate of future profits (the so-called sustainable operating profit) is based on the average adjusted operating profit of the past three financial years (cf. on the whole capitalised earnings value).

The net asset value, on the other hand, only takes into account the company's equity capital. Accordingly, the net asset value is made up of the current and fixed asset items listed in the balance sheet (including any hidden reserves) minus the borrowed capital (cf. for the entire net asset value).

In the practitioner method, the enterprise value is then derived from the double weighting of the earnings value and the single weighting of the net asset value at going concern values. The basic formula according to KS SSK 28 is thus as follows:

Exception: Companies in the founding year and in the start-up phase (start-ups)

Due to the general recommendation by the Swiss Tax Conference, the practitioner method is in principle authoritative in all cantons for the valuation of securities without market value for wealth tax purposes.

However, KS SSK 28 also contains a special rule for trading, industrial and service companies in the year of foundation and in the period of the start-up phase under margin note 32.

For such companies, the enterprise value is measured only according to the net asset value, in deviation from the principle. This means that the capitalised earnings value, which is typically considerably higher than the net asset value, is not taken into account for the time being. As soon as representative business results are available, however, the usual valuation rules are to be applied again, i.e. in addition to the net asset value, the capitalised earnings value is also to be taken into account.

The latest version of KS SSK 28, effective 3 November 2020, specifies in margin no. 2 para. 5 that financing rounds or capital increases by third-party investors are not taken into account for such companies. This means that a valuation can continue to be carried out according to the special provisions for start-up companies, even if a higher market value was calculated or results from the engagement of investors. This means that in this case an assessment/valuation is still carried out according to the net asset value as long as the company is actually in the start-up phase and no representative business results are available. With the latest addition to KS SSK 28, the property tax relief for owners of start-ups, which has already been practised in the Canton of Zurich since 2016, is thus adopted by the SSK and extended to the whole of Switzerland, which is pleasing.

However, the legal uncertainties associated with the interpretation of the terms "start-up phase" or "representative business results" are unfortunately not addressed in the commentary to the KSSSK 28, which means that the cantonal tax authorities continue to have considerable discretion in the property tax valuation of such companies.

As far as can be seen, no cantonal tax administration has published a detailed practice in this regard. There are also only a few publications on this topic at Jurisprudence . One exception is a recent decision by the Administrative Court of the Canton of Schwyz.

In this case, the Administrative Court of the Canton of Schwyz considered a service company founded in 2014, not to be in the start-up phase due to substantial dividend distributions in the founding year, as this was atypical for a start-up company. In addition, there was the circumstance, that the sole shareholder of the service company was already able to develop the necessary know-how and field of relationships through his previous activities, which made an actual start-up phase for his newly founded company unnecessary (VGE II 201941 E. 3.3.2 et seq.). According to the Administrative Court of the Canton of Schwyz, the value of the company for the purposes of wealth tax could not be determined solely on the basis of the net asset value from the outset.

Reservation: Formula value according to employee participation plan

As a matter of practice, even in the case of start-ups, those cases remain reserved in which the use of the net asset value would lead to a contradictory result. This is the case, for example, if a valuation method is determined by the tax office for income tax purposes (e.g. formula value within the framework of an employee participation plan accepted by the tax authorities).

In this case, this method also applies in principle for wealth tax purposes. Although this procedure can also lead to a higher wealth tax burden for founders not participating in the employee participation plan, than if the net asset value were applied, it appears to be correct from a tax system point of view.


In the case of trading, industrial and service companies in the year of foundation and in the period of the start-up phase, the asset value of the securities is calculated only according to the net asset value of the company, insofar as no representative business results are available. The fact that financing rounds or capital increases by third-party investors are now also disregarded for such so-called start-ups, is very pleasing from a wealth tax perspective.

As it remains unclear what the respective competent tax authorities understand by the term "start-up phase" or "representative business results", taxable holders of such unit certificates are still left with considerable legal uncertainty regarding their wealth tax burden until the final assessment. Accordingly, it is essential to contact the competent tax authority in advance.

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