Tax-free capital gains are attractive for investors and entrepreneurs in Switzerland. However, what appears to be an advantage at first glance can turn out to be a tax trap. Under certain circumstances, capital gains can be classified as income - with significant tax and social security consequences. This article shows what shareholders and investors should be aware of.
Private capital gains are generally tax-free in Switzerland - a significant advantage for investors and entrepreneurs. However, a recent ruling by the Federal Supreme Court [1] highlights the com-plexity of distinguishing between tax-free capital gains and taxable income. This ambiguity can result in unexpected tax consequences under specific circumstances. The matter becomes par-ticularly complex when commercial securities trading or a self-employed activity is suspected. If a capital gain qualifies as taxable income, it may result in significant and often unanticipated income tax and social security contributions. This article highlights the main issues.
The realization of a tax-free capital gain preconditions the (profitable) sale of private assets. By contrast, gains from the sale of business assets are in any case subject to income tax and social security contributions.
The assumption of business assets presupposes the exercise of a self-employed activity. If no such activity is carried out, no business assets can be assumed against the will of the taxpayer, meaning that all assets held constitute private assets from which tax-free capital gains can be generated. If a taxable person – consciously or unconsciously – is self-employed, it must be determined on a case-by-case basis whether an asset is to be classified as private or business asset. This depends on the individual circumstances, whereby the so-called technical-economic function of the asset in question plays a central role. In this context, it should be noted that the holding and management of assets themselves – be it securities, real estate or other stores of value – could, under certain circumstances, constitute (part-time) self-employment. The intention to actually be self-employed is not decisive in this respect.
The term self-employment is not defined by law, but all income from a trade, business, liberal profession or other self-employed activity is subject to tax. In practice, the term is interpreted broadly. Accordingly, all profits from activities that go beyond the simple management of private assets are considered taxable income. This also includes capital gains from the sale or use of business assets.
The determination of whether a person is self-employed hinges on the specific circumstances of each individual case. The Federal Supreme Court takes the following indicators into account:
Each of these indicators may be sufficient together with others but may also be sufficient on their own to assume self-employment. The fact that typical elements of self-employment are not fulfilled in individual cases can be compensated for by other elements that are particularly pro-nounced. The individual aspects may not be considered in isolation and can also vary in intensi-ty. The decisive factor is that the activity as a whole is aimed at earning income.
The assessment of all the circumstances without a clear hierarchy of the listed indications makes it difficult to assess in individual cases whether or not self-employment is to be assumed. The fact that even a single indication can be sufficient if it is particularly pronounced shows that the hurdle for assuming self-employment is relatively low. This – of course – is particularly relevant when the activity is profitable.
The distinction between private and business assets is made according to the technical and eco-nomic function of the asset in question. This refers to the connection of the asset with a possi-ble self-employed activity.
A sufficiently close connection is generally deemed to exist if an asset is objectively recogniza-ble as being used for business purposes or actually serves the self-employed activity. The ques-tion is therefore whether an asset (e.g. a shareholding) serves to increase income or reduce expenses of the self-employed business activity. If a participation grants significant influence over a company in the same or a related industry as the owner's own company, this is consid-ered an indication that the participation qualifies as business asset. This assumption is in general confirmed, if the participation generates mandates for the owner's own company. This is the case, for example, with an architect who holds shares in real estate companies and acquires ar-chitectural contracts for his own architecting company from these companies.[2]
However, it is important to note that not only shareholdings in the same sector can qualify as business assets. Shareholdings outside the same sector can also be regarded as business as-sets if they are suitable for usefully expanding or supplementing the field of activity of the parent company or for diversifying business activities. In any case, the decisive factor is the intention of the person concerned to use the participation specifically to improve the operating result of their own company or its opportunities on the market.
Against this background, the Federal Supreme Court recently ruled [3] that self-employed lawyers are not prohibited from holding additional securities of their clients as private assets. The Feder-al Supreme Court thus protected the position of the taxpayer and upheld his appeal. In its rea-soning, the court stated that the lawyer's activities, repeated advice, investment activities and membership of the board of directors were not in themselves sufficient evidence to classify the shareholding as (self-employed) business activity. As long as the purpose of the participation is not to increase income or reduce expenses within the scope of the original gainful activity (in this case the activity as a lawyer), there is no room to assume that the participation is a business asset or to assume self-employment. Nevertheless, the qualification as business assets is not excluded, as the participation could also form part of commercial securities trading.
Under certain circumstances, the (profitable) sale of shares can be regarded as commercial se-curities trading and thus as self-employment. In practice, the following criteria are used for this purpose [4]:
In this context, reference should be made to a ruling by the Federal Supreme Court [5], in which it had to deal with the sale of a shareholding that was classified as commercial securities trading by the lower courts. Specifically, a person who was initially still working as an independent man-agement consultant acquired a stake in a holding company that held two subsidiaries operating in the packaging industry. These companies were in financial difficulties, which made restructuring measures necessary. Together with another business partner, the person concerned succeeded in restructuring the companies and then selling them at a profit. The responsible tax office and the Federal Tax Administration were of the opinion that this approach went beyond the scope of private asset management, meaning that the realized increase in value would constitute (subse-quent) remuneration for the intensive restructuring efforts and thus income from self-employment from an economic point of view. In this regard, the Federal Supreme Court stated that, from a tax perspective, owners of participations are not prohibited from attempting to in-crease the value of the participation by participating in the company. [6] In this specific case, there was therefore no basis for a subsequent reclassification of the capital gain as remuneration for work performed, meaning that the gain could be recognized as a tax-free capital gain.
Although the term "trader" is often associated with repeated purchases and sales, the single sale of an asset can also be regarded as self-employment under certain circumstances. From a tax perspective, it is questionable whether the single sale of an asset can lead to the assumption of self-employment as a trader.
According to the case law of the Federal Supreme Court, the mere one-off sale of an asset does not in principle protect against the assumption of self-employment. For example, the sale of a single property or the (partial) sale of a shareholding can lead to the assumption of (part time) self-employed. However, this requires that the asset in question was acquired as part of a planned, acquisition-oriented activity and managed with a view to a future profitable sale. A tax-free capital gain from the sale of an individual asset is therefore only possible if the sale can still be attributed to private asset management. This is invariably the case when a one-time oppor-tunity is taken - whereby the burden of proof lies with the taxpayer. As long as the threshold for self-employment is not exceeded, a certain asset management activity in relation to the asset to be sold should not be detrimental. However, the circumstances of the specific individual case must always be considered.
According to federal court rulings, if an occupation is primarily held as a form of employment, part-time self-employment may be considered in exceptional cases and under specific circum-stances. Indications in this regard include any external financing, risks taken or a particularly sys-tematic or planned approach. The proximity to the profession and the specialist knowledge used are also indications to be considered. The Federal Supreme Court has determined that the amount of profit made is of secondary importance.[7]
A current example is provided by the Federal Supreme Court [8]: In this instance, the revenue de-rived from the one-time sale of a share was classified as income from self-employment. The decisive factor was that the taxpayer was systematically and entrepreneurially involved in the project over a longer period of time, invested considerable financial resources, took entrepre-neurial risks and cooperated with an experienced business partner. Despite the lack of repetition of this activity, these circumstances were sufficient to assume a taxable gainful activity.
The distinction between tax-free capital gains and taxable income is complex in many cases and depends on various indicators. In order to realize a tax-free capital gain, it is important to careful-ly examine the relevant criteria and, if necessary, take measures in good time to avoid tax disad-vantages. Early and forward-looking planning is essential in view of the tax consequences of refusing the benefit of tax-free capital gains. This applies all the more as social security contribu-tions are due on the capital gain in addition to income tax.
[1] Cf. judgment FSC 9C_454/2023 of December 11, 2024.
[2] Cf. judgment FSC 2A.547/2004 of April 22, 2005.
[3] Cf. judgment FSC 9C_454/2023 of December 11, 2024.
[4] Cf. circular letter of the FTA no. 36, section 4.3.2.
[5] Cf. judgment FSC 2C_115/2012 and 2C_116/2012 of September 25, 2012.
[6] Cf. judgment FSC 2C_115/2012 and 2C_116/2012 of September 25, 2012 E. 2.5.3.
[7] See in particular.judgment FSC 9C_403/2023 of June 25, 2024 E. 5.5.
[8] See in particular. judgment FSC 9C_403/2023 of June 25, 2024.
On 16 December 2025, the Zurich Tax Office published two new practice notices on indirect partial liquidation. They concern the relevant balance sheet date and the inclusion of group companies in determining the commercially distributable reserves. In the view expressed here, both notices are declaratory in nature — they clarify existing law rather than introduce any genuine change in practice. They are nonetheless significant for day-to-day transactions.
So-called indirect partial liquidation covers situations in which a shareholder disposes of a participation held as private assets to a corporation or cooperative, or to a natural person holding the participation as business assets, and the target company subsequently distributes substance that would economically have benefited the seller. The legislature seeks to prevent commercially distributable reserves — which would be taxable as a dividend triggering income tax or profit tax for the seller — from being realized tax-free via the interposition of a corporate acquisition.
The provision requires the following elements to be met cumulatively:
(1) Disposal of a participation of at least 20% in a corporation or cooperative,
(2) to a corporation or cooperative (acquiring company),
(3) distribution of commercially distributable, non-operationally necessary substance of the target company within a lock-up period of five years following the sale,
(4) to the extent this distribution exceeds the profits ordinarily generated since the acquisition, and
(5) cooperation by the seller in the distribution.
The legal consequence is that the realized gain is in general re-assessed as income from movable assets in the seller’s hands — the tax-free capital gain is thereby reclassified, to that extent, as taxable income from movable assets.
Two figures are central to calculating the exposure from an indirect partial liquidation: on the one hand, the distributable reserves of the target company at the time of the sale, and on the other, the non-operationally necessary substance. The lower of the two amounts is determinative in each case. It is these calculation parameters — in particular the relevant point in time and the circle of companies to be included — that the Zurich Tax Office clarifies with its new practice notices of 16 December 2025.
In principle, the last annual financial statements (or the last interim accounts) of the target company approved by the general meeting (hereinafter: “AGM”) prior to the sale are to be used to determine the distributable reserves. With its practice notice on determining the point in time of the distributable reserves, the Zurich Tax Office confirms the administrative practice set out in Circular No. 14 of the SFTA as well as the Federal Supreme Court ruling 2C_135/2021 of 2 March 2022.[2]
The supplementary clarification regarding the six-month period is of practical importance: if the sale takes place more than six months after the balance sheet date, the profit of the preceding financial year is deemed to constitute distributable substance — regardless of whether the AGM has already taken place at the time of the sale or not.[3] This must be seen against the civil law background that the AGM is to be held within six months of the balance sheet date. If, contrary to that requirement, no AGM takes place within this period, reference is still to be made to the last balance sheet date even without the annual accounts having been approved by the AGM.
The practice notice illustrates this with three scenarios:
The principle of relying on the last approved annual accounts is not absolute. If a material change in the financial position of the target company occurs between the balance sheet date and the sale — for example through extraordinary distributions, the disposal of significant assets, or substantial losses — it may be justified to use a more current basis or to depart from the last annual accounts approved by the AGM.[4] This applies in particular if, after the AGM but prior to the sale, the commercially distributable reserves are actually distributed to the sellers.
Assessment: This practice notice introduces nothing substantively new. It does, however, create clarity for situations in which closing and AGM occur in close temporal proximity — a frequent occurrence in practice. For transacting parties who can actively control their closing date, the balance sheet date remains a relevant planning parameter, though artificial postponement of the AGM to reduce distributable substance could be treated as tax avoidance.
The second practice notice appears, at first glance, more substantively significant. The Zurich Tax Office states that in determining the distributable reserves, not only the target company itself but also its subsidiaries and sub-subsidiaries under unified management are to be included.[6] The analysis is conducted for each entity individually (single-entity financial statements; no consolidation). Losses of individual group companies cannot therefore be offset against distributable reserves of other companies.
In concrete terms, this means: the determinative amount is the lower of non-operationally necessary substance and commercially distributable reserves — per entity, pro rata according to the ownership percentage. Minority interests (without a majority of voting rights) fall outside the calculation. The potential tax base arising from an indirect partial liquidation can therefore not be artificially reduced by keeping distributable reserves at the target company level low while accumulating reserves in subsidiaries instead.
Assessment: While neither Circular No. 14 nor prior cantonal practice addressed the group-wide entity-by-entity analysis with comparable explicitness, this practice notice, in the view expressed here, merely concretizes a principle of group-wide analysis that was already applicable before its publication and does not bring about any material change in practice. Regardless, it provides welcome clarity on this point.
In the view expressed here, the new practice notices are declaratory in character: they clarify and illustrate principles that already followed from existing law and the established literature. This has consequences for the assessment of existing rulings and already-completed transactions.
For existing rulings, this means: where the calculation of the commercially distributable reserves was the subject of the ruling and was specifically determined — including at group level — the protection of legitimate expectations is evident. The same must apply where the amount of the commercially distributable reserves was fixed — for whatever reason — without regard to direct or indirect subsidiaries. Provided the other requirements for protection of legitimate expectations are met — in particular full and accurate disclosure of the facts and no material change in the legal or factual position — such a ruling that is substantively incorrect remains binding on the authority.
For already-completed transactions without a ruling, the same logic applies: since the group-wide entity-by-entity analysis, in the view expressed here, already applied prior to publication of the practice notice, open assessments may in principle be determined according to these principles. Taxpayers who have to date not included subsidiaries in the IPL calculation bear the risk of a revised assessment, provided the tax assessment has not yet become final.
For ongoing and planned transactions, the IPL analysis must be conducted from the outset at the level of all subsidiaries and sub-subsidiaries under unified management — regardless of where distributable reserves are accumulated within the group. Existing calculations limited to the target company alone should be reviewed.
The timing of the sale relative to the balance sheet date and the AGM remains a relevant planning parameter. In particular for transactions in the second half of the year, the implications of the six-month period should be analyzed at an early stage. An artificial delay of the AGM to reduce distributable substance carries the risk of being treated as tax avoidance. Against this background, it is advisable to schedule the AGM consistently in the second quarter, independently of any potential sale. An ad hoc postponement of the AGM is difficult to defend; a temporally consistent practice offers adequate protection against the allegation of tax avoidance by comparison.
[1] https://www.zh.ch/de/steuern-finanzen/steuern/treuhaender/steuerbuch/steuerbuch-definition/zstb-nr-20a-2.html
[2] See for the same practice in the Canton of Aargau: ATTENHOFER/SCHWARB/BAUMER, in: Klöti-Weber/Schudel/Schwarb (eds.), Kommentar zum Aargauer Steuergesetz, 5th ed., Bern 2023, § 29a N 63a
[3] See also ATTENHOFER/SCHWARB/BAUMER, op. cit., § 29a N 63a in fine in fine
[4] See ATTENHOFER/SCHWARB/BAUMER, op. cit., § 29a N 63
[5] https://www.zh.ch/de/steuern-finanzen/steuern/treuhaender/steuerbuch/steuerbuch-definition/zstb-nr-20a-3.html
[6] See also ATTENHOFER/SCHWARB/BAUMER, op. cit., § 29a N 60
In its judgment 9C_463/2025 vom 17. Juni 2026, the Federal Supreme Court had to assess a case at the intersection of business succession, inheritance law and income tax. At the center stood the question of whether the transfer of shares worth more than CHF 8 million to a long-standing managing director on the basis of an inheritance agreement is subject not only to inheritance tax but also to income tax, which the Administrative Court of the Canton of Aargau denied. The Federal Supreme Court held that this assessment was, in any event, not arbitrary and dismissed the appeal of the cantonal tax administration.
The decision was based on the activity of A.A. for C. AG in the years 1991 to 2020, during which he acted as managing director, delegate of the board of directors and chairman of the board of directors. From 1999 until her death at the end of 2016, D. was the sole shareholder of C. AG and had no direct descendants.
In 2001, A.A. and D. concluded an agreement on the purchase of 585 registered shares at a deferred purchase price of CHF 1'392'300 as well as a publicly notarized inheritance agreement. It was recorded therein that all shares still owned by D. at the time of her death were to be transferred to A.A. At the same time, the inheritance agreement provided that the deferred purchase price for the shares would be waived.
Following the death of the testator, the Canton of Zurich levied inheritance tax of approximately CHF 3 million on the transfer of the shares in June 2019. The corresponding tax assessment was not challenged. A few months later, the municipality of residence of A.A. in the Canton of Aargau qualified the same share transfer as taxable income in the amount of approximately CHF 8.3 million and levied income tax thereon. Against this assessment, A.A. pursued the appeal process up to the Administrative Court of the Canton of Aargau, which followed his reasoning and did not qualify the transfer of the shares as a transaction subject to income tax. Against this assessment, the Cantonal Tax Administration of Aargau as well as the municipality of residence of A.A. lodged an appeal [1] with the Federal Supreme Court (“FSC”).
Employee shares are participations in the employer or in a company closely related to it which are granted to the employee on the basis of his employment relationship. Subject to income tax (and to social security contributions) is the difference between the market value and any acquisition price at the time of acquisition. In the case of blocked employee shares, the reduction in value resulting from the restriction on disposal is taken into account by way of a discount.
In addition to employee shares, the concept of employee participation also covers options and expectancies. These are in principle taxed only at the time of exercise or of accrual, with the result that, in the case of deferred acquisition rights, the tax base grows – in principle – along with the value of the company.
The transfer of assets by way of inheritance, legacy or gift is subject neither to income tax nor to social security contributions. By means of a legacy, the testator confers an asset advantage on a beneficiary without appointing him as an heir. As in the case of a gift, the grant is made without consideration. Depending on the degree of relationship, the inheritance, the legacy or the gift may be subject to inheritance or gift tax.
Whether qualification as an employee participation or as an inheritance, legacy or gift is more favorable from a tax perspective must be examined in each individual case. Alongside the tariffs, which diverge considerably between the cantons – and which, in the case of succession outside the family by way of inheritance, legacy or gift, may reach up to 36 %, as in the Canton of Zurich – particular regard must be had to the special provisions on business succession which currently fourteen cantons provide for. These rules regularly also cover inheritance tax. Their practical significance lies precisely in succession outside the family, since direct descendants are in any event exempt from the tax in almost all cantons. The aforementioned special provisions provide for reductions of inheritance or gift tax of between 50% and 80%. [2] Some cantons even grant a full exemption. [3]
These reductions or exemptions are, however, subject to the actual continuation of the business. The cantons make the relief conditional on a blocking period of typically five or ten years, throughout which the requirements – in particular the recipient's management position and the minimum shareholding of between 20 % and 51 %, depending on the canton – must continue to be met. If the period is not observed, the relief is subject to full or partial retrospective taxation, regardless of whether the recipient discontinues the business voluntarily or is forced to give it up.
According to case law, grants by third parties which have a close connection to an employment relationship do not necessarily constitute taxable income. [4] The FSC illustrates this with two examples: tips are not necessarily employment income despite an obvious connection to the employment relationship, and a collection of money by work colleagues on the occasion of an employee's departure is as a rule likely to constitute a gift. Even a grant by the employer is not excluded. In such a case, however, the character of remuneration must recede into the background.
Conversely, the absence of a contractual obligation to make the grant is not harmful: Long-service and anniversary gifts are also considered income from employment, even though there is no legal entitlement to them under the employment contract. The long-service gift does not compensate the work performed, but loyalty, and is therefore precisely not a gratuitous grant. Voluntariness is thus not a suitable criterion of delimitation; decisive is solely the economic, or deeper, reason for the grant.
In the case at hand, the Administrative Court of the Canton of Aargau saw the deeper reason for the share transfer in the arrangement of the business succession and not in the compensation of the work performed. This was supported in particular by the fact that the transfer ultimately encompassed the entire company. In this context, the lower court held that, where more than 50 % of the voting rights are transferred, it must regularly be assumed that an orderly business succession constitutes the underlying motive for the grant. The FSC considered this assessment not to be arbitrary.
On the merits, the FSC considered that remuneration granted in addition to salary in the form of the entire company, which by its very nature can occur only once, appears extraordinary. Furthermore, the share transfer had not been dependent on the continuation of the employment relationship. Nor could the gratuitous nature of the grant, on its own, establish a sufficient connection to the employment relationship, since it corresponds precisely to the essence of a legacy. It was also of weight that there were no direct descendants or other heirs suitable for managing the company. It is true that A.A. came to be within the circle of potential successors in the first place on account of his long-standing activity for the company. However, this circumstance is of merely subordinate significance. Decisive in the FSC's assessment was therefore ultimately that, upon appraisal of the overall circumstances, the actual reason for the share transfer lay in securing the business succession.
It follows from the judgment of the FSC presented above that not just any connection to the employment relationship suffices for an employee participation to be present. Rather, the employment relationship must constitute the actual economic reason for the share transfer. Decisive is therefore which motives underlie the transfer and whether these are predominantly rooted in the employment relationship or in a legal ground independent thereof, such as the securing of the business succession. It should be noted that the assessment of the FSC related to a question of fact, with the result that the court was limited to a mere review for arbitrariness.
Für die Gestaltungspraxis ergeben sich folgende Hinweise
[1] Auf die Beschwerde der Wohngemeinde trat das Bundesgericht mangels Legitimation nicht ein (vgl. Urteil BGer 9C_464/2025 vom 17. Juni 2026, E. 1.3.4).
[2] Dies gilt für die Kantone Appenzell Ausserrhoden, Zürich, Waadt, St. Gallen, Tessin, Basel-Landschaft, Thurgau, und Graubünden, Glarus.
[3] So namentlich die Kantone Jura, Nidwalden, Bern, Freiburg und Solothurn.
[4] Vgl. hierzu und zum Folgenden: Urteile BGer 2C_703/2017 vom 15. März 2019 und 9C_604/2022 vom 1. Mai 2024.
