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.