Doing Business In: Switzerland
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Switzerland is recognised worldwide as a leading country in many respects. It has an extremely high quality of life (2nd place in the United Nations Development Programme 2020 Human Development Index ranking), international credibility, political and social stability, a transparent legal system, a liberal and highly competitive economy, a strategic geographical position and multiculturalism. No wonder, then, that Switzerland is becoming a destination for many people, companies and investors every year.
Although Switzerland did not escape the COVID-19 pandemic that swept the world, the country managed the crisis through a wise balance between necessary containment measures and protecting the economy. During the COVID-19 crisis, Swiss people and businesses were much less restricted than their European neighbours and were able to continue to live and operate with relative freedom.
Despite Switzerland’s extremely attractive conditions for doing business, it is extremely important to familiarise yourself with local laws and regulations, as well as the main features of the country’s social and economic structure.
The COVID-19 pandemic has undoubtedly taught Switzerland the importance of flexibility and adaptation. Switzerland has seen a massive increase in smart working solutions and digitisation of both everyday life and business practices. Although digital working methods were not common before the crisis, the country has responded particularly well to the challenges of COVID-19, which have been addressed through rapid adaptation. It is likely that the vast majority of workers will continue to work smart even after the pandemic is fully defeated.
In addition to COVID-19-related digitisation, Switzerland remains a safe haven and a land of opportunity for both people and companies.
Liberal and competitive economy
Switzerland’s formula for success is partly based on a highly liberal economic system. In 2021, Switzerland ranked 4th worldwide in the Heritage Foundation’s Index of Economic Freedom: this recognised that Switzerland has the freest economy in Europe. The country has high productivity and few price regulations; its liberal labour laws, with no general federal minimum wage, are balanced by a strong welfare system to prevent people from falling into poverty. Switzerland is also party to several international trade agreements and offers a transparent and efficient investment structure. This combination of factors helps Switzerland to be competitive at the highest level.
Strong social and political stability
Switzerland is a federal state based on cooperation and concordance. Its political system disperses power both horizontally (between the different branches) and vertically (between the state and federal levels). Even within the different branches, power is shared and exercised through compromise. A good example is the Federal Council (i.e. the federal government): none of its seven councillors has more power than the others, and internal discussions end with a vote, whose decision is presented to the people as the will of the whole council. This continual search for agreement leads to robust political stability and acceptance. The Swiss people also have massive participation rights. They can intervene directly by voting to amend the constitution or to prescribe a course of action to the federal (or state) government. This participatory freedom helps to achieve political acceptance and ultimately stability. Riots and turmoil are very rare in Switzerland. In addition, the country’s excellent social welfare system ensures that no one facing poverty is left behind: everyone gets at least the means to lead a decent life.
Very high average quality of life, high purchasing power and strong currency
Switzerland is known for its very high average wages and extremely good quality of life. In general, the Swiss have a high purchasing power, which makes the country a profitable market. The strength of the Swiss franc also makes Switzerland a safe place for investment and business in general.
According to the World Economic Forum’s Global Competitiveness Report 2019, Switzerland has the best educated workers in the world. This distinction is due in part to the country’s excellent public education system. Switzerland is home to the Swiss Federal Institute of Technology in Zurich (6th place in the QS World University Rankings® 2021 – after MIT, Stanford, Harvard, Caltech and Oxford), the Swiss Federal Institute of Technology in Lausanne (14th place ) and the University of Zurich (69th place). In addition to university education, Switzerland offers excellent professional education – underpinned by an excellent economic and industrial fabric. In fact, many apprentices who choose vocational training instead of an academic path get even better job opportunities and salaries than graduates (a perfect example is Sergio Ermotti, former CEO of UBS Bank, who started his career as an apprentice in a local bank).
Internationally and diplomatically, Switzerland boasts a high level of prestige and credibility, being home to some of the world’s most important international organisations, such as the International Committee of the Red Cross, the European headquarters of the UN, FIFA, UEFA, the IOC and over 500 NGOs. Switzerland acts internationally as a neutral and trusted mediator.
Strategic geographical position
Due to its strategic geographical position in the middle of Western Europe and the European Union, Switzerland is crossed by the most important north-south continental routes through the Alps. The country’s excellent, state-of-the-art railway system forms an essential part of the Rotterdam-Genoa route, including the 57 km Gotthard Base Tunnel: the longest and deepest railway tunnel in the world. Although not an EU member state, Switzerland has managed to negotiate a number of mutually beneficial agreements with the EU, giving Swiss citizens and companies many of the same rights and freedoms as EU citizens in terms of movement of people and goods, cross-border trade and more. It takes some imagination to understand the massive benefits of these bilateral agreements for trade and for doing business in general.
What you need to know about doing business in Switzerland
Legal system in Switzerland
Switzerland has a civil law system based on a constitution that wisely combines the best parts of the French and German legal traditions. The system reflects the country’s federal structure, with a pyramid system of federal and state regulation, which sometimes leads to significant differences in how issues such as taxation and education are regulated at state level. The judicial system is generally based on three different levels (two at the state level under the Federal Supreme Court). Proceedings are generally conducted in the state language (German, French or Italian). In particular, several international agreements and treaties as well as parts of EU law are often taken into account during the proceedings.
Very high legal certainty
In general, Switzerland provides very high legal certainty. The coexistence and functioning of a functional country in general and business in particular requires the confidence of the population in the institutions and laws of their own state. Changing regulations, uncertainty and government-dependent laws make it difficult to develop long-term plans for doing business. A stable, secure legal system that can be trusted is therefore a crucial consideration when choosing a jurisdiction in which to do business. Because of Switzerland’s political system, based on concord, discussion and dispersion of power, it is difficult for any one political force to change the laws, and public participation rights perform an important oversight function. Thus, one can count on the complete stability of the country’s legal system.
Fiscal decisions and planning security
Legal certainty is also vital for tax planning security. It is essential to know how much tax will be paid before deciding whether to do business in a particular location. In Switzerland, the power to raise taxes is shared between the federal government, state governments and even municipal councils. While taxes at the federal level are the same for everyone (and every company), there are more differences at the state and municipal level, leading to tax competition between different localities. Under the Swiss system, it is possible to obtain a forecast of the tax consequences of a case or a proposed transaction (e.g. an inheritance plan or a merger of two companies). The forecast given is then binding on the authorities, provided that the case/transaction proceeds exactly as described above and that no change in the tax rules occurs in the meantime. This unique system gives companies, investors and individuals the legal certainty they need to plan and implement their business strategy without fear of unexpected taxation.
Under certain conditions, some Swiss regions offer tax reductions for companies whose products have a high added value and are manufactured for very wealthy individuals.
Swiss law distinguishes between commercial partnerships (based on personal commitment) and joint-stock companies. The most common business structure is the limited liability company (LLC), followed by the commercial companies. There are several differences between these two forms of business structure: the minimum capital is CHF 20,000 for LLCs, compared to CHF 100,000 for corporations; access to the stock exchange is reserved for corporations, while LLCs are usually more convenient for smaller businesses. Both LLCs and corporations are set up by notarial deed, payment of paid-up capital and entry in the register of companies. Setting up a limited company in Switzerland is relatively simple and can be done in a few weeks. However, the procedure and details can still be overwhelming for someone who is not familiar with the legal framework. It is therefore advisable to consult a lawyer to ensure that nothing is forgotten or overlooked.
Advanced blockchain regulations
The Swiss federal government and state authorities have a very positive and open attitude towards blockchain technology and cryptocurrencies in general. Switzerland has recognised the opportunity to take a global leadership role in this sector and has remained open to new developments. Especially at the state level, blockchain-based technologies are being considered and regulated. In the canton of Zug, for example, it is possible to pay taxes with cryptocurrencies.
In 2016, the Federal Council announced its intention to reduce barriers to entry for FinTech companies. The plan comprises three pillars.
The first sets a 60-day deadline for holding money in settlement accounts. This is particularly interesting for crowdfunding service providers because it allows them to operate without having to obtain a banking license, which they would normally have to do. The second pillar allows a commercial company to engage in activities that would normally require a bank licence. Up to a total amount of CHF 1 million, a provider can accept public funds without having to be licensed and supervised by the financial market regulator (FINMA). The third pillar is a new FinTech licence granted by FINMA. This licence allows non-deposit taking lenders to operate under less stringent requirements than traditional banks. However, such FinTech companies cannot accept funds exceeding CHF 100 million in total. To obtain a licence, the company must maintain a capital of at least 5% of the public funds accepted or CHF 300,000 (whichever is higher).
This example shows Switzerland’s pioneering trend in cryptocurrencies and blockchain-based technologies.
Excellent asset protection mechanisms
Asset protection refers to planning aimed at reducing future conflicts and ultimately preventing the loss of wealth. Swiss law offers many opportunities to plan wisely for the protection of one’s assets. One rudimentary but effective way to protect one’s wealth from possible future legal claims is to transfer assets to another – trusted – person, such as a descendant. Another tool is the foundation. With a few rare exceptions, a so-called family foundation (designed to financially support a family or other group of people) cannot be set up directly in Switzerland because it is not considered to be of public benefit. Such a foundation can be set up in another country, such as Lichtenstein, and receive funds from Switzerland. Another asset protection mechanism is the trust. This institute does not yet exist in Swiss law, but foreign trusts are recognised in Switzerland and the possibility of introducing trusts into the Swiss legal system is currently being evaluated. The establishment of a corporation or an LLC is a good means to keep private financial means separate from business assets, as well as to protect personal wealth through the limited liability mechanism. It is also worth considering matrimonial property regimes and estate planning, both of which can be used to keep personal wealth safe from third parties. To avoid being overwhelmed by the sheer number of possibilities when considering how to protect assets, it is advisable to seek legal advice quickly.
High compliance standards
Switzerland has high compliance standards. For listed companies, the “Swiss Code of Best Corporate Governance Practices” is the main source of law. Compliance usually involves compliance with the law as well as with behavioural guidelines (e.g. codes of conduct and directives). In addition, it requires a commitment to act with integrity and ethics. Compliance ultimately depends on effective management, and compliance breaches are almost always the result of management weaknesses. In Switzerland, compliance with compliance standards is a high priority in order to avoid investigations, criminal proceedings and legal liability. Before doing business in Switzerland, it is essential to seek legal advice on how to comply with the law and meet the highest standards of compliance.
Top tips to takeaway “What to know before Investing”
To sum up, Switzerland is a small country in the middle of Europe, a melting pot of European cultures, languages and religions, with an extremely complex structure of different cantons and layered political and legal systems. Despite having very few natural resources, the country manages to compete internationally at the highest level. Cultural differences within Switzerland are characteristic of its social fabric. When doing business, this must be taken into account. While in Geneva and the Italian-speaking southern region business is more informal, Mediterranean and emotional, in the northern region of Zurich business follows more structured and formal rituals. Overall, Switzerland is a land of opportunity, where people can enjoy an excellent quality of life, high purchasing power and outstanding educational opportunities and job prospects.
Switzerland’s legal and bureaucratic system is customer-friendly, uncomplicated and fast, providing an optimal framework for doing business. However, before starting a new business, it is essential to seek professional legal advice on Swiss company law, taxation, compliance regulations and asset protection planning. However, if accurate planning cannot prevent a legal dispute from arising and a settlement cannot be reached by agreement, the Swiss court system is generally considered to be fast and efficient.
Teichmann International (Schweiz) AG
Teichmann International (Schweiz) AG is a law firm and notary with offices in Zurich and St. Gallen. Through a process of self-critical and ambitious reflection over many years, Teichmann International (Schweiz) AG has created an exceptional concept for a law firm. The firm assists both individuals and companies in very different legal matters and areas, from the beginning to the end of a dispute. In addition, Teichmann International (Schweiz) AG assists its clients in many other types of legal matters, such as succession planning, asset protection planning, corporate governance and compliance, as well as mergers and takeovers.
Teichmann International (Schweiz) AG employs professionals from all different cultural and professional backgrounds, creating a multilingual team that speaks and understands more than ten different languages. The firm’s employees specialise in many different areas, including business and company law, antitrust, money laundering, white collar crime, family office, family law, contract law, criminal law and more.