a. Income Tax
Mining income is subject to income tax regardless of whether mined by a Swiss resident individual or company.
For Swiss resident individuals who do not qualify as professional miners, only the mining income, not the capital gains on the tokens should be taxable. This can lead to a burdensome task of valuing each mined token at the time of mining to differentiate this income from a subsequent increase in value post-mining.
Professional miner:
- for Swiss individuals who are deemed professional miners (e.g. mine at scale and with professional equipment), the income will be subject to income tax and also to social security contributions.
- mined tokens would likely qualify as business assets (unless explicitly transferred into private wealth), causing future capital gains also to be subject to income tax and social security contributions. Therefore, professional miners should regularly transfer mined tokens into their personal wealth (tax ruling recommended).
b. VAT
Compensation for validation / verification is usually in the form of a (1) block reward (newly created units of corresponding tokens) and/or (2) transaction fee.
- Block reward: for compensation carried exclusively by means of new tokens automatically generated by the network (so, no counterparty to spend an asset to receive a service), the activity is not considered entrepreneurial (or aimed at sustainable generation of income from services), and the reward is a non-remuneration for VAT, since there is no service relationship when transactions are validated.
- Transaction fee: for compensation as a transaction fee paid to validator by sender(s) for a specific transaction via the network, there exists a taxable service relationship between the sender and validator. The validation of a transaction for a recipient in Switzerland is subject to VAT at the standard rate as an electronic service. Since it is not possible to determine if the person paying the transaction fee is a Swiss resident or not, the transaction fees can be taxed on the basis of an estimated percentage of Swiss users of a blockchain. The appropriate percentage can be pre-agreed with the tax authorities in tax ruling.