CLA taxation: Why the 10/20 non-bank rule matters

Convertible loan agreements (CLAs) are a top choice for financing Swiss startups. They offer a way to secure funding without lots of paperwork or having to negotiate the company's value right away.

However, CLAs can bring some tax risks. The biggest one is the "10/20 non-bank rule". Not following this rule can lead to unfortunate tax disadvantages (withholding taxes and income taxes on interest & discount).

To help you understand the tax challenges in your CLA financing rounds, we've created the below flowcharts. The goal is to make sure that your CLA does not fall into the 10 or 20 non-bank rule categories and qualifies as a "Classic CLA" instead of a "Non-Classic CLA".

Understanding the 10/20 non-bank rule

The rule is triggered when raising more than CHF 500k through CLAs under either of the following conditions:

• more than 10 CLA investors with identical conditions, or
• more than 20 CLA investors, even if the conditions vary.

In practice, this means that you can avoid violating the 10/20 non-bank rule in any of the following ways:

• Total Amount Raised (> CHF 500k) This is straightforward – if you stay under the CHF 500k threshold, the rule isn't triggered.
• Number of Investors It's not the number of signed CLAs that matters, but the number of investors "behind" the CLAs. Avoid having more than 10 CLA investors on identical terms. Consider offering additional CLA investors variable terms, such as different interest rates, caps, discounts, or maturity dates. In case of doubt whether the conditions qualify as "variable", only a prior tax ruling can provide certainty

Non-classic CLAs: Is the discount over 33⅓%?

Though not officially published yet, it has become an established practice of the tax authorities to classify convertible loan agreements with a discount of over 33⅓% (as of May 1st, 2025 – before this date 20%) as "Non-Classic CLAs" – which can result in significant tax complications.

The distinction: Classic vs. non-classic CLAs

• Classic CLAs. Taxes apply only on interest.
• Non-Classic CLAs. Taxes apply on both interest and discount.

To ensure that your CLA qualifies as a Classic CLA (and avoid extra tax burdens), make sure it meets these criteria:

• Domestic issuer (a Swiss startup will issue the shares)
• Issuance at par or with agio
• Redemption at par (discount on redemption = not at par)
• Conversion DISCOUNT IS A MAXIMUM OF 33⅓%. The effective discount at the time of conversion is relevant for determining the 33⅓% threshold. Getting over the 33⅓% is also possible through a cap or a fixed issue price.

Key take-aways:

• Keep a close eye on the 10/20 rule whenever you're dealing with CLAs to avoid major tax issues.
• Make sure your CLAs are classified as Classic CLAs to avoid additional taxes on discounts.

If you're dealing with a complex CLA setup, it's always a good idea to reach out to your startup lawyer or tax expert for advice. For added peace of mind, you can also consider getting a tax ruling to ensure you're fully compliant.

This blog post is for discussion and general information purposes only and should not be considered as legal advice.