01.08.2013
On the 1st of August the Swiss Confederation celebrates it’s symbolic birthday. At the beginning of August in 1291, more than 700 years ago, was signed the first treaty of alliance between the three cantons - that event became a basis of history of the Confederation. This day is traditionally announced a holiday, and the Federal Palace opens its doors to all who comes to look at the place, where the parliamentarian and members of the National Council and the Council of States sit, and also to meet with the presidents of both Chambers.
Swiss have something to be proud of - for many years this country has been considered one of the most stable and economically sustainable. It is good to know, that even now there are such jurisdictions, nearly safe from the turmoil of the economic crisis that is still affecting the western countries.
Today, entrepreneurs from Russia are increasingly thinking about starting or promotion of business in the Swiss Confederation. For those, who are seriously intending to conduct business in this country, we’ve prepared a selection, that is going to give businessmen guidance in the legal and administrative refinements of conducting business.
THE SWISS LEGAL AND TAX ENVIRONEMENTS ARE GOOD FOR DOING BUSINESS
In this trouble period, it is good to know that there is a jurisdiction nearly safe from the turmoil of the economic crisis that is still affecting the western world. In the middle of Europe, but outside the Economical Union, Switzerland offers a steady and straightforward legal and tax environment for business men. In this paper we intend to briefly describe the mechanisms of Swiss Company Law, Swiss Tax Law and Swiss Employment Law in order to outline that these laws are well fitted for doing business from abroad to Switzerland or from Switzerland to abroad.
Swiss company law maybe roughly divided in two categories of companies. On one hand, one distinguishes companies without legal personalities and on the other hand companies with legal personalities. The first category is well fitted for very small ventures composed of individuals where the businesses they are doing necessitates to promote first the personalities of the entrepreneurs. This is the case of consultants, engineeroffices or lawyers. These companies are set up by a simple contract and maybe, or not, confirmed in articles of incorporation to be deposited in the Swiss Registry of Commerce. Swiss company law only defines the broad terms to be observedby these companies. In a nutshell, the management is defined by the partners themselves taking decisions orally or in writing. The partners are composing the management body of the company. Companies’ assets belong to the partners and not to the company. It is the partners who are liable for taxes. These companies may be terminated either by joint agreement between the partners or in a simple proceeding providing certain deadlines (generally six months) are observed. On the other hand, the companies with legal personality are composed of the Société à responsabilité limitée (Sàrl) or Gesellschaft mit beschränkter Häftung (GmbH) and of the Swiss Société anonyme (SA) or Anonyme Gesellschaft (AG), which is literally the corporation that is also known of all other western jurisdictions. These companies are at first defined by their share capital. In the situation of the GmbH, this share capital is not divided into shares but into certain unitsthat are less easily transferable than shares. The personality of the partners of the GmbH is also more important than the one of the shareholders in a SA.
The SA is the most well-known type of legal vehicle for investments in Switzerland. It is composed of three different bodies: (i) the Board of Directors, which is the managing body of the company; (ii) the General Meeting of the Shareholders, which appoints and dismiss the Director, which approves the articles of incorporation defining the name of the company its corporate purpose and the composition of the share capital and (iii) the auditor.Please note that shares may be either registered shares or bearer shares. Bearer shares are totally anonymous and belong to the one who is bearing them. The name of the shareholder is in any case totally anonymous. It is not absolutely mandatory to appoint an auditor if certain thresholds are not met, depending of the size of the company in terms of employees, turnover and amount of share capital. The Swiss SA can be declined from a very small SA to a big listed SA such as Nestle or UBS. It is the same legal form of company. However, certain stricter rules pertaining to either the listing of the company or to its side may apply.
The Swiss tax system is rather complex because based on the federal structure of Switzerland. Taxes are levied on three different levels. The jurisdiction that has the main tax authority, i.e.the general power to tax, is the federal unit, i.e. the Canton. It is therefore very important to well define in which canton the taxes are to be paid. Forphysical persons, it is the canton of domicile. For companies it is the canton where the company is legally registered. However, this registration or domicile must correspond to the place where the main activities of the company are developed. Should this not be the case, a conflict of jurisdiction may arise.
Taxes for private individuals are levied in Switzerland on income and wealth. As far as companies, taxes are levied on income and capital.
When the cantons have taxed a private individual, the tax received is shared between the commune of domicile and the canton. The Federal State also perceives its own tax. However this tax is not composing the bulk of the tax burden of a private individual taxed in Switzerland.
The following examples taken from the Swiss Tax Administration public statistics, show that taxes for private individuals may depend on three different factors: (i) the place of domicile; (ii) the amount of income/wealth received and (iii) the marital status of the tax payer.
The following chart istaken from the Swiss Tax Administration public statistics. It offers good examples of possible corporate taxes in Switzerland for the year 2011.
Remarks:
(1) Ecclesiastical taxes included
(2) Net profit beforededuction of taxes paidduring fiscal year
(3) Without the professionaltax
Of course certain tax niches exist. For instance, private individuals not developing any business activities or professional activities in Switzerland may benefit, if they reside in a canton that so provides, of taxation on a lump sum which allow these individuals to be taxed on their estimated way of life in Switzerland and not on their income worldwide. This is admitted provided these individuals to not have any business activities in Switzerland.
For companies that have only business activities outside Switzerland, certain special tax regimes also exist that eventually led to drastically reduce benefits and capital taxes.
Please also note that there exist other taxes such as real estate taxes and tax on gain on real estate transaction. Withholding tax also exists for dividends distributed by a Swiss company to its shareholders at a rate of 35%. VAT also exists at a rateof 8%. Other taxes may also exist such as stamp taxes for the issuance of shares provided that they are over one million CHF.
Investing in Switzerland may offer very good business opportunities. The investments may be organized, from a legal point of view, through purchasing shares or capital increase when the investment is made in a company or through private loans either to companies or to private individuals. Capital equity vehicles are also provided under Swiss law and offer good opportunities. When investing in Switzerland, it is good to structure the investment in order to avoid the above defined withholding tax. To do so, the specificity at the case at stake should be very well observed. There is no miracle solution. However it is good to mention that the double tax treaty between Switzerland and Russia offer good solution to minimize the impact of the withholding tax.
Eventually, Swiss Employment Law is also offering a very good business environment to investors in Switzerland. Swiss Employment Law is rather straightforward and is oriented towards the protection of the enterprise and is offering the necessary flexibility to adapt to its market. Swiss employees are obedient and respectful of their employer. Employment agreements can be very easily concluded, either orally or in writing and terminated provided certain basic rules set forth by the Swiss Code of Obligation are met. Please note that the maximal trial period is three months and that termination notice is depending on the length of the duration of the employment agreement (one month for an employment agreement having lasted less than one year, two months for employment agreements having lasted from two years to nine years included, three months for employment agreements
having lasted more than ten years).
In a summary Swiss business law is simple, flexible, and straightforward. Swiss tax law may be at first seen as complex because of the Swiss federalism but very soon it has to be seen as offering interesting opportunities and is very moderate in terms of international comparison. However Switzerland should not be considered as tax haven but as a very reliable jurisdiction.
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