Individual Taxation

Wealth tax on unlisted securities – new rules valid as of 1.1.2021

Overview and introduction

The wealth tax, which generates around CHF 7 billion in tax revenue annually, is largely derived from unlisted securities. After all, there are around 230,000 corporations in Switzerland, whereof around 50% of the shares are held as private assets.[1] For tax valuations with a balance sheet date as of 1 January 2021, there are welcome changes for taxpayers.

Legal basis

The Federal Tax Harmonization Act (FTHA) stipulates that taxable assets are valued at fair market value (art. 14 FTHA). However, neither the FTHA nor the cantonal laws define in more detail how the fair market value is determined.

According to the case law of the Federal Supreme Court, the market value is understood as the “objective market value of an asset”. This corresponds to “the price that could presumably be achieved in a transaction in the ordinary course of business, i.e. the price that an unbiased buyer would be prepared to pay under normal circumstances”[2], whereby this is not a mathematically exactly determinable value, but as a rule an estimated or comparative value.[3] While the valuation of a listed share is unproblematic (the closing price of the last trading day before the valuation date applies), the determination of the value of a non-listed security is more difficult.

Circular No. 28 of the Swiss Tax Conference

Due to the valuation difficulties and in order to alleviate the problem of mass assessments, the Swiss Tax Conference (STC) has established past-oriented valuation methods in its Circular No. 28 on the valuation of unlisted securities for wealth tax purposes (Circular 28). In addition, the STC has published an annual commentary on this subject since 2010, which reflects the practice of the authorities and case law.

The purpose of Circular 28 is to ensure a uniform valuation of unlisted securities for wealth tax purposes in Switzerland. According to the directive of the Zurich Financial Directorate, the fair market value of unlisted securities is generally to be determined according to the same Circular 28. However, there are also cantons which, deviating from Circular 28, establish other regulations.

According to Circular 28, the market value for trading, industrial and service companies is determined as follows: The market value of a participation results from the average of the double-weighted capitalized earnings value and the single-weighted net asset value. The capitalized earnings value corresponds to the average net profit of the last two or three financial years, which is capitalized at the applicable interest rate. Previously, this capitalization interest rate consisted of the interest rate of risk-free investments and a fixed risk premium and has been set at 7% since 2015.

Review of the valuation model by valuation specialists

In 2019, the STC commissioned the Institute of Banking and Finance at the University of Zurich to review the capitalization rate of Circular 28, probably due to the criticism raised about the valuation method, which is not very flexible and is based on the past earnings value. In summary, the valuation specialists have come to the conclusion that the valuation model used to date has various weaknesses and that adjustments are recommended.

Specifically, the experts state, among other things, that the risk premium of 7% is “problematic” and “open to attack” because it is not based on empirical evidence and does not take into account market developments over time. The capitalization rate according to Circular 28 should therefore be periodically derived from a representative capitalized earnings value of listed comparable companies. In addition, the experts recommend that the illiquidity of unlisted securities should be taken into account with a deduction of 10% from the total value. The capitalization rates calculated in this way will fluctuate more strongly from year to year due to the more accurate consideration of the respective market situation and the reporting date approach (for example, an interest rate of 10.33%[4] was calculated for 2018, and one of 6.58%[5] for 2017, compared to the interest rate of 7% according to Circular 28 in these years). Therefore, the experts are considering smoothing the capitalization interest rate over 2 to 3 years.

Adjustment of the SSK’s Circular no. 28 and expected effects

The STC has largely taken into account the recommendations of the experts and made an adjustment to Circular 28 for valuations with a balance sheet date of 1 January 2021, which is good news. The only deviation from the experts’ proposal relates to the illiquidity deduction. The illiquidity of a security is considered by increasing the capitalization rate by 17.65%.

In our estimation, a capitalization rate of around 9% to 11% may be expected as of 1 January 2021. This would significantly reduce the wealth tax value of unlisted securities compared to the previous years’ values. One can be curious about the publication of the capitalization rate in the price list of the SFTA.

All in all, the change in the calculation of the capitalization rate is a welcome development for shareholders of unlisted securities. Nevertheless, there are still some drawbacks: standard valuation methods such as the discounted cash flow method or a method using multiples are not considered. In addition, no interest surcharges are envisaged to account for special risks in the case of personal companies or of industry-specific risks. Finally, it is questionable whether a company valuation based on earnings capitalization unlimited in time is realistic, since statistically speaking, the vast majority of companies no longer exist after 40 years.[6]

Tax Partner AG
Zurich, 1 December 2021


[1] Swiss Federal Statistical Office, Statistics on the structure of enterprises, market-based enterprises by economic division and legal form, 2011 – 2019. Published August 28, 2020.
[2] FCD 128 I 240, C. 3.1.2; FCD 124 I 193, C. 4b); FCD 7.4.2020, 2C_1057/2018, C. 4.1.
[3] FCD 128 I 240, C. 3.1.2; FCD 124 I 193, C. 4b); FCD 7.4.2020, 2C_1057/2018, C. 4.1.
[4] Before considering an illiquidity discount of 10% of the total enterprise value.
[5] Before considering an illiquidity discount of 10% of the total enterprise value.
[6] Hüttche Tobias, Entwicklungen bei der Bewertung von KMU, ST 2014/9, 740.


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