Employee stock options are not shares. They are the contractual right to purchase company shares at a predetermined price (the strike price) after a vesting period. This distinction matters a lot when navigating Swiss tax law, exercise decisions, and exit scenarios.
This guide explains how employee stock options function within Switzerland’s legal and tax framework, covering mechanics, taxation, exercise strategies, and critical pitfalls for employees holding options at private Swiss companies.
What Employee Stock Options Are (And Are Not)
An employee stock option (ESO) grants you the right to buy company shares at a fixed price at some point in the future. When your employer grants you 1’000 options with a CHF 10 strike price, you receive the right to purchase 1’000 shares for CHF 10 each, regardless of what those shares are worth when you exercise.
The core mechanism:
- Your company grants you options with a strike price (typically set at fair market value on the grant date)
- The options vest over time (you earn the right to exercise them gradually)
- Once vested, you can exercise (buy the shares by paying the strike price)
- You profit if the company’s share value increases above your strike price
Options versus shares: When you hold options, you own nothing. You have a contractual right, but no ownership stake, no voting rights, and no claim on company assets. Only after exercising do you become a shareholder.
For startup founders raising capital, this distinction allows offering meaningful equity participation to employees without immediate dilution. For investors evaluating a Swiss startup’s cap table, understanding the option pool size (typically 10% of equity at Swiss startups, according to Swiss Startup Association data) helps assess future dilution.
How Vesting Works in Switzerland
Swiss startups typically use a four-year vesting schedule with a one-year cliff. This structure has become standard across the Swiss startup ecosystem, from Zurich fintech companies to Lausanne biotech ventures.
The standard vesting structure:
- Year 1: Zero options vest (the “cliff”)
- After 12 months: 25% of your total grant vests at once
- Months 13-48: Remaining 75% vests monthly (typically 2.08% per month)
The one-year cliff protects companies from granting equity to employees who leave quickly. If you depart before completing one year, you forfeit all unvested options. The monthly vesting after the cliff rewards continued employment with gradual ownership increases.
Example vesting progression: An employee granted 1’000 options on January 1, 2024:
- December 31, 2024: 250 options vest (25%)
- January 31, 2025: 271 options vested (25% + one month)
- January 1, 2028: All 1’000 options fully vested
Swiss employment law prohibits excessively long vesting periods exceeding 10 years. Four-year schedules are the most common.
Swiss Tax Treatment: When and How You're Taxed
Understanding the tax implications of employee stock options is critical for Swiss employees. The tax treatment differs fundamentally from salary, and timing determines your tax liability.
Taxation Occurs at Exercise, Not Grant or Vesting
For virtually all private Swiss startup options, the taxable event occurs when you exercise your vested options to purchase shares. You are not taxed when options are granted, nor when they vest. Tax liability materializes only when you convert options into actual shares by paying the strike price.
The taxable income calculation: Your taxable income equals the difference between the fair market value (FMV) of the shares at exercise and the strike price you pay.
Taxable Income = (FMV per Share at Exercise − Strike Price) × Number of Shares Exercised
This gain is treated as employment income and added to your annual salary, bonuses, and other income for tax purposes. It is subject to progressive federal, cantonal, and municipal income taxes.
Social Security Contributions Apply
The income from exercising options triggers mandatory social security contributions for both employee and employer. Your employer withholds this amount.
Cantonal Tax Rates Create Significant Variation
Switzerland’s cantonal tax system means your residence location affects your option exercise tax bill. The income from your option exercise is added to your regular income and taxed at progressive rates that vary substantially by canton.
Canton comparison for high earners:
- Zug: Total tax burden approximately 23% (one of Switzerland’s lowest)
- Zurich: Total tax burden approximately 30-35% (moderate)
- Geneva: Total tax burden can exceed 40% (among Switzerland’s highest)
These percentages represent combined federal, cantonal, and municipal taxes on income in the top brackets. For an employee earning CHF 180’000 annually who exercises options generating CHF 40’000 in taxable income, residing in Zug versus Geneva could mean a difference of CHF 7’000-8’000 in taxes owed on that exercise.
Worked Example: Option Exercise Tax Calculation
Consider an employee living in Zurich city who exercises 1’000 vested options:
Scenario parameters:
- Strike price: CHF 10 per share
- Fair market value at exercise: CHF 50 per share
- Employee’s annual salary: CHF 180’000
Step 1: Calculate taxable income from options
- Total share value: 1’000 × CHF 50 = CHF 50’000
- Total cost (strike price): 1’000 × CHF 10 = CHF 10’000
- Taxable income: CHF 50’000 − CHF 10’000 = CHF 40’000
Step 2: Calculate social security contributions
- Employee AHV/IV/EO rate: 6.4%
- Social security due: CHF 40’000 × 6.4% = CHF 2’560
Step 3: Calculate income tax
- Total annual taxable income: CHF 180’000 + CHF 40’000 = CHF 220’000
- Marginal tax rate in Zurich at this income level: approximately 33%
- Income tax on option gain: CHF 40’000 × 33% = CHF 13’200
Total cash required:
- Strike price payment: CHF 10’000
- Social security: CHF 2’560
- Income tax: CHF 1’200
- Total: CHF 25’760
This calculation demonstrates the “dry income” challenge. You must pay CHF 25’760 in cash to exercise and own shares worth CHF 50’000 on paper, but those shares are illiquid (you cannot immediately sell them). Many employees lack the liquidity to exercise significant option grants.
Capital Gains After Exercise Are Tax-Free
Once you exercise your options and hold shares, any subsequent appreciation in value is generally treated as a tax-free private capital gain when you eventually sell. This favorable treatment applies provided you are not classified as a professional securities dealer (a rare classification requiring frequent, substantial trading activity).
Example: You exercise options at CHF 50 per share (paying tax on the CHF 40 gain over your CHF 10 strike price). Three years later, the company is acquired and you sell shares for CHF 120 each. The CHF 70 per share gain (CHF 120 − CHF 50) is typically tax-free.
Wealth Tax on Held Shares
After exercising, your shares become part of your net assets and are subject to annual cantonal wealth tax. For unlisted startup shares, the tax value is determined using the same fair market value calculation used for income tax purposes. Wealth tax rates are relatively low (often 0.1-0.5% of net assets), but holding valuable illiquid shares creates an ongoing annual tax obligation.
Fair Market Value Determination
The fair market value (FMV) of your company’s shares at the time you exercise determines your taxable income. For public companies, FMV is the market price. For private Swiss startups, FMV determination is more complex.
Switzerland does not have a formal regulatory framework for valuation (some other countries, like the USA, do). Instead, Swiss tax authorities require companies to use a “reasonable and consistently applied” valuation methodology. Common approaches include:
- Valuation from a recent financing round
- Formula-based calculations (such as the “Swiss practitioners’ method”)
- Independent third-party appraisals
Critical safeguard: The advance tax ruling Swiss startups are strongly advised to obtain an advance tax ruling from their cantonal tax authority. This ruling confirms the company’s chosen valuation methodology and provides legal certainty for both the company and employees on how option exercises will be taxed.
As an employee, you should ask your employer whether such a ruling is in place. Without a ruling, the tax authority could later challenge the FMV calculation, potentially resulting in unexpected tax liabilities.
Exercise Strategies and Timing Decisions
Once your options vest, you must decide when to exercise. This decision involves weighing tax implications, liquidity constraints, company prospects, and personal financial circumstances.
Strategy 1: Exercise at Liquidity Event
Many employees wait to exercise until the company is acquired or goes public. This approach minimizes upfront cash outlay and avoids holding illiquid shares.
Advantages:
- No cash required until liquidity is available (in acquisitions, buyers often provide financing for option exercises)
- Avoid wealth tax burden on illiquid shares
- Certainty about company outcome before committing capital
Disadvantages:
- Higher tax bill (larger spread between strike price and FMV at exit)
- May trigger very high marginal tax rates if the gain is substantial
- Cannot benefit from tax-free capital gains on post-exercise appreciation
Strategy 2: Early Exercise (If Permitted)
Some Swiss startup option plans allow early exercise, meaning you can buy shares before they fully vest. The shares are then subject to a repurchase right by the company if you leave before vesting completes.
Advantages:
- Lower immediate tax liability (smaller spread if company value is still low)
- Future appreciation becomes tax-free capital gain
- Starts your holding period sooner
Disadvantages:
- Requires upfront cash when outcome is most uncertain
- Risk of forfeiture if you leave before vesting
- Wealth tax obligation begins immediately
Early exercise provisions are not standard in Swiss option plans. If your plan includes this feature, consider it carefully with a tax advisor.
Strategy 3: Gradual Exercise as Options Vest
Rather than exercising all vested options at once, you could exercise periodically (annually or at major company milestones) to spread the tax impact across multiple years and avoid pushing yourself into higher tax brackets in a single year.
Advantages:
- Smooths tax impact over time
- Provides flexibility to adjust based on company performance
- Reduces concentration risk
Disadvantages:
- Requires ongoing liquidity for exercises and taxes
- Administrative complexity (multiple exercises, tax filings)
- Increases wealth tax burden over time
Strategy 4: Strategic Exercise Before International Move
If you plan to relocate abroad after working in Switzerland, timing your exercise relative to your move has significant tax implications.
Exercise Strategies and Timing Decisions
Once your options vest, you must decide when to exercise. This decision involves weighing tax implications, liquidity constraints, company prospects, and personal financial circumstances.
Strategy 1: Exercise at Liquidity Event
Many employees wait to exercise until the company is acquired or goes public. This approach minimizes upfront cash outlay and avoids holding illiquid shares.
Advantages:
- No cash required until liquidity is available (in acquisitions, buyers often provide financing for option exercises)
- Avoid wealth tax burden on illiquid shares
- Certainty about company outcome before committing capital
Disadvantages:
- Higher tax bill (larger spread between strike price and FMV at exit)
- May trigger very high marginal tax rates if the gain is substantial
- Cannot benefit from tax-free capital gains on post-exercise appreciation
Strategy 2: Early Exercise (If Permitted)
Some Swiss startup option plans allow early exercise, meaning you can buy shares before they fully vest. The shares are then subject to a repurchase right by the company if you leave before vesting completes.
Advantages:
- Lower immediate tax liability (smaller spread if company value is still low)
- Future appreciation becomes tax-free capital gain
- Starts your holding period sooner
Disadvantages:
- Requires upfront cash when outcome is most uncertain
- Risk of forfeiture if you leave before vesting
- Wealth tax obligation begins immediately
Early exercise provisions are not standard in Swiss option plans. If your plan includes this feature, consider it carefully with a tax advisor.
Strategy 3: Gradual Exercise as Options Vest
Rather than exercising all vested options at once, you could exercise periodically (annually or at major company milestones) to spread the tax impact across multiple years and avoid pushing yourself into higher tax brackets in a single year.
Advantages:
- Smooths tax impact over time
- Provides flexibility to adjust based on company performance
- Reduces concentration risk
Disadvantages:
- Requires ongoing liquidity for exercises and taxes
- Administrative complexity (multiple exercises, tax filings)
- Increases wealth tax burden over time
Strategy 4: Strategic Exercise Before International Move
If you plan to relocate abroad after working in Switzerland, timing your exercise relative to your move has significant tax implications.
Critical Questions to Ask Your Employer
Before accepting an option grant or making exercise decisions, Swiss employees should clarify several critical details with their employer:
About valuation:
- What is the current fair market value per share?
- What valuation methodology does the company use?
- Has the company obtained an advance tax ruling from the cantonal tax authority?
- When was the most recent valuation performed?
About the option plan:
- How many total shares are outstanding (to calculate your ownership percentage)?
- What is the post-termination exercise window (how long after leaving can you exercise vested options)?
- Does the plan allow early exercise of unvested options?
- What happens to vested options if the company is acquired?
About the company:
- What is the expected timeline to a liquidity event?
- Has the company raised institutional venture capital?
- What is the current valuation per share for new investors (if recent funding occurred)?
These questions help you assess the true value of your options and make informed exercise decisions.
Common Pitfalls and How to Avoid Them
The Post-Termination Exercise Window Trap
Unlike some other countries (like the USA), Switzerland has no legally mandated exercise period. This timeline is defined entirely by your company’s option plan documents.
Many Swiss startups do use a 90-day window, but some use 30 days, 60 days, or other periods. If you leave the company (voluntarily or involuntarily) and fail to exercise your vested options within this window, they expire with no value.
Critical action: Read your option plan documents carefully when you receive your grant. Understand exactly how long you have to exercise after termination. If the window is short and you lack the cash to exercise, your options may have limited practical value.
Underwater Options
If your company’s share value declines below your strike price, your options are “underwater” and have no current value. Exercising underwater options would mean paying more for shares than they’re worth.
Example: Your options have a CHF 50 strike price, but the company’s current fair market value is CHF 30 per share. Exercising would require paying CHF 50 for something worth CHF 30, an instant CHF 20 per share loss.
Underwater options are common after down rounds (new financing at lower valuations than previous rounds) or during market downturns. The only solution is waiting and hoping the company’s value recovers above your strike price.
Over-Concentration in Employer Stock
Even if your options are valuable, concentrating your net worth in a single private company creates substantial risk. If the company fails, you lose both your job and your equity compensation simultaneously.
Risk management principle: Financial advisors typically recommend limiting exposure to any single private company stock to 10-15% of your total investment portfolio. For employees holding significant option grants, this may mean exercising and selling only a portion of options at liquidity events rather than holding all shares.
For founders and early employees considering exercising large option grants, portfolio diversification through exercise-and-hold strategies requires careful tax planning to balance concentration risk against tax efficiency.
International Mobility: A Major Swiss-Specific Risk
Switzerland’s tax treatment of employee options for internationally mobile employees is complex and can result in unexpected tax obligations. If you move countries during your vesting period or between vesting and exercise, the tax treatment changes significantly.
“Exported” options (vesting in Switzerland, exercising abroad): If you earn options while working in Switzerland but move abroad before exercising them, Switzerland retains the right to tax a portion of your gain. The taxable Swiss portion is calculated pro-rata based on the time you worked in Switzerland during the vesting period.
Your Swiss employer is required to withhold this tax at source when you exercise. Depending on the destination country’s tax treaty with Switzerland, you may face double taxation on the same income.
“Imported” options (granted abroad, exercising in Switzerland): If you move to Switzerland with unvested options from a foreign employer, a portion of the gain you realize upon exercise will be taxable in Switzerland. This portion is again calculated pro-rata based on the time worked in Switzerland during the vesting period.
Practical implication: International mobility during your vesting period creates administrative complexity and potential double taxation. Before accepting a job abroad or relocating to Switzerland while holding unvested options, consult a cross-border tax specialist familiar with Switzerland’s tax treaties.
What Happens When You Leave the Company
The treatment of your options when you leave your employer depends on whether they have vested and the terms of your specific option plan.
Unvested options: Unvested options are lost immediately upon termination of employment, regardless of whether you resign, are laid off, or are terminated for cause. You lose the right to exercise these options.
Vested options: Vested options remain exercisable for the period specified in your option plan documents (commonly 30-90 days, but this varies). After this post-termination exercise window closes, vested options also expire.
Critical decision: Leaving a company with vested options forces an immediate decision: Exercise within the window (requiring cash for strike price and taxes) or lose the options. Many employees discover too late that they lack the cash to exercise and must walk away from valuable equity.
What Happens During an Acquisition
If your company is acquired, the treatment of your options depends on the acquisition agreement and your option plan terms.
Common acquisition scenarios:
- Accelerated vesting: Many option plans include “acceleration” clauses triggered by acquisitions. Single-trigger acceleration immediately vests all options upon acquisition. Double-trigger acceleration requires both an acquisition and your subsequent termination to trigger acceleration.
- Assumption by acquirer: The acquiring company may convert your options into options to purchase acquirer shares at an adjusted strike price and vesting schedule.
- Cashout: The acquirer may provide cash consideration for your options (paying you the difference between acquisition price and your strike price for vested options).
The specific treatment is determined by the acquisition negotiations and your option plan terms, which employees cannot control. Whether or not there are acceleration provisions significantly affects how much value you realize from an acquisition.
Exercise Practicalities
The practical mechanics of exercising options at Swiss private companies are straightforward but require advance planning.
When you decide to exercise:
- You notify your employer (typically the CFO or HR department)
- You pay the strike price (usually via bank transfer)
- You pay or arrange withholding for taxes and social security contributions
- The company issues shares and registers you in the shareholder register
For Founders and Investors: The Employee Perspective
Founders structuring employee compensation at Swiss startups should understand that options create significant personal financial risk for employees. The illiquidity, tax burden, and provisions about losing options mean that options are not equivalent to cash compensation.
Founder considerations:
- Communicate option value clearly (don’t oversell potential outcomes)
- Provide transparency on company valuation and outstanding shares
- Consider extended post-termination exercise windows (reducing forfeiture risk)
- Secure advance tax rulings to provide employees with tax certainty
Investors evaluating Swiss startups should assess whether the company has created a fair and competitive employee equity program. The standard 10% option pool at Swiss startups is relatively small compared to, for example, typical US pools (15-20%). This difference partly reflects higher Swiss base salaries. Companies that structure employee compensation appropriately are better positioned to attract and retain top talent from ETH, EPFL, and international markets.
Conclusion
Employee stock options at Swiss startups offer significant upside potential but carry substantial complexity, illiquidity, and tax implications. Understanding when you are taxed (at exercise), how cantonal residence affects your tax burden (23% in Zug versus 40%+ in Geneva), and what happens when you leave your employer (post-termination windows vary by plan) is essential for making informed decisions.
The most critical actions for Swiss employees holding options are:
- Read your option plan documents thoroughly to understand vesting, exercise windows, and termination provisions
- Ask your employer about the company’s current fair market value and whether an advance tax ruling exists
- Plan for the substantial cash requirement to exercise (strike price plus taxes)
- Consult a Swiss tax advisor before exercising significant option grants
- Consider international mobility implications if you plan to relocate
For employees at Zurich fintech companies, Lausanne biotech ventures, and Basel pharmaceutical startups, employee stock options represent meaningful wealth-building opportunities. But those opportunities only materialize with careful planning, adequate liquidity, and realistic expectations about timelines to exit events.
About CapiWell
CapiWell is Switzerland’s first multi-asset private capital platform, designed to connect investors with opportunities across real estate, SME lending, and growth-stage startups. For investors seeking access to Swiss ventures past the early risk phase but not yet public, CapiWell’s offers structured exposure to Switzerland’s innovation ecosystem.
