New capital band: larger flexibility within the capitalization of Swiss corporations and mandatory modifications to tax law


One of the welcome measures of the Swiss company law reform is the so-called “capital band”, which offers companies more flexibility when changing their capital structure. According to this new concept, the general meeting of a company can authorize the board of directors to increase or decrease its share capital over a period of up to five years in a range of plus 50% and minus 50% of the currently registered share capital. The capital band replaces the previously authorized capital, which only allowed limited capital increases over a period of two years.

Since listed Swiss companies could have abused the capital band to gain tax advantages for certain types of shareholders, the respective tax law had to be adjusted. This article provides an overview of the relevant tax principles for increasing and decreasing the share capital as well as the changes that are required due to the introduction of the capital band.

The new law is expected to come into force on January 1, 2022.

Taxation of capital decreases and increases

Capital reductions

If a Swiss company buys back its own shares for the purpose of a capital reduction, the difference between the purchase price and the nominal value of the shares is subject to Swiss withholding tax of 35% and generates taxable income for shareholders resident in Switzerland.Therefore, the share buyback is treated as a partial liquidation for tax purposes. In contrast, the share buyback is not subject to Swiss withholding tax and has no impact on income tax for Swiss residents who hold their shares as private assets if the shares are bought back against reserves from capital contributions.

In general, it is at a company’s discretion whether to make any dividend distributions or liquidation proceeds from capital contribution reserves or other distributable reserves. The same applies to share buybacks. From January 1, 2020, however, restrictions apply to listed Swiss companies in the sense that they may only pay tax-free dividends from their capital contribution reserves if they simultaneously pay a dividend of the same amount from their taxable distributable reserves (the so-called ’50 / 50 -Rule ‘). The same 50/50 rule applies to the buyback of own shares by listed Swiss companies that aim to reduce their capital.

In practice, listed companies often set up a second trading line for a later capital reduction. However, for persons resident in Switzerland who hold the shares as private assets, it is not advantageous to sell the shares on the second trading line, as in such a case the difference between the repurchase price and the nominal value of the shares is taxable income (unless because the shares are (partially) repurchased against capital reserves), while such a person can achieve a tax-free capital gain if the shares are sold on the normal trading line. The second trading line is also unattractive for non-Swiss shareholders, who may only be entitled to a full or partial refund of Swiss withholding tax of 35% if the country in which they are tax resident has concluded a double taxation agreement with Switzerland and beyond has conditions of such a contract are met.

In practice, only Swiss corporate shareholders who are entitled to a full refund of Swiss withholding tax and for whom the book value principle applies, take part in a share buyback program on a second trading line. From January 1, 2020, listed companies are legally obliged to offset at least half of the liquidation surplus with any reserves from capital contributions. This requirement limits the tax benefits and arbitrage opportunities associated with share buybacks on a second trading line to some extent. Due to the book value principle, Swiss company shareholders only achieve taxable income with the margin that results from the acquisition of shares on the ordinary trading line and the sale of shares on the second trading line. This margin can be practically tax-free due to the investment relief if the value of these shares is at least CHF 1 million.

Capital increases

The issue of new shares by and capital contributions to a company domiciled in Switzerland are subject to a one-off capital tax of 1% (issues of up to CHF 1 million are excluded).

New tax regulations required for the capital band

The interaction of the aforementioned second trading line and the new possible capital band would enable listed Swiss companies to generate tax advantages for their shareholders by buying their own shares for the purpose of capital reduction on the second trading line from Swiss company shareholders and creating taxes. Free repayable capital contribution reserves with each capital increase. As a result, taxable provisions could actually be converted into tax-free repayable capital contribution reserves.

In order to prevent such misuse of the capital volume, new tax regulations are introduced that state that tax-free repayable provisions can only be formed from capital contributions if the capital increases exceed the capital decreases at the end of the term of the capital volume (the so-called “net view”).

The same applies to the one-time capital tax of 1%, which is only levied after the capital band period has expired.

Numerical representation

Swiss company not listed on the stock exchange

The following table shows, using the example of a non-listed company, how the capital band works.

Using the net view, the Swiss Federal Tax Administration (SFTA) would only use the newly created capital reserves of 50 million francs (total capital contributions of 80 million francs less the reduction of the other distributable reserves of 30 million francs) after the end approve the financial year 2026, which leads to a total amount of tax-free repayable capital contribution reserves of 75 million francs. At the same time, the capital reductions in 2022 and 2025 would apply as a taxable partial liquidation that is subject to withholding tax.

In addition, the one-off capital tax of 1% would be levied at the end of the term of the capital band to 52.5 million francs (net increase in equity).

Swiss listed company Although the draft law and the legislative material do not contain an explicit explanation of the interaction of the capital band with the 50/50 rule, it is to be expected that a listed Swiss company will be obliged to offset the capital reduction against the capital contribution reserves and the other distributable reserves also within the capital band, which can be shown as follows.

By offsetting the capital contributions of 80 million francs with the repayments of other distributable reserves of 15 million francs at the end of the term of the capital volume, the SFTA could reserve an additional amount of 65 million francs as tax-free repayable capital reserves. Taking into account the initial balance and the repayments of capital contribution reserves of CHF 15 million according to the 50/50 rule, the final balance of the capital contribution reserves at the end of the term of the capital volume would amount to CHF 75 million (instead of CHF 90 million) as specified in the accounts).

In addition, the one-off capital tax of 1% would be levied at the end of the term of the capital band to 52.5 million francs (net increase in equity).


The capital band is a welcome and innovative new measure that was implemented in the Swiss company law reform and offers companies more flexibility when changing their capital structure. Thanks to a corresponding adjustment to Swiss tax regulations, this new capitalization instrument could be used on a large scale by Swiss companies. From a tax point of view, a net view applies and an increase in equity for the purpose of one-time capital tax and the amount of tax-free repayable capital reserves are only determined after the expiry of the term of the capital band. All Swiss companies considering the introduction of a capital band should plan carefully and consider the tax implications of changes in the capital structure during the life of the capital band.