Share capital in foreign currency

The new Article 621(2) CO, which has come into force at the beginning of this year, states that the share capital of a corporation no longer has to be compulsorily in Swiss francs, but in the most important foreign currency for the company's business, provided that at the time of incorporation it corresponds to a countervalue of at least 100,000 Swiss francs. If the share capital is expressed in a foreign currency, the same must also be used for the accounting.

This change in the CO resulted in an adjustment of federal and cantonal tax regulations.

For profit tax, a new paragraph 1a was added to Article 80 of the Federal Law on Federal Direct Taxation (LFDT) and a new paragraph 3a was added to Article 31 of the Federal Law on the Harmonization of Direct Taxation of the Cantons and Municipalities (LHDT). The new provisions stipulate that if the financial statements are prepared in a foreign currency, the taxable net income must be converted into Swiss francs, according to the average exchange rate (sale) during the tax period.

For capital tax, which is levied only at the cantonal and municipal level, a new paragraph 5 of the aforementioned Art. 31 LHDT has been added, according to which if the closing of accounts is drawn up in a foreign currency, the taxable equity capital must be converted into Swiss francs, according to the currency rate (sale) at the end of the tax period.

Capital Variation Margin

The revision of the corporate law also introduced the new Articles 653s, 653t, 653u and 653v CO on a new financial instrument for corporations called "Capital Variation Margin". It allows corporations to authorize in their by-laws the board of directors to increase or decrease the share or registered capital of the company up to a maximum of 50 percent for a maximum period of five years. The lowest limit of the capital variation margin must be at least half of the registered share capital.

From a tax point of view, these change decisions can affect both share or registered capital and capital contribution reserves built up through contributions, premiums, and/or supplementary payments, and this can be done without income tax consequences.

However, in order to limit possible abuses and to prevent companies from ceasing to pay taxable dividends by only taking advantage of the exemption given by the capital variation margin, as of January 1, 2023, the new Art. 20 para. 8 LFDT and 7b para. 6 LHDT are into force. According to these latter, the rule equating the repayment of contributions, premium and supplementary payments (reserves from capital contributions) provided by shareholders with the repayment of share capital or share capital applies to contributions and premium provided during the validity of a capital variation margin, to the extent that they exceed the reserves repaid within the said capital variation margin. The same rule is also established in the new paragraph 1septies of Article 5 of the Federal Withholding Tax Act (FTA).

These new provisions provide for offsetting capital increases and decreases throughout the duration of the variation margin, based on a net value. Only the portion of contributions exceeding the reimbursed reserves can be considered as reserves from capital contributions, the reimbursement of which is subject to neither income tax nor withholding tax.

Should you have any questions or should you require any assistance in tax matters, please do not hesitate to contact our specialists in Geneva, Lugano or Zurich. We would be more than happy to assist you.