The Country

With nearly 8 million inhabitants, Switzerland is located in Western Europe, surrounded by France, Germany, Italy, Austria and Liechtenstein. Switzerland is a multicultural nation, by virtue of its geographical position. Official languages are German, French, Italian and Romansh. Characterized by its great political and military neutrality, Switzerland consists of 26 cantons.

An onshore centre

Switzerland has several cantons, and each applies its own corporate tax rate. Switzerland is considered an Onshore location with low tax rates, particularly as companies registered in the canton of Obwalden will only pay a tax rate of 12.66%. Companies may also be domiciled in Lausanne, Geneva, Zug, and Zurich, but will be subject to higher tax rates (see our tax and accounting section).

Useful information

Switzerland has many cantons, each with a different tax system. It is one of the few countries that still allows anonymous bearer shares in the S.A (Société Anonyme, or public limited company), which requires a capital of 100,000 CHF. SARL companies (Société à responsabilité limitée, or limited liability companies) do not offer anonymity, except by share ownership through a trust, and require a capital of 20,000 CHF-. It is recommended to create a Swiss company using a holding company in Hong Kong in order to raise the dividends, given the agreements that have been signed between Switzerland and Hong Kong. In order to create a company in Switzerland, the company must have a Director that is either resident in Switzerland, or is a Swiss national.

The various types of companies

Setting up a company in Switzerland takes 7 days and requires 6 different procedures.

Administration and Shareholding in Switzerland.

The Director of a Swiss company must be a Swiss resident or national, and is considered liable. It is therefore possible to have a nominee administrator, by means of a mandate for the administration of a company. Shareholding is public for an SARL (GmBH) and therefore for the bearer; it is anonymous in an S.A – public limited companies (AG).

It is recommended that the shares of a Swiss company be held by a holding company in Hong Kong or Europe in order to avoid the 35% withholding tax (see accounting and taxation)

Links:
Commercial Register
Chambre des Notaires

Map of Swiss cantons

Swiss cantons and their tax systems

There are 26 cantons in Switzerland, officially called the Federated States of the Swiss Confederation. Each canton operates independently, has its own constitution, and its own Parliament. The cantons meet at the Council of States in order to act at the national level.
This cantonal structure influences many of Switzerland’s structures, including tax rates, which are different throughout the country. Each canton is free to determine its own personal and corporate taxes. Tax in Switzerland actually consists of three “sub-taxes”, whose amounts differ per Canton:

• federal tax, which is identical for all cantons, as the rate is fixed at the national level
• cantonal tax, which is determined by each canton
• municipal tax, which can be modified by each municipality in Switzerland (2,485 municipalities recorded in 2012)

A number of cantons are therefore particularly appealing for businesses, such as Zug, which had over 200,000 registered companies in 2012. Most companies are located in the cantons of Lugano, Lausanne, Zurich, Geneva, Zug and Obwalden. Obwalden is the canton with the lowest corporate tax rate.

Moving to Switzerland: B/C Permit

Authorisation is required in order to stay in Switzerland for more than three months. Authorisations can be obtained from the cantonal migration offices. A permit can then be issued to foreign nationals who wish to reside in the country for a longer period. The type of permit issued depends on the person’s situation and activity in Switzerland. In terms of an onshore installation, two permits are recommended:

• Permit B: issued to a foreign nationals residing in Switzerland year-round, with or without gainful employment.
• Permit C: intended for so-called “established” foreign nationals, i.e., persons resident in Switzerland for 5 or 10 years, that have received a settlement permit. This permit is issued for an indefinite period of time.

Lump-sum taxation

Lump-sum taxation is a form of personal income tax, reserved for foreign residents. As the name suggests, this tax consists of a lump-sum, i.e., a fixed amount of tax to be paid annually, which is not based on an individual’s income or wealth. Instead of an income tax, this is a tax on expenditures, which are estimated on the basis of the annual rent paid by the foreign resident. The lump-sum tax amount generally corresponds to 5 times the amount of annual rent.

To qualify for the lump-sum tax, candidates must meet the following criteria:

• have a European Union passport
• not exercise an occupation in Switzerland
• have an annual income greater than 50,000 CHF
• reside in Switzerland at least 180 days per year

Swiss citizens therefore cannot benefit from this lump-sum tax and are subject to a traditional income tax, which varies per Canton:

EU residents and non-residents

Residence and employment terms and conditions applicable to foreign nationals in Switzerland vary by country of origin:

• European Union or European Free-Trade Association nationals can stay in Switzerland without additional authorisation for a maximum period of three months. Except for nationals from the so-called EU-8 (Eastern European countries that joined the EU in 2004), EU nationals enjoy free movement in Switzerland (EU-8 nationals are still subject to some restrictions until 2014). Persons that qualify for free movement in Switzerland can come and work in Switzerland without a special permit (but still need a residence permit if their stay exceeds three months).
• Non-EU or EFTA citizens must have both a work and residence authorisation to work and live in Switzerland. However, conditions of entry and of free movement have significantly improved in recent years, in order to promote economic flexibility. A foreign national with a residence authorisation may therefore work in Switzerland without requiring another prior declaration. There are a number of authorisations, such as B, C and L permits, border permission, short-term authorisation, intern authorisation, etc.

Passport: become a Swiss citizen

In order to become a Swiss citizen, a number of conditions must of course be fulfilled, including the Swiss Confederation’s approval of a request submitted by the canton or commune. To become a Swiss citizen, a person must:

• have resided at least 12 years in Switzerland (the years between 10 and 20 years count double)
• have integrated the Swiss community and be familiar with the customs and traditions of the country
• comply with Swiss law
• not present any danger to Switzerland’s internal or external security

A spouse’s naturalisation may be facilitated if the couple has resided for at least five years in Switzerland, and has been married for at least three years. If one parent is a naturalized Swiss citizen, then the naturalization process for children is also simplified. However, once a Swiss citizen, a person is no longer entitled to lump-sum taxation.

Living in Switzerland

There are currently over 6,500 foreign companies in Switzerland. These companies regularly require the use of foreign employees, hence the need for the numerous housing and integration services (resettlement agencies, expatriate associations, etc.), and Switzerland is also a desirable destination in terms of expatriation for tax purposes. In order to rent an apartment, the future tenant must complete a form indicating age, marital status, profession, number of children, type of residence, employer and salary. An extract from the debt collection register (which can be ordered from the commune’s debt collection office) is also required, in order to prove the tenant’s credit history.

Succession and inheritance

One of the other great benefits of Switzerland is its inheritance system: in Switzerland, inheritance is not taxed. Many people therefore choose to live out the end of their lives in Switzerland in order to be able to bequeath their full estate to their heirs, without being subject to tax. However, as of 1 January, 2014, this will no longer apply: If a Swiss resident whose heirs live in France dies, then the inheritance will be taxed according to French tax law.

Please visit our webpage on property refinancing in order to discover possible inheritance solutions.

The Jurisdiction in detail

Switzerland is famous for its efficient economy and high standard of living, as well as for its health and educations systems which are among the best in Europe. However, the 2008 global crisis has affected the country, which experienced a sharp decline in growth before slowly recovering, primarily as a result of domestic demand. The growth estimate for 2013 is 1.4%.

Switzerland’s agricultural sector only accounts for 1% of GDP, which is partially due to the country’s natural landscape, only 10% of which is arable. Production focuses primarily on dairy products and livestock farming, although organic farming is currently growing. Like its economy, Switzerland’s industry is also famous worldwide, for such industries as Basel’s chemical and pharmaceutical products.

However, state of the art manufactured goods (watches, engines, turbines, generators, etc.) are the main reason for Switzerland’s industrial reputation. Finally, service industries represent more than 70% of GDP, and represent almost as many jobs among the working population. The most dynamic service sector fields are banking, insurance and transport, as well as tourism, which is very dynamic.

International trade is extremely important for Switzerland’s economy, as the country is very open to the world. The country has a strong trade surplus, and its main trading partners are the European Union and the United States.

The benefits of investment:

• good location
• excellent infrastructure
• low tax rates
• easy to introduce high-tech products
• highly skilled workforce
• the country is very R & D focused
• the highest capital investment fund in Europe

Disadvantages:

• highly competitive market
• stringent business regulations

Foreign investments are well received in Switzerland, and each canton is free to encourage such investments as it deems fit. Cantons therefore often provide a number of tax benefits (10 years without charges, for example, in some cantons).

Access to and functioning of the market

Switzerland is member of the WTO, the OECD and the European Free Trade Association. It is also a signatory to the Kyoto Protocol, the Washington Convention, the Basel Convention, the Montreal Protocol and the 2001 International Coffee Agreement.

Switzerland has very strict import regulations, and although licences are not mandatory for trade, some products nevertheless require a licence. Quotas are even assigned to certain categories of goods, such as biotechnological agriculture. However, trade with European Union countries is highly liberalised.

Imported products should be presented to a Customs Office within the required time frame, which is determined according to the mode of transport used to transport the goods. Many companies use freight forwarders, which act as carriers and customs officers. In Switzerland, customs duties are generally 5.5%, although this value can change depending on the goods in question.

The distribution sector is dominated by supermarket and discount store brands. Manufacturing is a dynamic sector in Switzerland, with 76,000 companies. It represents 42% of Switzerland’s exports. The mechanical, electrical and metal sectors are also very important.

Links:
Federal Customs Administration
State Secretariat for Economic Affairs
Federal Office of Transport
Swiss Federation of Commerce and Industry

Employment law

The maximum working week varies, depending on the type of employee: 45 hours/week for technicians and researchers, 50 hours/week for all other positions. Retirement age is 65, and there is no minimum wage in the country. Protective measures have however been introduced in order to avoid distorted competition. Social security contributions amounted to 5.05% for employers and for employees.

Unions exist in Switzerland but, unlike other countries, such as France, unions are not particularly influential. Negotiation tends to be preferred to strike action. However, 25% of all employees are union members.

Intellectual property

Links:
Fédération des Entreprises Romandes
Swiss Trade Union

Political data

Swiss Executive power is held by the Federal Council. The Council has 7 members, elected by Parliament for a four year term. The Swiss President (currently Ueli Maurer) is merely an honorary role; the position is occupied by one member of the Federal Council, and changes annually.

Legislative power is represented by Parliament, or the Federal Assembly, which consists of the Council of States (46 members appointed for four years), and the National Council of 200 members elected by universal suffrage, also for a four year term.

The dominant political parties are the Swiss People’s Party, the Social Democratic Party, the Christian Democratic People’s Party, and the Green Party.

The principle of Swiss bank secrecy

Almost as famous as Swiss chocolate, Swiss bank secrecy has an international reputation. Bank secrecy is simple: banks (and their employees) are legally required not to disclose information on customer identity. This also applies to subsidiaries of foreign banks in Switzerland.

In 1931, when bank secrecy was informally but widely practised, Jean-Marie Musy (then Federal Councillor) declared at the General Assembly of Swiss Bankers:

«Official Bank supervision is not desirable for the State or for the Banks [...] The intervention of official inspectors would worry [...] clients, who are very much attached to the importance of discretion, and who rely on this discretion. The potential capital flight from our banks that could result from imposed bank supervision, would harm our national economy, and therefore cause our entire population to suffer. »

The history of bank secrecy

The principle of bank secrecy was first enshrined in law in 1934. It was designed to protect Jewish emigrants leaving Germany from the Nazis. Heavy penalties were then imposed on banks that did not comply with secrecy requirements. The first change in legislation was made several years later in 1980. The Federal Act on International Mutual Assistance in Criminal Matters was the first step towards Switzerland’s cooperation in fighting international crime. It then became possible to override banking secrecy when extradition was in question. Nearly 20 years later, in 1998, Switzerland again improved bank secrecy transparency for money-laundering, while maintaining client anonymity. In 2005, the country signed a new treaty to further improve the fight against crime. However, Switzerland has never favoured international cooperation over bank secrecy, which remains in force.

Exceptions to bank secrecy

Although bank secrecy still exists in Switzerland, it is important to realise that secrecy does not protect clients from either national or international law. Bank secrecy is lifted when a Swiss bank client is involved in a criminal case and/or investigation, regardless of how serious the case or investigation may be. Bank secrecy is also lifted if a foreign judge is conducting an investigation in Switzerland.