Doing Business Internationally: Switzerland

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Christy: Hello, everyone, and welcome to today's webinar, "Doing Business Internationally: Switzerland." My name is Christy DeMaio Ziegler, and I will be your moderator.

Please join me in welcoming our host, Helena Ledic, an associate general counsel for CSC in the Chicago office. Helena?

Helena: Thank you, Christy. I'm delighted to invite the audience to listen in today to "Doing Business Internationally with Switzerland." And our two speakers today, I'm so thrilled that they're able to speak with us. The first one is Jurgen Borgt, the Managing Director for CSC in Switzerland. And then our other speaker that we have joining us today is Emma Holthuizen, who is the Business Development Manager in Switzerland for CSC. Jurgen?

Jurgen: Hello, everyone. I'm so happy to be here to be able to tell you something about our country, Switzerland. I hope you'll find it interesting. And I'll hand over to Emma now.

Emma: Thank you, Jurgen. Hi, everybody. It's also a pleasure for me to be here and to, yeah, talk to you about Switzerland and how to do business here.

Helena: So let's talk about our agenda today for "Doing Business Internationally in Switzerland." First, we'll learn a little bit about CSC. We'll then go into why Switzerland. We'll learn about doing business in Switzerland, the different types of entities, and then we'll go into trade opportunities and taxation. And of course, we'll finish out with how CSC can help you.

For more than 120 years, CSC has been the partner of choice for companies around the globe, trusted to handle everything from incorporating a company through maintaining compliance, to corporate transaction work, protecting digital assets from the threats of the online world, and everything in between. We offer the solutions and technology that keep businesses running in the background, allowing clients to focus on the important work of growing their business.

Let's now talk about CSC's global footprint. We have offices and capabilities in more than 140 jurisdictions across Europe, the Americas, Asia-Pacific, and the Middle East. We're a global company capable of doing business wherever our clients are, and we accomplish that by employing local experts, such as Emma and Jurgen, in every business we serve.

Let's now talk a little bit about Switzerland. It's nestled between the Alps and the Jura mountains, and it has a population of close to nine million people. It has the second-highest GDP per capita. Seventy-four percent of that GDP is due to the service sector, and financial services accounts for 10% of the GDP with over 200,000 jobs. It ranks quite high and is a leader on the Index of Economic Freedom.

So let's learn a little bit now about the government of Switzerland. And so, Jurgen, why don't you tell the audience about why it's sometimes called the United States of Switzerland?

Jurgen: Well, it's simply because in many ways it works the same. It's a federation consisting of three levels. There is the federal government. There is the cantonal government. Also you would name that in the States a state. And then there are the cantons, i.e. cities, local communities. And if you look at the different levels and what the responsibilities are, then the federal government is responsible for foreign affairs and security policy. Whereas as you go further down, it gets closer to the people I would say. So cantons, the next level down, look at education, healthcare, local cultural affairs, and the police. Whereas the local communities, the communes look at local planning for construction, the schools, social welfare, and typically the fire services.

Helena: Let's learn a little bit more about business in Switzerland now. And Emma is going to get us started off with talking about talent, those human resources that are available in Switzerland. Emma?

Emma: Yeah, thank you. So as mentioned, the international talent pool in Switzerland is very important. There are a lot of well-known universities throughout Switzerland, which attract, of course, foreign talent but also domestic talent. And some universities we have are in Zürich, which is called ETH. It's very much focused on innovation and on tech. The University of St. Gallen is also very well known for its legal studies, and the University of Lausanne. Three examples of universities that are very well known.

What is also very important is that Switzerland is located very centrally. So we attract not only talent for universities but also cross-border. People from Austria, Italy, France, Germany coming to work in Switzerland, and not only those countries close by, but also people from the UK or from the Netherlands who are coming to Switzerland. And that's not only because of the fact that the education, but it's also a very well country to live in, the highest living standards, and that also attracts talent, of course. And people want to stay in this country.

So if you want to expand your company from America to Switzerland, you have a pool of domestic talent, but also outside of Switzerland. And that just makes it a very interesting country to develop your company further.

Another thing that's very important in Switzerland is the top-notch science hub. For the past 12 years, Switzerland has been ranked as the most innovative country in the world according to the World Intellectual Property Organization. With internationally recognized research centers, strong technology know-how, and a qualified and productive workforce, it's not surprising that Switzerland is consistently ranked as one of the world's most innovative countries.

A good example of this is the global hub for development of blockchain technology, which is mainly based in Zug, but also the Basel region is well known for its pharma companies. So we see also companies from the U.S., pharma companies coming to Switzerland to set up their shop or their hub in Basel, making use of all those technology and innovations that is currently present in Switzerland. And of course, that also involves R&D. There's a lot of involvement of the universities on those R&D projects, but also from the government. So you could say that, yeah, Switzerland is a very innovative country with talent, with tech, with innovation, and that is one of the reasons why, yeah, companies and also people want to be in Switzerland, they want to start their businesses here.

And of course, that's not the only thing. So Jurgen, maybe could you tell something about why is Switzerland so attractive to the foreign investors and yeah, of course, the stability of this country, which is also very important?

Jurgen: Thank you. Thank you, Emma. I'd like to start with it might be an obvious statement, but one shouldn't forget that Switzerland is actually a small economy, certainly if you compare it to some of the bigger players on the European continent. So Swiss businesses don't really look at Switzerland as their market, but they look at the continent, the world as their market.

There's also a focus on a, yeah, I think I can say small number of sectors, and we try to do it well. We try to focus on high end. So just looking at the bullet points here, if I may, for example, chemicals and plastics, pharma, biotech, not to forget that, and finance.

And then another interesting one that I learned recently is that multinationals also tend to think of Switzerland as the tryout for the rest of the European continent. There was one by now major American corporation that decided to try out their business in Switzerland. Then if it worked out well, they would expand it all over the continent. And you know what? That worked, and they now are all over the continent.

Another interesting one that comes up in a lot of articles is that Luxembourg and the Netherlands are the biggest investors into Switzerland. I'd hate to say it for those two countries, but that is for tax reasons. If you look behind, you'll very often see particularly American multinationals. So the Netherlands and Luxembourg are possibly some of the smallest countries in Europe. They are not the actual biggest investors into Switzerland.

Safety and stability, yeah, that's what Switzerland is really known for I guess. Its currency is seen as a sort of a safe haven currency. If things go wrong in the world, people tend to flock to Switzerland. The political system is such that it's, dare I say it, a little bit slow. It seeks for consensus. That takes time. That means things don't move very quickly, but when they do, there is general consensus and it works well. Low capital cost and, yeah, everyone that's ever been to Switzerland will know that the locals have a strong purchasing power. You only need to buy a cup of coffee to know that that is absolutely needed.

Helena: So Jurgen, on this slide we have Switzerland in the center of Europe. Why don't you tell us a little bit more about that in the context of trade opportunities with Switzerland?

Jurgen: Yeah, this might seem an obvious statement, Switzerland in the center of Europe. Yes, it is. But that doesn't equate to the European Union, which covers most of the continent. Just to be absolutely clear, Switzerland is not a member of the European Union, and it looks very much like it is going to stay that way.

Historically, there have been very, very strong links between the Union and between Switzerland. There has been an overriding agreement that regulated the trade relationships, the movement of people. However, a couple of years ago, when that came up for renewal, there was a referendum and the decision by the people was that they didn't want to extend. So the government had a slight issue I would say. This clearly wasn't liked very much by the European Union, but things were as they were. And the consequence now is that a number of treaties need to be renegotiated, but on a, for want of a better word, per topic basis, which doesn't make it very easy I would say. It's been quite a difficult process. Although I learned very recently, through the grapevine, that there might actually be some movement on this. So who knows. We'll be able to come to a conclusion on this.

One other thing that I want to point out here. That is the free movement of people, the so-called Schengen arrangement. A small village in Luxembourg if I'm not mistaken, that's what it's named after. What that basically means is that anyone with a European nationality, i.e., anyone that bears the passport of a member country of the European Union and that country is also a member of the separate Schengen arrangement, then those persons can travel freely into Switzerland, and they can also travel back again freely into the Union.

That also has its impact on the labor market because anyone that has an EU passport is allowed to reside in Switzerland provided they have a job. So that makes it a lot easier. I mean, that's also important factor for any company wanting to establish a business in Switzerland. That enables you to find staff, for example, in the surrounding countries, Germany, France, Italy, and beyond them.

Helena: Now that we've learned a little bit about the political and tax climate and economic climate in Switzerland, let's now have Emma take us through the different entity types that foreign investors might set up. So she's going to walk us through that. Emma?

Emma: Yeah, thank you. So in Switzerland there are several entity types as you also can see on the slide, and it's very much depending on what the investment is in Switzerland. What are you wanting to do in Switzerland? Do you want to set up a company for operational business? Are you a private equity firm who wants to invest in a target in Switzerland? All of those questions have influence on the type of entity you will set up.

So what we see very often with companies expanding into Switzerland and they want to set up a rep office purely for sales, then we often see clients choosing for setting up a branch, which it's easier to set up a branch, and especially if you don't have people on the ground, it can be a good option.

What we also see is setting up of special purpose vehicles. We most likely see this when private equity is investing in a target in Switzerland, they need the special purpose vehicle. As the name is already saying, it's for a special purpose, and that is doing a transaction that is investing in real estate or in a company. And then we make use of the SPV.

The other two types of companies we see very often and who are the most common, so to say, are the limited liability company or the limited company. Yeah, the big difference between those two companies is that the limited company has more flexibility than the limited liability company. And also another thing that is important and why people or companies choose for the limited liability company is the fact that you don't have to declare the shareholders, so there's a certain anonymity, which is different from the limited liability company, where you can see in the Swiss Trade Register who are the shareholders.

So overall, yeah, there are four types of companies we see, and it's very much depending on, yeah, the goal and the purpose. Not a big difference. And if you incorporate a company, whether that is the limited liability company, the SPV, is that a company in Switzerland is incorporated via a notary. So you need an external notary to incorporate the company. And that is something we assist with. Without a notary, you can't incorporate a company.

And what is, besides the notary, a specific important topic is that when you incorporate your company, you need to have a local Swiss resident director. And that is also something we see very often why companies, lawyers, private equity reach out to us. They want to set up a company and they need a local Swiss resident director because nobody is present in the country or they don't have employees who could take on that role, and that's where we come in.

Another important part is, of course, the share capital. It needs to be deposited at a bank in Switzerland, and it can be any bank of choice.

So yeah, those are the entity types we see very often here in Switzerland.

Helena: As we've learned in this series, the tax issue is, of course, very, very important for our listeners. And Jurgen earlier referenced the issue of taxes with Switzerland. Why don't you take us a little bit deeper into this right now, Jurgen?

Jurgen: Well, I'd like to start by the statement that in Switzerland taxation is a three-step rocket. It's at the federal level, the cantonal level, and the communal or local level. Every level has its own types of taxation.

If we look at corporate tax, for example, the rate at the federal level is 8.5%. If you then start looking at the cantonal level, you get to 12% in central Switzerland. What's meant with central is, for example, a canton like Lucerne or Zug or other cantons in that region. When we go to the higher side of the scale, Zürich and Bern, we're talking about 21%. And then to top it off, you also have communal taxes, and they, again, vary from commune to commune.

So choosing where you set up shop can be very important. If I look at our practice and the types of clients that we have, typically holding companies, for example, are located in Zug. Why? Because they have a favorable rate in Zug. U.S. clients that have actual operations in Switzerland very often look at Lucerne. If you're in the finance business, in a wider finance business, Zürich is very often mentioned. And if, for example, you have any particular reason like you want to make use of a French-speaking employee pool, then you would go to one of the cantons in the West, like Geneva or Lausanne.

So yeah, it wholly depends on what your business is, what you're looking for, and what your needs are. And that's purely local.

When it then comes to the international element, withholding tax is an important factor. Participation exemptions are an important factor. Luckily, Switzerland has a very, very big double taxation treaty network. So in most cases, if not all, that we see, dividends received into the Swiss company fall under the participation exemption. If a Swiss company were to issue a dividend, it very often falls under such a treaty as well. And some of you will remember that I earlier mentioned the countries of the Netherlands and Luxembourg. The predominant exit routes or entry routes, depending on the way you look at it, Switzerland out into the Netherlands or Luxembourg in principle falls under the EU-Parent Subsidiary Directive, i.e., there shouldn't be any withholding tax, and in those countries of where the dividend is received, there should be only application of a participation exemption.

So for tax reasons Switzerland is certainly a very good location to be in, in my opinion.

Helena: Now that we've learned from Emma and Jurgen about the different types of entities that are most common in Switzerland, learning about things such as trade opportunities and the very important tax issues, let's now talk about how CSC can help you. So Jurgen, why don't you walk us through now the different types of services that CSC offers in Switzerland?

Jurgen: We try to be a one-stop shop I would say. Basically, we can do almost everything that a client would need to manage their company in Switzerland.

Just starting with entity formation, we can assist with the process of getting the company established with the opening of a required bank account. As Emma mentioned, you need to have a bank account in a Swiss bank. That might sound straightforward, but in actual fact it isn't. We can take care of the communication with a notary who will establish the incorporation deed. So we can help you out with all of that.

Now when we start talking about post-incorporation and how that management works, we can, for example, take care of providing a director. What we very often see is that clients want to sell their product or their service, and they have people on the ground that are good at that, but they're not necessarily very good at the legal and administrative aspects, and that's where we come in. We take care of that. So we provide a director or an authorized signatory, whatever that might be.

We provide bookkeeping services. We can prepare your financial statements. If needed, we can coordinate the audit for you. And just for clarity's sake, we do not offer audit services because you have to be a registered auditor for that, and we're not. But we can handle the audit for you. We can take care of all corporate secretarial matters, board minutes, resolutions, shareholders meetings, powers of attorney, proxies, what have you. We can take care of payroll services, so basically make sure that your employees on the ground get paid correctly and timely briefing and anything to run your company.

Tax, we can take care of withholding tax filings, corporate income tax. We can do your quarterly VAT filings. We can have a look at your tax status. There's just one proviso that I want to make is that we do not offer legal or tax advisory services. Obviously, we have qualified people here. We have lawyers. We have accountants. We have tax accountants. We have payroll specialists. So if you combine everyone's experience, there is a very large number of years. We know a lot. We see a lot. We hear a lot. We read a lot. So we can probably guide you in the right direction, but we cannot provide you with formal advice.

Helena: Let's talk a little bit now about CSC's global coverage. We have a distinct advantage when it comes to serving our clients where they are. We have regional hubs around the globe, with in-country experts, such as Jurgen and Emma, who understand the ins and outs of the various jurisdictions. You will work with a dedicated service team in your time zone, fulfilling all your service needs. In all, our team is wherever you need us to be.

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