18 January 2022

Valuation of companies - new practice of the Swiss tax authorities

  • Articles
  • Structuring / Relocation
  • Transactions / M&A

On December 1, 2021, the Swiss Tax Conference published a new methodology for determining the capitalization rate for the valuation of non-listed shares (see SSK KS 28 of December 1, 2021 ["KS 28"]). The capitalization rate has increased to 9.5%, and consequently, the company values will decrease.


In practice, KS 28 is applied far beyond determining market value for wealth tax purposes. For example, KS 28 is also regularly used to determine the value of employee stock options, calculate earn-out payments, determine value adjustments for holding companies (impairment test), etc. In general, the corresponding valuations are accepted by the cantonal tax authorities.

Valuations up to 2020

For the valuation of non-listed companies, the interest rate for risk-free investments was derived from the five-year swap rate for Swiss francs in the respective year of valuation. If this resulted in a value of less than 0%, the risk-free interest rate was set to 0% (e.g., for the year 2020).

In 2020, a surcharge of 7% was applied uniformly as a risk premium for the valuation, which was based on a market risk premium of 4% plus 3% for general corporate risk and illiquidity.

Overall, this resulted in a capitalization rate of 7% for valuations in 2020. Due to the former methodology for determining the capitalization rate, there were few or no past changes.

Valuations with an effective reporting date from January 1, 2021

KS 28 was updated as of December 1, 2021. According to the new version, the capitalization interest rate for valuations with effective reporting dates from January 1, 2021, is to be determined as follows:

The interest rate for risk-free investments is derived from the average interest rate at which an investor can invest liquid funds and obtain loans. The investment interest rate is derived from federal bonds, savings deposits, current accounts, or cash interest rates. The reference interest rate for loans is the 25th quantile for fixed-rate mortgages with a 15-year maturity.

Henceforth, the risk premium should reflect more accurately the situation in the financial markets and risk differences between listed and non-listed companies. Against this background, the market risk premium is now derived from the market prices of listed companies. The calculated market risk premium is adjusted by multiplication through the specific risk of non-listed companies.

The deduction for illiquidity is newly taken into account by a percentual increase of the risk-free interest rate and the market risk premium. For valuations as of January 1, 2021, the increase amounts to 17.65% following KS 28.

With the new methodology, the capitalization interest rate increases to 9.5%. As a result, company values will decrease given otherwise equal conditions. The capitalization interest rate to be applied will be published by the FTA for valuations each year.

Due to the revised methodology, it is expected that the capitalization rate - in contrast to the past - will change on an annual basis.

Significance in practice

The new methodology resulting capitalization rate for business valuations with a reporting date from January 1, 2021, will lead to lower company values. Further, the companies values in subsequent years will become more volatile. As a result, all valuations based on KS 28 must be reviewed annually, and, if necessary, the newly determined value must be used. Existing tax rulings, for example, must also be checked for their validity.

Do you have questions or need help with business valuation? You are welcome to contact our specialists.