Swiss tax guide on Founder's Tokens

The concept behind Founder’s Tokens

Founder’s Tokens are very common in the industry. When a company conducts an ICO or STO the whitepaper often states that a certain proportion of the tokens generated will be “allocated” to the founders of the project. This is the way the founders will make money if the project is successful.

From an economic and governance point of view the use of Founder’s Tokens makes absolutely sense, since it helps to align the interest of the founders with the interest of the other token holders.

However, from a legal and tax perspective the allocation of Founder’s Tokens is a new concept and there is no clear definition of it under Swiss corporate law or under Swiss tax law.

Swiss tax treatment of Founder’s Tokens

Whilst there is no explicit guidance of how to deal with Founder’s Tokens under Swiss tax law, there are comparable events that can be used to derive the most appropriate tax treatment. The tricky point is that the concept of Founder’s Tokens is not legally defined and the terms might vary from company to company, so the tax treatment might be different in each case.

In this article I will go through the most common tax concepts under which the Founder’s Tokens might fall in practice and outline they key benefits and disadvantages. When dealt with in an early stage of a venture, the terms might even be drafted in a way to achieve the desired tax outcome. 

Scenario 1: Dividend in kind

If an ICO/STO is carried out by a Swiss corporation, the founders are often shareholders of the corporation. Hence a very traditional way to look at Founder’s Tokens is to treat them as dividends in kind. Looking at Founder’s Tokens as dividends might contradict the intuition of most founders and is a bit contrary to the idea of developing a decentralised platform that is not “owned” by the company that developed it, but it is a logical result of using the old world concept of the corporate law to develop a decentralised platform.

When is it appropriate?

  • When the Founder’s Tokens are allocated proportionately to the share ownership in the company. Disproportionate allocation contradicts the concept of a dividend. Hence, the concept becomes increasingly problematic if further investors want to acquire shares in the company.
  • When blocking periods shall prevent the Founder’s from immediately exiting their investments. Corporate law gives the flexibility to defer the distribution of the tokens to any point in the future.

Tax issues

  • The Founder’s Tokens will have to be valued at the due date of the dividend.
  • At the due date of the dividend the tokens will have to be revalued at fair market value and will be subject to corporate income tax at the level of the distributing company.
  • In addition, dividends are subject to 35% Swiss withholding tax which might be a major issue for foreign founders that cannot apply a favourable double tax treaty.

Tax Benefits

  • High flexibility in when to distribute the tokens to the founders.
  • If the due date of the dividend is set very early in the process, the value of the Founder’s Tokens might still be very low.
  • For Swiss founders the treatment as dividends might be quite beneficial since they might benefit from a lower tax rate than a salary and no social security contributions apply.
  • For foreign founders that hold their stake through a foreign company that benefits from a double tax treaty might receive the dividend free of Swiss withholding tax.


  • Ensure that the founders receive an appropriate salary to avoid that the payment is requalified as a deemed salary.
  • Ensure that the share ownership is proportionate to the planned token allocation to avoid disproportionate dividend.
  • Prepare proper dividend distribution decisions.
  • Prepare a sound token valuation and pre-discuss it with the tax authorities.
  • Prepare required withholding tax filings.

Scenario 2:  Compensation for IP

Another argument would be that the Founder’s Tokens are a compensation of the founders for the work they have put into the project prior to the establishment of the company.

When is it appropriate?

  • Only works well for Founder’s Tokens with very little restrictions with respect to the founders selling the tokens. Blocking periods or vesting periods contradict the idea of a compensation.

Tax issues

  • The taxable event happens at the very beginning of the project.
  • The compensation will likely constitute taxable income for the founders in their jurisdiction of residence. This might lead to a significant upfront taxation.
  • The compensation is likely subject to 7.7% Swiss VAT which might not be recoverable depending on the project.

Tax benefits

  • Works very well if the founders are offshore since there are no withholding taxes on service fees.
  • Swiss company can capitalise the costs and depreciate it over time.
  • It might be easier to establish a market value of the services provided prior to the incorporation than to value the tokens in the other scenarios.


  • Prepare a written service agreement that clearly defines what IP or assets are transferred to the company in exchange for the tokens.
  • Prepare a valuation of those assets and pre-discuss it with the tax authorities to avoid revaluation at a later stage.

Scenario 3:  Salary in kind

The founder’s contribution typically does not end with the ICO/STO but they continue to work with the company. Often their cash salary is low and their main compensation results from the tokens received. Hence it can be argued that the Founder’s Tokens have the nature of a salary or a service fee for the contribution provided over time.

When is it appropriate?

  • This model is very flexibel in terms of timing and amounts. But it does not work very well with complex vesting schemes since this would cause the tax treatment as employment incentive scheme, rather than a salary in kind (see next scenario).

Tax issues

  • Salary income is subject to social security and income tax. Therefore the tax rate applicable on salary is typically higher than in other scenarios.
  • Taxation of salary can become quite complex in an international context.
  • If founders charge their services through a personal service company, anti abuse rules need to be considered and payments might be subject to 7.7% Swiss VAT.
  • Some Swiss cantons (in particular Zurich) are very reluctant to accept a salary-in-kind treatment, in particular if the token is not listed and liquid. They tend to treat a token-based compensation as employment incentive scheme (see next Scenario).

Tax benefits

  • Swiss founders will have to pay income tax at the time when they receive the tokens. Future capital gains on the tokens will be tax free capital gains.
  • Foreign founders might not be subject to taxation on the income depending on their personal tax situation.
  • Swiss company can deduct the salary expense from taxable income.


  • Draft a service agreement or labour agreement that clearly defines the amount of tokens and the date of transfer, avoid vesting clauses.
  • Confirm salary in kind treatment and agree on a valuation methodology with the tax authorities.
  • Implement a process to properly report the salary in kind and to deduct the correct amount of social security contributions and source taxes.

Scenario 4: Employment incentive scheme

In Switzerland there are very specific tax rules around any type of employee compensation plans that are not traditional stock plan. Therefore the tax authorities have started applying those rules to token-based plans as well.

When is it appropriate?

  • Whenever a token plan has typical employment related conditions (such as vesting or performance related allocation).
  • Some cantons (like Zurich) tend to apply those rules to any token-based compensation plan where the token is not listed and the reason for the allocation is and employment relationship with the individual. However, this restrictive practice is very controversial and might also further develop over time.

Tax issues

  • The proceeds derived in the future when selling the tokens will be subject to income tax and social security.
  • Salary income is subject to social security and income tax. Therefore the tax rate applicable on salary is typically higher than in other scenarios.
  • For Swiss individuals there will be no tax free capital gains.
  • Complex international rules when changing residency during the vesting period.
  • Since the founders can sell the tokens even after they have left the company, it might be very difficult for the Swiss company to track and report the taxable benefits and to withhold the appropriate social security or source tax contributions. Careful monitoring and appropriate legal documentation is essential.

Tax benefits

  • No upfront taxation until the time the founder sells the tokens. Since this timing can be influenced. This allows for some tax planning for the founder.


  • Draft a token allocation plan that is applicable for all employees that are eligible.
  • Confirm tax treatment with the tax authorities.
  • Implement a process to properly report sales and to deduct the correct amount of social security contributions and source taxes. In particular consider cases when employer responsibilities remain after the employee has left the firm.


It is crucial to plan the legal and tax treatment of Founder’s Tokens prior to incorporating the Swiss entity and prior to transferring any tokens to the founders. Only when analysed and implemented properly the most beneficial system can be chosen.

If Founder’s Tokens have been implement without proper tax planning it is still recommended to analyse the tax treatment in order to avoid negative surprises further down the line.

How I can help you

  • Conduct a workshop to define the most appropriate structure of the Founder’s Tokens based your specific needs and circumstances.
  • Prepare the appropriate legal documents (labour contracts, tokens plans etc)
  • Negotiate the tax consequences with the Swiss tax authorities on your behalf.

Please do not hesitate to contact me to discuss your situation.