Tax valuation of unlisted shares in Switzerland

How are unlisted shares valued for wealth tax purposes?

For individual taxpayers, assets must be declared at their fair market value in the tax return. There’s a distinction between listed and unlisted securities:

Listed securities: The fair market value corresponds to the current stock exchange price.

Unlisted securities: Valuation is generally based on the Guidelines for the valuation of securities without a market price for wealth tax purposes, as set out in Circular letter No. 28 (“KS 28”).

What does KS 28 regulate?

The aim is to ensure consistent valuation of domestic and foreign securities that are not traded on a stock exchange or not regularly traded over the counter.

Tax value vs. market value

If there are significant transactions (sales) of these unlisted shares between independent third parties, the actual sale price is generally considered the new fair market value. This value then becomes relevant for wealth tax purposes.

Rinaldo Neff

Rinaldo Neff

Director, Private Clients Tax

KPMG Switzerland

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Sandra Bütler

Sandra Bütler

Expert, Private Clients

KPMG Switzerland

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Annual financial statements as the basis for valuation under KS 28 – choosing the right approach

Circular letter No. 28 (hereafter KS 28) refers to the term “annual financial statements” for the valuation of unlisted shares. However, it does not specify which accounting standards these statements must follow.

What does that mean for the tax valuation?

KS 28 does not clearly state whether the individual financial statements or the consolidated financial statements should be used for the valuation, nor does it specify the applicable accounting standard. This leaves room for interpretation. It is advisable to assess which option is more favorable from a tax perspective.

Background

KS 28 was issued in 2008, long before the current accounting legislation came into effect. At that time, “annual financial statements” typically referred to the statutory financial statements under the Swiss Code of Obligations (CO). Today, companies may also apply recognized accounting standards such as Swiss GAAP FER or IFRS.

Practical recommendation

In some cases, it may be beneficial to prepare an additional (consolidated) set of financial statements under the CO – alongside the consolidated financial statements prepared under a recognized standard – for tax valuation purposes.

In practice, tax authorities are generally cooperative regarding the chosen valuation approach and basis. However, consistency is key!

Once a valuation method and basis are selected, they must generally be maintained for the next five years.

From theory to practice: overview of business valuation for tax purposes

The valuation method depends on the company’s business activity:

Pure holding, financing or asset management companies → Valuation is based solely on net asset value.

Trading, industrial, and service companies → Weighted valuation formula:
(Earnings value × 2 + Net asset value × 1) ÷ 3

Earnings value

Net asset value

To determine the earnings value, the starting point is the net profit reported in the annual financial statements for the relevant fiscal years. This figure is then adjusted based on the corrections outlined in KS 28 (non-exhaustive list):

Additions to net profit may include: One-time and extraordinary expenses (e.g., exceptional write-downs due to capital losses, provisions for extraordinary risks)

Deductions from net profit may include: One-time and extraordinary income (e.g., capital gains, reversal of reserves, and reversal of provisions previously corrected in the valuation as non-recognized expenses)

The adjusted net profit is then weighted using one of two models:

Model 2: Simple average over three years

Model 1: Double weight for the most recent year, single weight for the prior year

For financial statements in Swiss francs and valuations for the 2024 tax year, the weighted adjusted net profit is capitalized at 8.75%. 

The net asset value of a company generally corresponds to its taxable equity. Hidden reserves, such as those on securities, investments and real estate, are added to the net asset value, minus deferred taxes.

Deferred taxes may be considered if the hidden reserves would be taxable upon realization (e.g., hidden reserves on real estate). 

Practical Note

The valuation is generally carried out by the tax authorities of the company’s canton of domicile. Each canton selects one of the two models (Model 1 or Model 2) as its standard approach.

Companies are free to deviate from the cantonal standard if the alternative model provides a more sustainable or appropriate result. Once a model is selected, it must generally be maintained for the next five years.

Beratung AG reports the following profits:
2024: CHF 150,000
2023: CHF 75,000
2022: CHF 90,000

The company’s equity is CHF 400,000. Beratung AG does not have any equity interests or real estate holdings. 

Net asset value: CHF 400,000 

Average annual profit: (CHF 150,000 + CHF 75,000 + CHF 90,000) / 3 = CHF 105,000 (Model 2)

Earnings value: CHF 105,000 / 8.75% = CHF 1,200,000

Company value: (CHF 1,200,000 × 2 + CHF 400,000) / 3 = CHF 933,333

Thus, the taxable company value of Beratung AG for wealth tax purposes is CHF 933,333.

Capitalization rates: What applies from 2024 onward?

The capitalization rate is a key factor in valuation. It consists of:

The interest rate of a risk-free investment, and

A risk premium for unlisted companies, including an illiquidity surcharge.

The Swiss Federal Tax Administration (ESTV) publishes applicable capitalization rates annually. For the 2024 tax year, the rate is 8.75% for financial statements in Swiss francs. Rates for other foreign currencies are also published in the SFTA’s official price list.

Practical criticism

The standardized risk premium does not always yield appropriate results, especially for companies with exceptionally high entrepreneurial risk due to their unique business models. Some cantons are open to negotiation when evaluating a more appropriate capitalization rate.

Flat-rate deduction for minority shareholders: tax benefits and cantonal differences

To account for the limited influence minority shareholders (holding up to and including 50%) have on management and shareholder decisions, they may claim a flat-rate deduction of 30% on their shares’ gross taxable value. This deduction is typically granted only if no adequate dividend has been paid.

For the 2024 fiscal year, a dividend is considered adequate if it amounts to at least 2.6% of the share’s fair market value (based on financial statements in Swiss francs). The average dividend paid over the last two calendar years is used as the reference.

Cantonal specifics

Although KS 28 applies nationwide, cantons interpret and apply it differently.

Basel-Landschaft

Minority deduction is always allowed if the return is below 3%.
Aargau

Applies a 50% flat reduction on the gross taxable value of Swiss shares, in addition to the minority deduction
St. Gallen

Minority deduction is granted even if an adequate dividend is paid.

These differences can significantly impact the tax burden depending on the canton of domicile.

When is a share transaction (“Handänderung”) relevant for tax valuation?

The term “significant share transfer” is not uniformly defined in tax law and was intentionally left unquantified in the commentary to KS 28. A transaction price is considered relevant only if it reflects a reasonable and plausible fair market value. Each case must be assessed individually to determine whether a transaction price qualifies as significant. As a rule of thumb, a transaction volume of 10% per year may be considered significant. 

However, not every transaction price overrides formula-based valuation: transactions between shareholders or purchases by the company itself are not considered to be between independent third parties, and therefore do not establish a new fair market value. 

Purchase offers alone are insufficient to qualify as a significant transaction:

Purchase offers

Taxpayers who attempted to lower the tax value using concrete purchase offers were unsuccessful.
Sales negotiations

The Basel-Landschaft Tax Court ruled that: negotiations merely indicate a potential intent to purchase and do not establish a fair market value.
Third-party contract
Conversely, the same principle should apply in reverse: a purchase offer above the tax value does not automatically lead to a higher fair market value for wealth tax purposes.
- Only a valid purchase agreement with independent third parties establishes a new fair market value.
- Offers or transactions between shareholders remain irrelevant for tax purposes.

Shareholder agreements (ABV)

According to KS 28, private agreements such as shareholder agreements (ABV) that restrict the transferability of securities are not recognized for tax purposes. In practice, this can lead to unfair outcomes, for example, when the taxable value of a shareholding exceeds the actual sale price that can be achieved.

Example

Two individuals each hold 50% of the shares in an unlisted company.

Their shareholder agreement stipulates that shares may only be sold at net asset value. However, the formula-based valuation under KS 28 results in a company value of CHF 2 million, while the net asset value is only CHF 1 million.

Even though a shareholder could only realize CHF 500,000 from a sale, they must declare the holding at CHF 1 million for tax purposes.

Financing rounds: When are they relevant?

Investor pricing and early-stage companies

Prices from financing rounds or capital increases may be used as the fair market value for wealth tax purposes. Important caveat: During a company’s early-stage development, these investor prices are not considered.

KS 28 and its commentary do not clearly define the term “early-stage”.

However, it states that once “representative business results” are available, valuation should no longer be based solely on net asset value, but instead follow the principles of KS 28.

Tax rulings: ensuring legal certainty and optimizing outcomes

Once it’s clear which valuation method will be used for an unlisted shareholding, it is advisable to coordinate early with the tax authorities.

Through a tax ruling, companies can obtain a binding decision from the tax authorities regarding the chosen valuation method. This ensures that the selected approach will be recognized for tax purposes, providing clarity and reducing risk.

Jurisdiction

For Swiss companies, the canton where the company is domiciled is typically responsible for the valuation. For holdings in foreign companies, the shareholder’s canton of residence determines the valuation.
Practical tip

Based on our experience, it is always worthwhile to review the valuation of your company early and explore any optimization opportunities.

Important: Once a shareholder’s tax assessment has been finalized, tax authorities are generally unwilling to revise the valuation retroactively.

Tax planning for founders, sole proprietors and family-owned businesses

The choice of valuation basis (individual vs. consolidated financial statements, Model 1 vs. Model 2), and how minority deductions are handled, can directly impact the wealth tax liability. In Switzerland, wealth tax rates vary by canton and municipality, ranging from approximately 0.1% to 1%. As a result, the taxable value of privately held securities can significantly affect a shareholder’s overall tax burden. 

While KS 28 provides a detailed framework for valuing securities without a market price, it also allows for discretion in certain areas. It is worth analyzing these options on a case-by-case basis, comparing different approaches as well as working with tax authorities to find a fair and practical solution.

From a tax perspective, it is also important to determine whether transactions qualify as significant share transfers, and whether they establish a plausible fair market value for wealth tax purposes. In this context, particular caution is advised when determining whether a transaction qualifies as significant, whether it involves independent third parties, and how financing rounds or public sale negotiations are treated. 

Under certain conditions, minority shareholders may be able to influence the taxable value of their holdings through a targeted dividend strategy.

That’s why it is often advisable to conduct a careful analysis of potential optimization opportunities and to engage with tax authorities early by obtaining a tax ruling. This approach helps ensure legal certainty and can lead to a more favorable wealth tax outcome.

For entrepreneurs, startups and family-owned companies, it pays to:

Analyze available optimization levers;

Align the valuation approach with tax authorities early;

Secure a tax ruling to gain certainty and clarity.

FAQ on valuation under KS 28

The choice of valuation method depends on the provisions of KS 28 and the practices of the relevant canton. It is generally based on the company’s business activity. In certain cases, companies may choose between different models, but the selected method must typically be maintained for at least five years.

Early review of valuation fundamentals, selecting a tax-efficient dividend strategy, and obtaining a tax ruling can help reduce wealth tax exposure.

Yes. Actual sale prices from transactions between independent third parties, or prices paid during financing rounds, may establish a tax-relevant fair market value. However, in practice, valuation under KS 28 remains the standard unless significant transactions occur.

No. However, during the early-stage development of a company, shares are generally valued only at net asset value.

Our services for Private Clients

Our Private Clients team at KPMG specializes in advising international clients on lump-sum taxation in Switzerland.

We offer deep technical expertise and maintain strong relationships with tax authorities, allowing us to deliver tailored and attractive solutions.

Meet our experts

Rinaldo Neff

Rinaldo Neff

Director, Private Clients Tax

KPMG Switzerland

mail
call

Sandra Bütler

Sandra Bütler

Expert, Private Clients

KPMG Switzerland

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