Switzerland: Country and Foreign Investment
This page was last updated on 7 April 2021.
'The Most European Country' – but sui generis
There is nowhere quite like Switzerland. Despite calling itself 'the most European country', it has remained somewhat aloof from European concerns for centuries. In some of its regular referendums, Switzerland has persistently declined EU membership – most recently in 2001. However, two sets of 'bilateral agreements' with the EU are gradually bringing Switzerland into the EU in all but name.
In the third quarter of 2017, Switzerland had an annual GDP growth rate of 1.2% – growth has been steady but not overly impressive and there have been occasional dips. After two years of price decreases, inflation has become positive again and stood at 0.8% in November 2017.
Economy Dependent On Economic Tourism
The service sector contributes more than 70% of Switzerland's economy, much of which consists of financial services. There are 200,000 Swiss banking jobs, representing 5% of the whole Swiss workforce, and they are generally well paid. Switzerland is said to be the world's biggest centre of private banking, with more than a third of all private wealth based there. Swiss banking assets exceed 3 trillion Swiss francs. This has come about because of three main factors:
- Switzerland is neutral – not just for a day, but permanently – hence, non-neutral entities with money to put away choose Switzerland because, long-term, it has proven a safe haven – a testament to financial brand-value, if there ever was one;
- Switzerland has conducted ultra-conservative financial policies which have led to a consistent rise in the value of the Swiss franc over decades;
- Switzerland has statutory banking secrecy, which it has defended doggedly against the massed tax inspectors of the Western world, while also implementing adequate defences against money-laundering.
Switzerland's Low Tax Specialisations
Switzerland is not an offshore jurisdiction like the Cayman Islands or Jersey. It is nonetheless a low-tax jurisdiction, having a series of specialised corporate forms which can be used by international investors and multinational companies to reduce their tax bills to a significant extent. However, as a civil code jurisdiction, Switzerland tends to the bureaucratic, in that it is slow and expensive.
The regular economy in Switzerland is moderately taxed, but locals have access to the tax-privileged company forms as much as foreigners, provided they comply with the rules which broadly prevent any local business operations. As an OECD member and 'respectable' country, Switzerland has double tax treaties with more than 100 other countries.
The EU v. the Swiss
In the game of global tax harmonisation, Switzerland is a key player. Will bankers have to tell tax authorities about their clients? Will tax avoidance become a crime? Will the world's finance ministers gang up against the honey-pot countries?
No one knows the answers; but it is sure that Switzerland, as probably the richest and most successful of the havens that attract rich people on the run from tax inspectors, or just seeking good returns, will be the bellwether of the flock.
In matters other than taxation, Switzerland is slowly but surely moving towards the EU. Nevertheless, there are often cat-and-mouse exploits between the EU and Switzerland, which benefits in many ways from the bloc but is not always happy with the constraints it attempts to impose.
For example, during 2001 and 2002, and despite the events of September 11 in the US, the Swiss steadfastly refused to give in to EU pressure over disclosure of information on savings interest, thus threatening the EU's Savings Tax Directive with its plans for information exchange. In January 2003, however, Switzerland finally negotiated an acceptable withholding tax regime with the EU, allowing Finance Ministers to reach a heavily-fudged compromise Savings Tax Directive package. After last-minute haggling by Italy and Belgium, the Directive entered into force in July 2005.
A new front opened in the long-term war against Swiss banking secrecy in early 2009 when the G20 and the OECD placed Switzerland on the 'grey' list of jurisdictions which did not conform to required standards of transparency. Switzerland had in fact agreed to meet OECD standards of information disclosure, and is fighting back hard against this new affront to its treasured independence.
Within six months of inclusion on the 'grey' list, Switzerland signed twelve DTAs containing extended administrative assistance clauses. The country was subsequently removed from the 'grey' list and continues to sign amended DTAs with a host of countries. In September 2010 the Swiss government adopted a new Ordinance on Administrative Assistance, which governs the requirements and details on exchange of information rules relating to recently signed tax treaties.
Switzerland still insists that request for information from other countries will be dealt with on an individual basis and, if the request is based on stolen data, no assistance will be given.
Communications and telecommunications are what can be expected from a modern industrialized nation with one of the highest standards of living in the world. Switzerland has a dense road and rail network with multiple connections to all 5 bordering countries and with several national airports providing direct and connecting flights to all major international destinations. The two most important are Zurich and Geneva (Cointrin).