Switzerland: Offshore Legal and Tax Regimes
The term 'offshore' is not used in Swiss legislation or in describing company forms. However, there are a number of specialised forms of the basic Stock Corporation which offer tax-privileged treatment equivalent to that obtainable in offshore jurisdictions.
The EU Savings Tax Directive has applied in Switzerland as from 1st July, 2005, through a separate agreement reached between the country and the EU, under which Switzerland is levying a withholding tax (initially at 15%) to returns on savings paid to the citizens of EU Member States, and which in various other ways is less onerous that the original Directive. The withholding tax increased to 20% on 1 July, 2008 and rose to 35% from 1 July, 2011.
Although bank interest and dividends are caught by the Directive, payments made by what are called 'residual agents' (including, for instance, trusts) are apparently excluded in the Swiss agreement, which is not the case in Member States. And of course the Directive applies only to individuals who receive payments; companies and other organisational forms do not fall under its aegis.
In May 2008, the Swiss government announced that gross revenues collected from interest payments under the European Savings Tax Directive increased substantially between 2006 and 2007.
The Federal Department of Finance revealed that tax withheld on interest payments in Switzerland on earnings liable to tax in the EU increased from CHF863.7 million for the year 2006 to CHF822.8 million for the tax year 2007, CHF820.3 million for the tax year 2008. Total withholding tax withheld in 2009 dropped to CHF670.8 million.
The agreement on the taxation of savings income with the European Community, in force since 1st July, 2005, makes provision for 75% of the proceeds to be passed on to the member states concerned. The remaining 25% is kept by the Swiss government, although 10% of this is passed on to the cantons.
The Swiss figures for 2010 show that, of the total tax of CHF432 million of the withholding tax revenues transferred to EU member states, the largest amounts were passed to Germany (CHF107.8 million), Italy (CHF57 million), France (CHF46.9 million) and Spain (CHF26.9 million).
For 2011, the amount withheld increased to CHF506.6 million and the largest amount (CHF143.8 million) was again passed to Germany, Italy (CHF81.7 million) remained in second place, France (CHF55.6 million) and Spain (CHF35.02 million) stayed in third and fourth place respectively.
For 2012, the amount withheld increased to CHF615.4 million and the largest amount (CHF122 million) was again passed to Germany, Italy (CHF65.8 million) remained in second place, France (CHF71.3 million) and Spain (CHF47.7 million) stayed in third and fourth place respectively.
In September 2008 Switzerland outlined new hedge fund tax proposals designed to improve its competitiveness on the world stage, promote itself as a premier location and attract thousands of jobs as a result.
The new tax proposals supported by the federal government aim to provide the vital tax incentives needed to strengthen the international competitiveness of the Swiss financial sector.
Reducing the tax burden for managers of hedge funds and other private equity companies from 40-50% to 15-20% overall will bring taxes roughly into line with competing centres such as London and New York.
Despite being the second-biggest hedge fund investor after the United States - some USD200bn of the estimated total of USD600bn invested in funds of hedge funds comes from Switzerland - only 40-50 hedge fund managers out of around 9,500 currently reside there.
Tax-related problems linked to performance fees and carried interest will be clarified and the Swiss banking watchdog EBK proposed to end the “Swiss finish” (see below) , a set of additional rules applying uniquely to Swiss and foreign investment funds. Given that the changes to the tax system need only be approved by the heads of Switzerland’s cantonal (state) tax departments and will not require new legislation they may therefore be implemented quickly.
In January 2009, the Swiss Federal Council decided to amend collective investment legislation to remove the so-called Swiss Finish. It did so by adapting article 31 of the Ordinance on Collective Investment Schemes (CISO) to bring Switzerland into line with the rest of the EU. The amendment entered into force on March 1, 2009.