Today, we will take a look at one of my personal favourites: Switzerland.
Sitting at the heart of Europe, this fiercely neutral country hosts everything from stunning nature to several of the world’s largest international organisations to fine watchmaking to punctual and clean trains. The chocolate isn’t too bad either and it’s probably the only place on earth where you can find restaurants serving both French and Italian food – and doing it well. That is if you need a change from the hearty local cuisine or the German and Austrian influences.
It also has a world-renowned banking sector and several tax advantages. What’s not to like?
Switzerland is a quadrilingual country: German, French, Italian, and Romansh. However, for the purposes of international finance, German and French are dominant to the point of Italian and especially Romansh terminology being nearly unheard of.
This article will use the German and the French terminology only.
Switzerland lies at the center of Europe. It has seen everything from Gothic tribes to Roman empires to Medieval chivalry to French revolutions to a civil war to modern-day global conflicts, peace-work and prosperity. All of which lead to the fiercely independent, neutral, and stubborn nation that it is today.
Trying to retell such a rich history here without this post becoming excessively long is not feasible. Those seeking a full understanding of why Switzerland is the way it is today would benefit greatly from picking up a book and reading more.
As the ice caps receded after the last ice age, the alps and Swiss landscape saw the sun again. Despite being mountainous and covered in a thick forest, there are signs of human activity as early as 150,000 BC, most likely hunting on these fertile hunting grounds. Evidence suggests humans settled down permanently towards the bronze age with significant findings of bronze tools, weapons, and armour.
Celtic tribes appeared around 1,500 BC and were later joined by Raetians and Helvetians, the latter being the namesake of the country’s Latin name: Confoederatio Helvetica (Helvetic Confederation), from which the country code CH is derived.
Switzerland came under Roman rule for some 600 years, from circa 200 BC to year 400. As the Western Roman Empire fell, Switzerland was taken over by Alemannian and Swabian tribes from Burgundy. This brought feudalism to Switzerland which until then had just been another Roman puppet.
Independent Switzerland enters history books in 1291. The context is important here. Areas that today make up Germany, Switzerland, Austria, as well as parts of neighbouring countries were divided into more or less independent feudal states or city states. These came in many shapes and forms.
Following the death of Emperor Rudolf the First of Habsburg, and in the power vacuum that appeared, three Swiss cantons (Schwyz, Uri, and Unterwalden) joined together to form what is today known as the Old Swiss Confederacy. Canton Schwyz led to the German name Schweiz from which translations are into other languages (Suisse, Svizzera, Switzerland) are derived.
The three cantons were together able to defeat the Holy Roman Empire twice by the end of the 14th century which further strengthened and assured Swiss independence.
By 1353, five more cantons had joined the confederation: Glarus, Zug, Zürich, Lucerne, and Bern.
Together, the now eight cantons were able to secure a number of key military victories, staving off several attempts at its sovereignty. These were so successful that by 1506, pope Julius II had hired the Swiss guard as his protection, a role they keep to this day.
Around this time, several more cantons had joined the confederation: Basel, Schaffhausen, Fribourg, and Solothurn.
Previously largely Catholic, Protestantism became the largest religion during the 1500s and early 1600s. The reformation was not an entirely peaceful process, with some cantons refusing to abandon Catholicism. Political and even military conflicts occurred.
Switzerland role as a peaceful haven arguably started with the Thirty Years War. While war was raging across Europe and elsewhere, Switzerland remained almost entirely untouched largely because the European combatants on all sides relied on Swiss mercenaries. Attacking Switzerland would mean losing a large part of one’s army.
In 1648, Switzerland was formally and legally declared independent from the Holy Roman Empire.
150 years of relative peace but some economic hardships followed, until France under the guise of the French revolution invaded Switzerland in 1798. The French invaders changed Switzerland to a republic called the Helvetic Republic (République Helvétique). The cantons lost most of their independence which was deeply unpopular across Switzerland. Catholic cantons took up arms and although they were militarily defeated, resentment against the French spread. By 1803, Switzerland was reshaped giving cantons greater independence. The cantons Aargau, St. Gallen, Vaud, Ticino, Thurgau, and Grisons joined at this time.
In the 1815 Vienna congress, the Swiss confederation was restored and was joined by the cantons Geneva, Valais, and Neuchatel.
A brief civil war broke out in 1847 fought over a mostly religious conflict between Protestants and Catholics.
After the end of the civil war, Switzerland enacted a new constitution which gave cantons most of the independence they had in the Old Confederacy but a federal government was formed with overarching responsibilities on matters relating to military, trade, and most legal matters. This was followed by rapid industrialization and the Swiss economy grew strong.
During World War 1, all parties respected Switzerland’s neutrality. The Swiss army was mobilized and stationed in areas considered at risk of invasion. Owing to its neutrality and financial stability, the Swiss banking sector started taking off considerably.
Switzerland also played an important role in peace negotiations and was a safe haven for cultural workers and intellectuals of Europe.
The threats against Switzerland were much greater in World War 2 with Germany considering an invasion. Some records indicate that Switzerland turned a blind eye to German transport trains going through its territory but this is disputed. Switzerland was also extremely restrictive when taking on refugees, which caused massive criticism after the war.
Both sides of the war violated Switzerland’s airspace and Switzerland responded by shooting down both Allied and Axis planes.
Just like in World War 1, the Swiss banking sector benefited from the instability of Europe and much of the rest of the world. Enormous amounts of money and gold were deposited in Swiss banks. Much of this gold was later traced back to Nazis who stole the gold from occupied territories, often Jewish households. Long after the end of World War 2, legal battles were fought to retrieve this gold and disclose bank account information.
After World War 2, Switzerland returned to prosperity. One new canton has been added since then when Jura split from the canton of Berne in 1979.
Switzerland today is a wealthy and stable nation, known globally for its banking sector, low tax, watch making, chocolate, and direct democracy. It is the headquarter of many of the world’s largest and most well known international organizations, such as the BIS (Bank for International Settlements), CERN, European Free Trade Association (EFTA), WHO, WIPO, WTO, IATA, ISO, and the International Red Cross.
Full Name:;Swiss Confederation (English), Schweizerische Eidgenossenschaft (German), Confédération Suisse (French), Confederazione Svizzera (Italian), Confederaziun Svizra (Romansh)
Official language(s):;German, French, Italian, Romansh
Other major languages:;Various European immigrant languages
Type of government:;Federal multi-party directorial republic, direct democracy
GDP per capita:;56,000 USD
Currency:;Swiss Franc (CHF)[/table]
Starting a business in Switzerland?
Salaries in Switzerland are very high. Salaries are often double those of surrounding countries. This makes Switzerland unfit for low-skill jobs but on the other hand it makes it an attractive to highly skilled professionals. Coupled with strong employment laws and European standards on vacation days and sick leave, it’s no surprise that the talent pool in Switzerland is among the highest you can find in Europe and the world.
Swiss companies are taxed on three levels: federal, cantonal, and communal (municipal).
The federal tax rate stands at 8.5%.
Cantonal and communal tax rate vary significantly. Cantons and communes compete on tax rate to attract business but not without considering the possible negative ramifications.
The total tax rate varies from 14% to 25% with the eastern, German-speaking and the central, German/French-mixed cantons typically having the lowest tax rates, such as Schwyz, Nidwalden, Zug, and Zürich. The French-speaking western parts have the highest tax rates.
However, tax is not quite that simple in Switzerland. It’s possible to get an effective tax rate of under (sometimes far under) 10% using tax planning and by special agreements with their commune or canton whereby tax is paid in advance at an agreed-upon sum. These agreements are reached on a case-by-case basis and must usually benefit the canton or commune in some significant way (such as employment).
Costs as such are not particularly high but surrounding financial requirements, especially the share capital requirements, make Switzerland a generally unattractive jurisdiction for forming non-resident companies.
Forming a Swiss company can in and of itself cost no more than a few hundred to a thousand CHF with incorporation mills like Startups.ch (where prices can go all the way down to 0 CHF). For non-residents or companies with more sophisticated needs, there is a seemingly endless supply of accountancy firms and law firms all over the country that can help with formation. Tariffs vary enormously.
AG – Aktiengesellschaft, SA – Société Anonyme
This is the premier legal form in Switzerland. It is the most trusted and prestigious.
Share capital must be at least 100,000 CHF of which 50,000 CHF must be paid up during formation. The share capital must be divided into shares at no less than 0.01 CHF per share.
Bearer shares are permitted but only once the entire share capital has been paid up.
A minimum of one director and one shareholder are required. Corporate directors are not permitted but corporate shareholders are. Nominees often act as directors.
Names and nationalities of directors appear in the Zefix online public records.
Shareholders do not appear on public record. However, a note is made in public records if the company has issued bearer shares.
Compared to a GmbH (Sàrl), shares can be change hands more easily with an AG (SA).
Companies must file annual returns. Audits are required for companies with a turnover of 40 million CHF or a turnover of 20 million CHF and more than 250 employees.
GmbH – Gesellschaft mit beschränkter Haftung, Sàrl – Société à responsabilité limitée
While the AG (SA) can be compared to private limited company, the best international comparison for a GmbH (Sàrl) is a light/limited version thereof. They are sometimes inaccurately compared to LLCs (which I will cover in a future post).
GmbHs are limited by shares, with a minimum share capital of 20,000 CHF all of which must be paid up. The share capital must be divided by shares at a value of no less than 100 CHF per share.
A minimum of one director and one shareholder are required. At least one of the directors must be domiciled in Switzerland.
Names and nationalities of both directors and shareholders (including share capital held) appear in the Zefix online public records.
Audit requirements are the same as for AGs.
For AG, only directors are available in public records. Shareholders are not shown.
For GmbH, names and nationality of directors and shareholders are available on public records.
There is nothing like Swiss banking. A lot of jurisdictions do banking very well but as a whole none of them beat Switzerland.
The Swiss banking sector can be divided into five categories:
- Large Banks
- Cantonal Banks
- Private Banks
- Foreign Banks
- Other Banks
For a full list of banks, see the FINMA website: http://www.finma.ch/e/beaufsichtigte/bewilligungstraeger/Pages/default.aspx
These banks are UBS and Credit Suisse. It is sometimes argued that Julius Bär belongs to this category but I find their focus on private banking too dominant and instead place them under private banks.
As of writing, the latest financial statements from these banks indicate that UBS holds assets of just over 1 trillion CHF and Credit Suisse 878 billion CHF.
UBS and Credit Suisse are the only Swiss banks that cover all banking services from retail/personal banking to small local companies to large international companies to private banking and everything in between.
Non-resident personal account with UBS or Credit Suisse are very rarely opened. They do it sometimes in exchange for a large deposit but not large enough to qualify for private banking.
From time to time, UBS and Credit Suisse accept non-resident businesses even if they aren’t turning over enormous sums of money. This is very touch and go. Having ties to Switzerland helps.
There are 24 cantonal banks, closely corresponding to the number of cantons in Switzerland (26). Cantonal banks are government-owned (owned by their canton) and almost exclusively engage with customers within their canton. To be a customer with a cantonal bank without living in that canton, you essentially have to have lived in the bank’s canton before.
- Aargauische Kantonalbank
- Appenzeller Kantonalbank
- Banca dello Stato del Cantone Ticino
- Banque Cantonale de Fribourg
- Banque Cantonale de Genève
- Banque Cantonale du Jura
- Banque Cantonale du Valais
- Banque Cantonale Neuchâteloise
- Banque Cantonale Vaudoise
- Basellandschaftliche Kantonalbank
- Basler Kantonalbank
- BEKB / BCBE
- Glarner Kantonalbank
- Graubündner Kantonalbank
- Luzerner Kantonalbank
- Nidwaldner Kantonalbank
- Obwaldner Kantonalbank
- Schaffhauser Kantonalbank
- Schwyzer Kantonalbank
- St. Galler Kantonalbank
- Thurgauer Kantonalbank
- Urner Kantonalbank
- Zuger Kantonalbank
- Zürcher Kantonalbank (ZKB)
According to the latest financial information, ZKB is by far the biggest with 154 billion CHF in assets. This represents almost 30% of all cantonal banks put together.
Barring rare exceptions, ZKB is the only cantonal bank available to non-residents (who aren’t and haven’t lived in Zürich or Switzerland) but only for private banking, which starts at 500,000 CHF. ZKB has been repeatedly named as one of the safest banks in world by GF Mag, most recently being placed as the world’s second safest bank.
Services are rarely offered in languages other than the language or languages of the canton. The bigger ones and some of the smaller ones are sometimes available in English
Wealth management is at the core of Swiss banking and private banking is available with almost every Swiss bank, including the giants and the cantonal banks. In fact, UBS and Credit Suisse have topped the last two years’ Euromoney rankings of private banks and wealth managers. However, there is a group of banks dedicated entirely to private banking. These are often referred to as private banks.
Some of the more noteworthy are:
- Bank J. Safra Sarasin
- Edmond de Rotchschild
- EFG Bank
- Falcon Private Bank
- Julius Bär
- La Roche
- LGT (Liechtenstein)
- Lombard Odier
- Mourgue d’Algue
- Rahn & Bodmer
- Rothschild Bank
Some of the private banks are family-owned banks, having been in the same family often since the 1700s or 1800s, and are referred to as family banks.
Minimum deposit requirements vary wildly and are often negotiable (to a degree), but it is rare for amounts under 100,000 CHF to be accepted. Some banks might take you on for less but not assign you a private banker (account manager) or withhold other services until you reach a certain amount. The likes of UBS, Credit Suisse, Julius Bär, LGT, and Pictet expect somewhere in the range of 500,000 to 2 million CHF and will virtually never deviate from this.
Most of these banks do not issue card and are unsuitable for anything other than corporate or personal wealth management.
See also List of Offshore Banks. Scroll down to Switzerland.
Being one of the world’s finest banking centers, many if not most of the world’s major banks have established themselves in Switzerland either as a licensed bank or as a representative office.
The SME and retail banking business is entirely dominated by Credit Suisse, UBS, and cantonal banks (and other banks). No foreign bank even tries to compete in those sectors.
Foreign banks are focused on private banking or corporate banking.
Some noteworthy foreign banks in Switzerland include:
- Arab Bank (Jordan)
- BankMed (Lebanon)
- Barclays (UK)
- Blom Bank (Lebanon)
- BNP Paribas (France)
- CIC (France)
- Coutts (UK)
- Gazprombank (Russia)
- Habib Bank (Pakistan)
- HSBC (UK)
- KBL (Luxembourg)
- LGT (Liechtenstein)
- NBAD (UAE, Abu Dhabi)
- NBK (Kuwait)
- Nordea (Sweden)
- Sberbank (Russia)
- Societe Generale (France)
- Standard Chartered (UK)
- Turicum (Gibraltar)
- VP Bank (Liechtenstein)
Trading Banks / Brokers
This category could just as easily have been called Investment Banks but that would have included a large number of banks which only work with other banks and financial institutions to manage investment funds and related services.
What we are left with instead are four banks that focus on trading and investing:
- CornèrTrader (a subsidiary of Cornèr Banca)
- Saxo Bank (a subsidiary of the Danish bank by the same name)
- Strateo (a subsidiary of Belgium-based Keytrade Bank)
Here I am grouping all banks that don’t fit into any of the aforementioned categories. The mainstay of this group are some regional banks (privately owned), savings banks, Raiffeisen banks (cooperative banks), niche banks, and banks owned by the major supermarkets: Coop’s Bankcoop and Migros’ Migrosbank. I have never heard of non-residents (except for former residents) banking with these banks.
There are a couple of banks that don’t fit anywhere else either, such as the aforementioned Cornèr Banca. They are available to retail customers across the country though focused on the Italian-speaking part of Switzerland, and they sometimes accept non-residents, although almost exclusively for private banking.
The Swiss post runs a bank called Postfinance which is quite popular in Switzerland. It is a perfectly adequate bank for those without sophisticated needs. Postfinance offers basic banking services and does so very well. They accept non-resident customers from neighbouring countries.
CIM Banque is another bank in this interim/unclear category. It tries to position itself as a private bank but instead just delivers average retail banking at unjustifiably high fees. I have never encountered a Swiss resident person or company bank with CIM Banque, and the Swiss are known for having a keen eye for quality.
I recently covered banking secrecy on its own in a separate post titled just Banking Secrecy.
Banking secrecy in Switzerland goes back in one form or another to the Old Confederacy (you didn’t skip the History chapter, right?), with some of the country’s oldest banks tracing their roots back to the 1700s, prior to the French invasion. However, banking secrecy as we know it today was not formalized until 1934 with the legendary Bundesgesetz über die Banken und Sparkassen (Loi fédérale sur les banques et les caisses d’épargne), or Federal Act on Banks and Savings Banks.
This new law was enacted as a response to the increased volatility of Europe and for French government officials threatening to go after French tax evaders.
Contrary to many sensationalist headlines, the law remains to this day. It has however been amended and although there were always conditions under which information could be disclosed, these conditions have been expanded upon to allow for exchange of information. The OECD has concluded that Switzerland is legally able to exchange information but implementation needs to be improved.
Switzerland’s currency is the Swiss franc. But it also has a complementary currency system called WIR Franc which is controlled and operated by WIR Bank, which was formed in 1934 (licensed in 1936) by the businessmen Werner Zimmerman and Paul Enz.
WIR is short for Wirtschaftsring-Genossenschaft, which translates to something along the lines of economic cooperative. It is also the German word for we.
The WIR Franc is an intangible currency (always has been) and its value comes from assets pledged by members. Total value stands at around 4 billion CHF and the bank has 62,000 member. The currency was created to facilitate trade in the economic downturn of the 1930s and was for long exclusive to businesses, but WIR Bank nowadays allows accounts to be opened by private individuals. It has very little usage outside of B2B transactions.
Living in Switzerland
Quality of Life
Although expensive, the quality of life in Switzerland is among the highest in the world if not the highest. Infrastructure is top-tier in most aspects.
Mastering at least one of the local language is not necessary but you cannot expect to fully assimilate until you do.
It is very easy to get comfortable in Switzerland.
The personal taxation in Switzerland varies between cantons and municipalities, just like corporate tax. Again, the German-speaking part is lower taxed than the French-speaking part.
As with corporate taxation, personal tax rates vary significantly within the country with the upper extreme being around 40% and the lower extreme just under 19%.
Other forms of income may or may not be subject to tax. Although there is no federal wealth tax, cantons and communes may levy one.
It is always wise to investigate the tax situation in the relevant canton(s) and municipalities. For income tax, the website Comparis does a good job of giving indicative answers.
Income from foreign businesses and foreign immovable properties are exempt from taxation.
The federal government and some cantons permit what’s called lump sum tax whereby the person is taxed on their expenses instead of worldwide income. These type of individual arrangements are normally reserved for non-Swiss high-networth individuals (and usually ones with no professional engagements in Switzerland) whose lump sum tax would be so high that the canton is willing to forgo regular tax in favour of expense-based taxation.
Immigration and Relocation
For EU and EEA citizens with a job in Switzerland, all you need is to show up at your municipal office with your passport and your contract. If the job is for less than 12 months, you will be issued an L permit valid for at most 12 months. If it is an indefinite (permanent) job, you will be issued a B permit valid for five years. Sometimes, an L permit is issued but replaced with a B permit within a few months.
B permits are extended automatically every five years as long as you remain employed. However, if you are unemployed for 12 months, your next B permit may only be valid for one year.
A B permit can also be issued to those who can prove that they have sufficient financial means to sustain themselves. This can include both wealthy people and foreign entrepreneurs.
After you have lived in Switzerland for five years, you can apply for a C permit which is a settlement permit which many value greater than having a new B permit issued. Among other things, C permit holders are paid gross salaries whereas B permit holders have tax deducted at source. C permits are permanent work and residence permit, not tied to any canton or employer.
There is also a G permit which is granted to so-called frontaliers, people who live outside of Switzerland but work in Switzerland. This is very common in and around Geneva and Zürich.
Immigration and relocation to Switzerland is an easy process for EU and EEA national for the time being but a referendum in February 2014 may lead to restrictions in the near future. Under this people’s initiative, the free movement agreement with the EU is to be renegotiated within two years.
Non-EU/EEA citizens face a much stiffer challenge. While the procedure is much the same as above, getting the first permit is much more difficult. Jobs can only be given to to third country nationals (nationals who are neither Swiss, EU, nor EEA) if it is a highly specialised role which cannot be reasonably filled by a first or second national. Senior management positions and specialist professionals are the most likely to qualify.
The C permit takes ten years for third nationals but all ten years must be uninterrupted except for US and Canadian nationals who only need five uninterrupted years.
While it lacks ease of doing business and low taxation, Switzerland is nonetheless one of my favourite countries. Having spent considerable time in many countries and subnational territories, there is nothing that comes close to Switzerland. Hong Kong is similar to Singapore. Cayman Islands are similar to many other Caribbean islands and Bermuda. But nothing is similar to Switzerland.
- OECD Peer Review of Switzerland (also has a list of TIEA and DTA)
- Financial Secrecy Index Switzerland
- FATF document on Switzerland
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