Par value principle (Nennwertprinzip)

The par value principle (German Nennwertprinzip) is the historic Swiss tax rule under which only the repayment of the nominal value of share capital can be paid to a shareholder free of tax, any distribution exceeding par value being taxed as investment income and subject to withholding tax of 35%.

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This principle was relaxed from 2011 by the introduction of the capital contribution principle (KEP), which allows the repayment of reserves from capital contributions on the same tax-free basis as par value. The distinction between ordinary reserves (taxable) and contribution reserves (tax-free) has become a central issue in distribution planning and in valuing the equity of a Swiss target.

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Example: a Swiss company with nominal share capital of CHF 100,000 distributes CHF 500,000. With no contribution reserves, only the CHF 100,000 of par value would be tax-free; the remaining CHF 400,000 would be taxed as investment income and subject to withholding tax.

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At Hectelion, we analyse the equity structure (par value and contribution reserves) of every Swiss target to assess after-tax distribution capacity.