In Switzerland, the valuation of stock corporations ( PLCs) and limited liability companies (LLCs) that are not listed on the stock exchange is an important topic. This article highlights the current methods and framework conditions that will be relevant in 2023.
Valuation framework
In accordance with Circular 28, the framework conditions for the valuation of unlisted securities for wealth tax purposes in Switzerland are defined. The market value, which is relevant for tax purposes, is determined in accordance with the guidelines for the valuation of securities without market value.
The valuation methods differ depending on the business activity of the company. Holding, asset management and financing companies are valued at net asset value, while the enterprise value of trading, industrial and service companies is determined from a combination of earnings and net asset value.
Net asset value
The net asset value of a company generally corresponds to the taxable equity plus hidden reserves on various assets such as securities and real estate, less deferred taxes.
Capitalized earnings value
The capitalized earnings value is calculated on the basis of the net profit according to the annual financial statements, adjusted for specific corrections. The corrected net profit calculated in this way is then either weighted once over three years or the last financial year is weighted twice.
Example of a valuation
Let us consider an unlisted trading company in Switzerland. The taxable equity is CHF 2 million and there are hidden reserves of CHF 500,000 on real estate and securities, less deferred taxes of CHF 100,000. The net profit for the last three years is CHF 300,000, CHF 350,000 and CHF 400,000.
Calculation of net asset value
Net asset value = taxable equity + hidden reserves - deferred taxes
= CHF 2,000,000 + CHF 500,000 - CHF 100,000 = CHF 2,400,000
Calculation of capitalized earnings value
Corrected net profit:
= (400'000 CHF x 2 + 350'000 CHF) / 3
= 383,333 CHF
Capitalized earnings value = Corrected net profit / capitalization rate (assumed 9.5%)
= 383,333 CHF / 0.095
= 4'035'084 CHF
Enterprise value
Enterprise value = 2 x capitalized earnings value + net asset value
= 2 x 4'035'084CHF + 2'400'000 CHF
= 10'470'168CHF
