Professional securities dealer requalification (Tax Circular No. 36)

The Swiss tax authorities can, on the basis of Circular No. 36 on professional securities trading, retroactively requalify a private investor as a professional securities dealer after a major exit, causing them to lose the otherwise highly favourable private capital-gains tax exemption.

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Five cumulative conditions provide safe harbour against this requalification risk: holding the sold securities for at least six months before the sale, an annual total transaction volume not exceeding five times the investor's securities and cash wealth at the start of the period, sale proceeds representing less than 50% of the investor's annual taxable income, no use of borrowed funds to finance securities purchases, unless taxable securities income covers the interest due, and no use of derivative instruments outside of hedging.

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The risk is especially real for an active business angel, who by nature carries out frequent disposals of holdings over a few years: a transaction volume judged excessive relative to their own wealth, or an exit representing more than half their taxable income for a given year, can be enough to trigger requalification, even absent any speculative intent.

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For a Swiss business angel completing a significant exit, checking these five conditions before the sale, rather than after, is decisive: once requalification is pronounced, the entire gain becomes taxable, not merely the portion exceeding some threshold, a point to anticipate in any sell-side mergers and acquisitions advisory, notably within the company sale process.