Residents of the Swiss canton of Zug can pay taxes in crypto
All residents of the canton of Zug, be it companies or individuals, can now pay
their taxes in bitcoin or ether, the biggest cryptocurrencies in terms of market
But what does this mean and why is it important?
There are a couple of regions in the world which are quite attractive for crypto
investors and companies; apart from Malta, whose suitability has been
questioned in the past months, Zug —and Switzerland as a whole— is an
undisputed winner in the best-crypto-place race.
The canton of Zug, and its eponymous city, offer such opportunities for crypto
startups that it has been called, for a while now, the crypto valley. But what is
actually a crypto valley and which forces help to shape it?
Unlike other valleys,
which take centuries to form thanks to geological movements and other
natural phenomena, the crypto valley of Zug formed in very few years,
leveraged by the political stability, low taxing, and governmental receptivity of
the swiss city.
While other countries and jurisdictions have declared war on crypto,
Switzerland has always been open to innovation. According to the Crypto
Valley official page (yes, it has an official page), its creation was inspired by “a
friendly regulatory environment” and other “enormous advantages” of the
canton’s business ecosystem.
Bitcoin Suisse (we’ll talk about this company later) was founded in 2013 and,
in the coming years, big names in the industry, as the Ethereum Foundation,
ShapeShift, Xapo, Consensys, Tezos, Bitmain, and Bitfinex moved or expanded
their operations to Switzerland.
Many of these start-ups, which were running
freely in Zug, teamed up in 2017 to form the Crypto Valley Association.
In this context, and with many companies and services accepting payments in
bitcoin, it was a matter of time for the local governments to start accepting
and using cryptocurrencies and blockchain technology.
Bitcoin taxes and taxes in bitcoin.
The loose taxation on crypto-assets is one of the main benefits of the Zug
legislation. In 2015, FINMA, the financial authority of Switzerland, stated that
bitcoins were to be treated as foreign currency, and so be exempt from sales
taxes. A year later, the Zug tax authority established guidelines for the taxation of
bitcoin transactions, following the canton’s history of business-attractive low
taxes. This helped cement the crypto valley movement even more.
The local government decided to start taking bitcoin in 2016, as a response to
the growing amount of crypto start-ups and users in the region. From July 1st
onwards, BTC would be accepted as a means of payment for the office services,
with a limit of 200 Swiss francs (or 185 EUR). Although this doesn’t involve
taxes just yet, it paved the way for other local governments to open up their
arms (and treasuries) to the so-called digital gold.
The Chiasso municipality started accepting bitcoin for taxes in January 2018,
with a 250 Swiss francs cap (231 EUR), which limits the function to
individuals and leaves companies aside. The city of Zermatt followed these
steps and, two years later, in January 2020, started taking bitcoin for tax
paying with no limits at all.
While these have all been small cities and jurisdictions, on September 3rd the
canton of Zug (the whole canton) announced that it will accept bitcoin and
ether in the next fiscal year, starting January 2021.
This is important and made it to the news for various reasons. It’s the first
time ether is taken into account, it’s the first time a whole canton does it
(albeit a small one), and it has a high limit of 100,000 Swiss francs (92,435
EUR), which gives room for crypto companies to make use of it.
This implementation, along with the Zermatt one, is carried thanks to Bitcoin
Suisse, one of the most important crypto companies in Switzerland (remember
did we mention it a while back?) and the subject of our next section.
Bitcoin Suisse, as announced.
Bitcoin Suisse was founded in 2013 by Danish entrepreneur Niklas
Nikolajsen and offers a wide variety of services, ranging from trading and
brokerage to custody and collateralized lending. Regarding the news about the
canton of Zug, the also chairman of the company stated: “Everybody cares
about a $0.5 trillion market. There’s almost nothing controversial about
trading Bitcoin anymore. It’s completely mainstream”.
Bitcoin Suisse also issues a stable coin denominated CryptoFranc (XCHF),
pegged to Swiss francs, and helps businesses, banks, and governments accept
and trade bitcoin. In the last year, its revenues were 20.9 million francs,
mostly from its trading services. In the coming months, the company aims to
increase these numbers, and to achieve that, it applied for Swiss and
European banking licenses.
Our primary client base is Switzerland, Germany, and Scandinavia”, said
Nikolajsen, “but we have so much more to do in Germany and it can’t be that
we have more Swiss clients when there are ten times as many Germans.
The great advantage offered by Bitcoin Suisse is that the end receiver won’t
have to deal with cryptocurrencies at all and therefore won’t be exposed to the
volatility of its prices. The company takes the payment, immediately converts
it to fiat, and then sends it to the final customer.
Considering this, we can expect other entities to follow the steps of the Crypto
Valley and start accepting bitcoin for legal payments, not only in Switzerland
but in other countries of Europe (if Bitcoin Suisse gets the license).
The first canton
So, let’s recap. Zug accepting bitcoin for taxes is important because it’s the
first big jurisdiction to do so and it sets a high limit which allows many
companies to participate, and also because it can be a great example for other
regions of Switzerland and the European Union to include cryptocurrencies in
their options. Could this be replicated in other markets too? Can bitcoin
actually become mainstream for legal payments in Europe? Only time will tell.