Doing Business In: Switzerland
Teichmann InternationalView Firm Profile
Switzerland is globally recognised as a world-leading country in many respects. It has extremely high quality of life (joint-2nd in the 2020 Human Development Index of the United Nations Development Programme), international credibility, political and social stability, a transparent legal system, a liberal and highly competitive economy, strategic geographical position, and multiculturalism. Little wonder, then, that Switzerland becomes the destination of many people, companies and investors every year.
Although Switzerland has not escaped the COVID-19-pandemic that swept the world, the country has managed to handle the crisis through a wise middle way between necessary confinement measures and safeguarding the economy. During the COVID-19-crisis, Swiss people and businesses have been much less restricted than their European neighbours, being able to continue living and operating with relative freedom.
Notwithstanding Switzerland’s highly attractive conditions for doing business, it is extremely important to become familiar with local laws and regulations, as well as the main characteristics of the country’s social and economic fabric.
The COVID-19-pandemic has undoubtedly taught Switzerland the importance of flexibility and adaptation. Switzerland has experienced a massive increase in smart-working solutions and digitalisation of both everyday life matters and business practices. Albeit digital working methods were not common before the crisis, the country has responded particularly well to COVID-19-related challenges, which have been tackled through adapting quickly. A large majority of workers are likely to continue smart-working even after the pandemic is completely defeated.
Besides COVID-19-related digitalisation, Switzerland remains a safe harbour and land of opportunities for both people and companies.
Liberal and competitive economy
Switzerland’s success formula is based partly on a highly liberal economic system. In 2021 Switzerland ranked 4th worldwide in the Index of Economic Freedom of The Heritage Foundation: this recognised that Switzerland has the freest economy in Europe. The country has high productivity and few pricing regulations; its liberal labour law, with no general minimum wage at the federal level, is balanced by a solid welfare system to prevent people falling into poverty. Switzerland is also party to several international trade agreements and offers a transparent and efficient investment structure. This combination of factors help Switzerland to compete at the highest level.
Robust social and political stability
Switzerland is a federal state based on cooperation and accordance. Its political system disperses power both horizontally (between different branches) and vertically (between state and federal level). Even within the different branches, power is divided 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 continuous search for accordance leads to robust political stability and acceptance. The Swiss people also have massive participation rights. They can directly intervene by voting to change the constitution or prescribe a course of action to the federal (or state) government. This participative freedom helps to achieve political acceptance and, ultimately, stability. Riot and tumult are very rare in Switzerland. In addition, the country’s excellent welfare system ensures that no one experiencing poverty is left behind: everyone is given at least the necessary means to live a decent life.
Very high average quality of life, high purchasing power and strong currency
Switzerland is known for very high average salaries and extremely good quality of life. Swiss people generally have high purchasing power, which makes the country an lucrative sales market. Also, the strength of the Swiss franc makes Switzerland a safe place to invest and do business in general.
According to the 2019 Global Competitiveness Report of the World Economic Forum, Switzerland has the most highly skilled workers in the world. This accolade is partly thanks to the country’s excellent public education system. Switzerland is home to the Swiss Federal Institute of Technology in Zurich (ranked 6th in the 2021 QS World University Rankings® – behind only MIT, Stanford, Harvard, Caltech and Oxford), the Swiss Federal Institute of Technology in Lausanne (ranked 14th ) and the University of Zurich (ranked 69th). Besides college education, Switzerland offers excellent vocational education – supported by an excellent economic and industrial fabric. In fact, many apprentices who choose vocational training instead of an academic path achieve even better working 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).
On an international and diplomatic level, Switzerland can be proud of their high prestige and credibility as home to some of the world’s most important international organisations, such as the International Committee of the Red Cross, the UN’s European headquarters, FIFA, UEFA, the IOC and more than 500 NGOs. Switzerland acts on an international level as a neutral and reliable mediator.
Geographically strategic position
With its strategic geographic 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, cutting-edge railway system forms a key part of the Rotterdam-Genoa route, including the 57 km Gotthard Base Tunnel: the world’s longest and deepest railway tunnel. Despite not being an EU Member State, Switzerland has been able to negotiate various mutually advantageous agreements with the EU, giving Swiss people and companies many of the same rights and freedoms as EU citizens in terms of movement of people and goods, cross-border trade, and much more. Little imagination is required to understand the massive advantages of these bilateral agreements for trading and doing business in general.
What you should know about doing business in Switzerland
Switzerland’s legal system
Switzerland has a constitution-based civil law system that wisely combines the best parts of both French and German legal traditions. The system reflects the country’s federal structure, with a pyramidal system of federal and state regulations, which sometimes leads to significant differences in how matters such as taxation and education are regulated at state level. The judicial system is generally based on three different levels (two at state level beneath the Federal Supreme Court ). Proceedings are generally held in the state language (German, French or Italian). Notably, several international agreements and treaties, as well as parts of EU law, are often considered during proceedings.
Very high legal certainty
Generally speaking, Switzerland ensures very high legal certainty. Living together and working as a functioning country in general, and business in particular, require the people’s trust in their own state’s institutions and laws. Changeable regulations, uncertainty and government-dependent laws make it difficult to devise long-term plans for conducting business. Therefore, a stable, certain legal system in which one can trust is a crucial consideration when choosing a jurisdiction in which to do business. Thanks to Switzerland’s political system, based on accordance, discussion, and dispersion of power, it is difficult for one specific political force to change laws, and the people’s participation rights perform an important supervision function. One can thus rely on the complete stability of the country’s legal system.
Tax rulings & planning security
Legal certainty is also vital for planning security in taxation matters. It is essential to know how much one will pay in taxes 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. Whereas federal-level taxes are the same for everyone (and for every company), there are several differences at 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-related consequences of a proposed case or transaction (e.g. an inheritance plan or a merger of two corporations). The given forecast is then binding for the authorities, provided that the case/transaction proceeds exactly as previously described and that no changes in tax regulations arise in the meantime. This unique system provides companies, investors and individuals with the required legal certainty 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 are of high added value and are produced for very wealthy individuals.
Swiss law distinguishes between commercial partnerships (based on personal commitment) and joint-stock companies. The most widespread commercial structure is the limited liability company (LLCs), followed by corporations. There are several differences between these two forms of commercial structure: the minimum capital is CHF 20,000 for LLCs compared to CHF 100,000 for corporations; access to the stock market is reserved to corporations, while LLCs are usually more convenient for smaller businesses. Both LLCs and corporations are founded by notarial act, payment of the Paid-In Capital and entering in the company register. Founding a joint-stock company in Switzerland is relatively uncomplicated and can be done within a couple of weeks. Nevertheless, the procedure and details can still be overwhelming for someone without knowledge of the legal framework. It is therefore advisable to consult a lawyer to ensure that nothing is forgotten or overlooked.
Advanced blockchain regulations
The federal government and state authorities in Switzerland have a very positive and open attitude towards blockchain technology and cryptocurrencies in general. Switzerland recognised the opportunity to take a global lead in the sector and has remained open to new developments. Especially at state level, blockchain-based technologies are taken into account 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 the barriers to market entry for FinTech businesses. The plan comprises three pillars.
The first sets a deadline of 60 days for holding money in settlement accounts. This is particularly interesting for providers of crowdfunding services, since it allows them to run their business without needing to get a bank licence, what they normally would. The second pillar allows a corporation to engage in activities that would normally require bank licensing. Up to a total value of CHF 1 million, a provider can accept public funds without having to be authorised and supervised by the financial markets regulation authority (FINMA). The third pillar is a new FinTech licence granted by the FINMA. This licence allows deposit-taking non-lenders to operate under less stringent requirements than those applicable to traditional banks. However, such FinTech businesses cannot accept funds exceeding CHF 100 million in total. To obtain a licence, the company needs to maintain capital of at least 5% of accepted public funds or CHF 300,000 (whichever is greater).
This example shows Switzerland’s pioneering tendency with respect to cryptocurrencies and blockchain-based technologies.
Excellent asset-protection mechanisms
Asset protection refers to planning that aims to reduce future conflicts and ultimately prevent loss of wealth. Swiss laws offer numerous opportunities to wisely plan one’s asset protection. 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 instrument is the foundation. With some rare exceptions, a so-called family foundation (designed to financially back a family or another group of people) cannot be directly founded in Switzerland because it is not considered to have public utility. Such a foundation can be founded in another country, such as Lichtenstein, and receive funds from Switzerland. Another asset-protection mechanism is the trust. This institute still does not exist in Swiss law, but foreign trusts are recognised in Switzerland and the possibility of introducing trusts in the Swiss legal system is currently being evaluated. Establishing a corporation or LLC is a good means to keep one’s private financial means separated from business assets, as well as protecting personal wealth through the mechanism of limited liability. Also worth considering are the matrimonial property regime and inheritance planning, which can both be used to keep one’s wealth safe from third parties. To avoid being overwhelmed by the vast number of possibilities when contemplating how to protect assets, it is advisable to seek prompt legal advice.
High compliance standards
Switzerland has high compliance standards. For companies quoted on the stock exchange, the ‘Swiss Code of Best Practice for Corporate Governance’ is the main source of law. Compliance usually requires conforming with the law as well as behavioural guidelines (i.e. codes of conduct and directives). Furthermore, a commitment to acting with integrity and ethically is required. Compliance ultimately depends on effective management, and compliance infringements are almost always the result of management-level failings. In Switzerland, meeting compliance standards is highly prioritised to avoid investigations, criminal proceedings and legal liability. Before doing business in Switzerland, it is essential to seek legal advice on how to abide by the law and meet the highest compliance standards.
Top takeaway tips: What you need to know before doing business in Switzerland
In conclusion, Switzerland is a small country in the middle of Europe; a melting pot of European cultures, languages and religions, with a highly 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 should be taken into account. While in Geneva and the southern Italian-speaking 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 opportunities where people can enjoy excellent quality of life, high purchasing power, and outstanding education possibilities and job prospects.
Switzerland’s legal and bureaucratic system is customer-friendly, uncomplicated and fast, providing an optimal framework for doing business. Nevertheless, before starting a new business, it is essential to seek professional legal advice about Swiss corporate law, taxation, compliance regulation and asset-protection planning. If accurate planning still cannot prevent a legal dispute arising, and if resolution by agreement cannot be achieved, the Swiss judicial system is generally considered to be fast and efficient.
Teichmann International (Schweiz) AG
Teichmann International (Schweiz) AG is a law and notary firm with offices in Zurich and St. Gallen. Through a process of self-critical and ambitious reflections over many years, Teichmann International (Schweiz) AG has created a concept that is exceptional for a law firm. The firm assists both individuals and companies in very different matters and legal areas, from the very beginning until the end of a dispute. Furthermore, Teichmann International (Schweiz) AG assists its clients in several other kinds of legal matters, such as succession planning, wealth protection planning, corporate governance and compliance, as well as mergers and takeovers.
Teichmann International (Schweiz) AG employs professionals of all different cultural and professional backgrounds, having created a multilingual team that speaks and understands more than ten different languages. The firm’s people specialise in several different areas, including business and corporate law, antitrust regulations, money laundering, white-collar crime, family office, family law, contract law, criminal law and many more.