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Offshore Company Formation:
switzerland company formation
Index Offshore Company Formation
Switzerland has double taxation agreements = DTA with most other
countries. Freedom of establishment in the European Union is not
applicable. For approval of the permanent establishment according to
tax laws, a commercially equipped business operation must be installed
in Switzerland, and active business must be transacted in Switzerland.
In addition, it is possible to install a branch of a European company.
Such a branch will be treated like a Swiss GmbH without the obligation
to pay CHF 20,000 capital stock. This legal form is taxed with only
8.5% in the tax law domicile privilege.
The following services are included in our complete
Forming of the company, entry in the commercial
register of the country, apostille, notarially certified translations
of certificates into English, unless official language
Nominee director: An attorney in the formation country will act as
nominee director of the company (to the outside) and transfers all
rights and obligations internally to the actual beneficiary (notarial
deed of trust). The director does not have any account authority.
Nominee shareholder: a tax office in the formation country will act
as nominee shareholder (to the outside) of the company and transfers
all rights and obligations internally to the actual beneficiary (notarial
deed of trust).
Domicile of the company in the formation country: deliverable postal
address, availability by telephone, telephone and fax, mail
Account opening: bank account for the company at a renowned major
bank in the formation country, internet banking, VisaCard and
cheques. Only the founder of the company is authorized to have
access to the account.
General power of attorney to the founder: Only the founder receives
a notarially certified general power of attorney for the company.
Recommendation of a renowned tax office in the formation country,
for book-keeping and accounting
Internet-homepage of the company hosted on a server in the formation
country: 5 pages for presentation of services/products, feedback
form, imprint, e-mail address. May be extended at any time.
Branch office of an EU company or US INC in Switzerland
Entry in the commercial register of the country,
apostille, notary and local court
Nominee branch manager:
A person with fiscal residence in Switzerland will act as a branch
manager to the outside. In the event of domiciled companies: permanent
General power of attorney to the beneficiary / client
Opening of a business account in Switzerland
incl. credit and EC card, online banking
LCT service package:
40-page handout “Management Support for Your Company Abroad“ including
contract and invoice specimen, important notes and reference.
Recommendation a Swiss tax consultant
Sales tax identification number for Switzerland
Extra service liable to charges > real domicile of the company in Zug,
Proper telephone number, incoming calls are personally taken with the
company’s name, fax, signboard, mail forwarding service, temporary
lease of office or conference rooms (against extra charge) or
different procedure (see below**)
is a 'code' country, and business entities are governed by the Civil
Code. As in all civil law jurisdictions, formation and administration
of companies tends to be considerably more bureaucratic than in common
law jurisdictions. Although the Civil Code is at Federal Level,
businesses are domiciled in a particular canton. Each canton maintains
a Commercial Register (Registre de Commerce), and the mandatory
entries in the Register of subscribers, directors, capital structure
etc have strict legal force. The Register is a public document.
forms of business entity with legal personality are the Stock
Corporation and its variants (dealt with below), the Limited Liability
Company (Societe a Responsabilite Limite), and the Limited Partnership
(Societe en Commandite). These last two are not much used by foreign
investors. General Partnerships (Societe en Nom Collectif) and Sole
Proprietorships (Raison de Commerce) are also possible.
The Stock Corporation
Stock Corporation ("Societe Anonyme" or "Aktiengesellschaft") is the
form almost universally used by foreign investors and has the
The minimum number of subscribers is 3;
Nominee shareholders and nominee subscribers are permitted;
The minimum authorized share capital is 100,000 Swiss Francs of
which either 20% or 50,000 Swiss Francs (whichever is the greater)
must be paid up by way of a deposit of funds in a bank account; the
bank will not relinquish control over these funds until the company
registration certificate has been issued;
Share capital cannot be increased by more than 50% of the authorized
capital at any one time;
Shares can be ordinary shares, preference shares, voting shares or
non voting shares and can be issued at a premium; bearer shares are
majority of directors must be Swiss nationals and must be domiciled
in the country;
All directors must be shareholders whether they are the beneficial
owners of those shares or hold as nominees (the holding of one share
as a nominee is sufficient to meet this requirement);
The company must have an auditor and a registered office;
person whose name appears in the articles of association signs on
behalf of the company.
company must have an auditor, and accounts must be filed each year
with the Companies Registration Office. Small companies can prepare
abbreviated accounts which do not have to include the level of
The Holding Company
'Holding' Company is a Stock Corporation with a particular tax status
(see Offshore Legal and Tax Regimes). Holding companies benefit from
reductions in corporate income tax and capital gains at federal and
cantonal levels, and from a reduction in net worth tax at cantonal
Swiss holding company was a particular target of the OECD's 'unfair
tax competition' initiative, and in 2004 an agreement was reached
between Switzerland and the OECD whereby information about holding
companies would be shared by Switzerland in circumstances where there
was prima facie evidence of fraud.
federal tax purposes a company is defined as a holding company if it
holds either a minimum of 20% of the share capital of another
corporate entity or if the value of its shareholding in the other
corporate entity has a market value of at least 2m Swiss Francs (known
as a "participating shareholding"). The reduction in the level of
corporate income payable tax depends on the ratio of earnings from "participating
shareholding" to total profit generated.
Although the definition of a holding company varies among cantons,
broadly speaking a corporate entity is a holding company for cantonal
corporate income tax purposes so long as it either:
derives 51%-66% of its income from dividends remitted by the
holds 51%-66% of the subsidiary's shares.
The Domiciliary Company
Domiciliary Companies are Stock Corporations that are both
foreign-controlled and managed from abroad, have a registered office
in Switzerland (i.e. at a lawyer's premises) but have neither a
physical presence nor staff in Switzerland. They must carry out most
if not all of their business abroad and receive only foreign source
income . The use of domiciliary companies can result in savings in
corporate income tax levied on income and capital gains and net worth
tax. See Offshore Legal and Tax Regimes.
The Auxiliary Company
An Auxiliary Company is essentially a Domiciliary Company which in
addition may carry out a certain proportion of its business in
Switzerland. Auxiliary Companies are possible in only seven cantons,
and do not benefit at federal level. Treatment varies according to
canton, but in most cases an auxiliary company may have Swiss offices
and staff and be in receipt of Swiss income (which is taxed at normal
rates). Most income though must be from a foreign source. See Offshore
Legal and Tax Regimes.
The Service Company
Service Companies are Stock Corporations whose sole activity is the
provision of technical, management, marketing, publicity, financial
and administrative assistance to foreign companies which are part of a
group of which the service company is a member. Service companies may
not in general derive income from third parties (i.e. companies
outside their corporate group). Service company status is obtained by
way of an advance cantonal tax ruling (there is no benefit at federal
level). See Offshore Legal and Tax Regimes.
The Mixed Company
Mixed Companies are Stock Corporations which have the characteristics
of both domiciliary companies and holding companies but which do not
qualify as either. There is no benefit at federal level, but at
cantonal and municipal level there are corporate income tax benefits
if the mixed company meets the following conditions:
the company is foreign controlled;
minimum of 80% of its total income comes from foreign sources;
the company has close relationships to foreign entities.
See Offshore Legal and Tax Regimes.
Branch offices, whether of foreign companies, or of Swiss companies in
other cantons, must be registered in the Commercial Registry of the
canton in which they are located. The branch must have a nominated,
Branches need not publish their annual financial statements, but
branches of foreign corporations constitute 'permanent establishments'
from a tax point of view, and will therefore be taxed on local source
income both at federal and at cantonal level as if they were resident
corporations. There is no withholding tax on transfers of branch
profits to its foreign parent.
Due to the
federal structure of Switzerland there is no centralized tax system,
with some taxes being levied exclusively by federal authorities
whereas other taxes are concurrently levied at cantonal, communal and
federal levels. Although the rate of tax levied at a federal level is
consistent, that levied at a cantonal level varies from canton to
canton. (There is currently legislation in the pipeline that aims to
terminate this variation, and to reorganise the division of
responsibilities and of revenues between the federal and cantonal
administrations, but the timescale of change is not yet settled).
Because significant differences presently exist in the rates of taxes
levied at cantonal level the choice of canton is an important element
in all tax planning.
the EU put a warning shot across the bows of the cantons by
threatening the tax regime in Zug, one of the more attractive cantons
to foreign companies.
In a letter sent to the Swiss Mission in Brussels in October, the EU
congratulated Switzerland on its decision to extend the free labour
accord with the European Union. However, the letter also went on to
point out that certain parts of the Swiss corporate tax regime "may be
incompatible" with Switzerland's obligations under the agreement.
"The legislation in question, that is enforced in Zug and [canton]
Schwyz, is said to grant fiscal advantage to undertakings for...
economic activities taking place outside Switzerland," the letter
Zug denied that its corporate tax regime breaches a 1972 Free Trade
Agreement between Switzerland and the European Union. Guido Jud, head
of corporate tax in canton Zug, said that he was "surprised" by the
"The rules on taxation in Switzerland have not changed recently so we
do not see why, in 2005, there should be suddenly be a problem," he
Currently, the tax rate for companies in Zug ranges from 14% to 17%.
The federal government has played down the affair, saying the letter
was merely a request for information rather than a formal complaint
against the tax regime.
international and OECD standards Swiss tax rates are relatively low.
Scope of Corporate
corporate income tax purposes a company is deemed resident in
Switzerland if it is either incorporated in Switzerland or effectively
managed from there. Thus a UK-registered company whose effective seat
of management is in Switzerland is a Swiss resident company for
corporate income tax purposes.
General Assessment Rule is that resident companies are assessed on
their worldwide income except for profits generated by enterprises,
permanent establishments and real estate situated abroad, whereas
non-resident companies are only assessed on profit generated by
enterprises, real estate and permanent establishments situated in
Switzerland as well as interest on loans secured on Swiss real estate.
income tax is levied at a federal, cantonal and communal level. The
level of corporate income tax payable varies amongst the cantons but
at present Zug and Fribourg are considered the best cantons in which
to locate trading and holding companies respectively.
income tax payable to the federal authorities may be tax deductible
for the purposes of an assessment to cantonal corporate income tax and
tax rulings on the level of corporate income tax payable are available
and are advised as a matter of prudence.
speaking capital gains are taxed as corporate income at federal,
cantonal and municipal levels.
branch of a foreign company pays the same rates of corporate income
tax on profits, income and capital gains as would be paid by a
Swiss-resident corporate entity. Profits remitted abroad by the branch
are not subject to any tax in Switzerland.
Corporate Income Tax
income tax is levied at federal, cantonal and municipal levels.
federal tax rate is 3.63% of taxable profits with an additional
percentage based on a formula which relates trading profits to net
worth (i.e. capital and reserves). The maximum rate of 9.8% is arrived
at if profits exceed 23.15% of net worth.
tax rates vary between 17% and 35% and like the federal tax are
progressive, using a scale based on the relationship of profits to net
tax on corporate income is calculated as a small proportion of
Calculation of Taxable Base
substantial differences between the federal government and cantons,
and between individual cantons, in the calculation of taxable income.
The following list of broadly applicable rules must be checked in any
- GAAP principles
apply to most aspects of the tax computation;
- Group or consortium
relief does not exist in Switzerland;
- Losses can be
carried forwards for between 4 and 7 years, but not backwards;
- There is no
controlled foreign company tax legislation of the type which exists
in both the UK and the USA;
- Capital gains made
by a non-resident parent company on the sale of its shareholding in
a Swiss subsidiary are not taxable in Switzerland (unless the Swiss
subsidiary owns real estate in Switzerland);
- The payment of loan
interest by a resident or non-resident subsidiary to a Swiss parent
company is free of any corporate income tax in Switzerland;
- Provisions for
future employee retirement liabilities are tax deductible;
- Income or capital
gains accruing to a resident or non-resident company on the rental
or sale of Swiss real estate (including the sale of shares in a
company which owns real estate in Switzerland) are subject to
corporate income tax at both federal and cantonal levels;
- Income and capital
gains from foreign immovable property are exempt from corporate
- The profits of the
foreign branches of a Swiss company are exempt from corporate income
tax in Switzerland as are any capital gains made on a sale of a
- The losses of the
foreign branch of a resident company can be set off against the
profits of the resident Swiss company.
- Where there is no
double taxation treaty in place withholding taxes deducted in a
foreign jurisdiction on remittances paid to a Swiss entity give rise
to a tax credit in Switzerland. See Double Taxation Treaties.
The federation has the
exclusive right to levy this tax. The rates are as follows:
- 1% on the issue of
shares where the value of the shares is over SFr 250,000 including
cases in which shares are issued at a premium. A loan made by a
shareholder to the company without any consideration is also subject
to this tax. The tax is also payable on the nominal value of shares
where a majority shareholding is transferred as a consequence of a
liquidation irrespective of the fact that the shares have virtually
no market value in the circumstances. The issue tax is not payable
by the Swiss branch of a foreign company.
- A rate of 0.15% on
the transfer value of shares in Swiss resident companies and 0.3% on
the transfer value of shares in non-resident companies where the
transfer is effected by "security dealers" which definition includes
banks, stock brokers, investment fund managers and other financial
institutions. The definition of security dealers is quite wide and
includes any company which owns securities with a value in excess of
10m Swiss francs and all intermediaries. The tax is split between
the buyer and the seller and is automatically deducted by the dealer.
- A rate of 0.12% per
annum on the value of bonds issued meaning that a 5-year bond pays
0.6% stamp duty.
- A rate of 0.06% per
annum on bank-issued medium term bonds and on the issue of financial
paper meaning that a 5-year bond pays 0.3% stamp duty.
- A rate of 5% on an
insurance premium or 2.5% in the case of a life insurance premium
paid in one contribution.
Filing Requirements and Payment of Tax
federal tax purposes the tax year is the company financial year
whereas for cantonal and communal tax purposes the tax year is the
calendar year. Although the cantonal basis of assessment differs
amongst cantons (i.e. it is occasionally annual) assessment is
generally on a bi-annual basis meaning that it is based on the average
profits of the previous 2 calendar years so that, for instance, the
corporate income tax payable to the canton for the period 1st January
2003 to 31st December 2004 is the average of profits for the like
periods in 2001 and 2002.
Net Worth Tax
is levied by both the federal authorities and cantons. The tax is
based on the value of a corporate entity's assets, normally equal to
shareholders' equity (paid-in capital, legal reserves, and other
retained earnings, public or otherwise). The rates are:
- A rate of 0.8% of
the company's net worth is levied by the federal authorities
- A rate of between
0.3% to 1% of the company's net worth is levied by the cantons
annually, depending on the canton.
Foreign branches based
in Switzerland are only assessed on the value of their Swiss assets
for the purposes of this tax. Resident companies are not assessed on
the value of any foreign-based real estate assets.
federation has the exclusive right to levy withholding tax. The
general rule is that withholding taxes are deducted at source from
distributions made by Swiss entities. The rate is 15% on pension fund
benefits, 8% on insurance benefits and 35% for "investment income",
which includes corporate dividends and interest from bank accounts,
bonds & debt instruments.
July, 2005, the EU's Savings Tax Directive applies in Switzerland, and
a withholding tax of 15% is being applied to the returns on savings of
citizens of EU member states.
withholding tax is levied on royalties paid to foreign beneficiaries.
repatriated abroad by the Swiss branch of a foreign company do not
attract withholding taxes irrespective of any double taxation treaty.
Switzerland has double taxation treaties with about 50 other countries,
and these determine the rates of withholding tax in most cases, rather
than the general rules above.
Switzerland has Double Taxation Treaties with more than 50 other
countries. The general effect of the treaties for non-residents from
treaty countries is that they can obtain a partial or total refund
of tax withheld by the Swiss paying agent. Although the full amount
of withholding tax is deducted at source the difference can be
re-claimed by the non resident from the Swiss tax authorities. Where
there is no double taxation treaty in place withholding taxes
deducted in the foreign jurisdiction on remittances paid to a Swiss
entity give rise to a tax credit in Switzerland.
withholding tax is levied on royalties paid to foreign beneficiaries.
Profits repatriated abroad by the Swiss branch of a foreign company
do not attract withholding taxes irrespective of any double taxation
abuse: A repayment of withholding taxes under the terms of a treaty
will be denied where there has been "abuse". Abuse occurs when a
foreign-controlled legal entity which is resident in Switzerland
fails one of the 4 following tests:
- The entity must
have a reasonable debt/equity ratio (generally the total of all
interest-bearing loans should not exceed 6 times the company's
- The entity must
not pay excessive interest rates on debt (for the purposes of this
test the accepted rate varies from time to time);
- The entity must
not pay more than 50% of its income as management fees, interest
or royalties to non residents;
- The entity must
distribute at least 25% of the income which could be distributed
Where any one of the 4
tests are failed the portion of withholding tax deducted and which
is deemed refundable under the terms of the treaty is not refunded.
provisions do not apply to dividends, interest or royalties paid by
a Swiss entity to a German, Italian, French or Belgian entity if the
Swiss entity is wholly or partly exempt from cantonal tax under the
tax incentives applicable to specific types of company (i.e.
domiciliary, holding, auxiliary, mixed and service companies). See
Legal and Tax Regime.
In October, 2004, Swiss President Joseph Deiss agreed with Japanese
Finance Minister, Sadakazu Tanigaki, that informal talks would soon
begin on the updating of the thirty-year-old double taxation
avoidance agreement between the two nations.
following are some of the countries which have double-tax treaties
- CIS (ex-USSR)
- Federal Rep.
- New Zealand
- South Africa
- South Korea
- Sri Lanka
- Trinidad &
- United Kingdom
- United States
from the governments of Switzerland and Pakistan met in Islamabad to
put their names to a new comprehensive agreement for the avoidance
of double taxation.
The agreement, signed on behalf of Switzerland by Denis Feldmyer,
Ambassador to Pakistan, and on behalf of Pakistan by Abdullah Yusuf,
Chairman of the Central Board of Revenue, will encompass income from
shipping, immovable property, interest, royalties and fees for
capital gains and technical services.
Under the arrangement, business income will be taxable at the place
of permanent establishment and Swiss firms will be given a tax
credit in Switzerland on income earned in Pakistan.
The new agreement, initially concluded in 2002, updates the much
older previous double tax avoidance agreement which dates back to
Table of Treaty Rates
shown are those of withholding taxes applied to payments made by Swiss
entities or persons to non-resident entities or persons; a zero rate
applies to royalties. Although Switzerland recognises the member
states of the CIS as successor states to the USSR, and therefore
applies its USSR Double Tax Treaty to them, they are not included in
the table because the USSR treaty does not contain concessionary rates
of withholding tax for dividends or interest.
10/15 (Note 1)
5/15 (Note 1)
5/15 (Note 1)
5/10 (Note 2)
5 (Note 3)
10/30 (Note 4)
5/15 (Note 1)
10/15 (Note 1)
nil/10 (Note 1)
10/15 (Note 1)
nil/15 (Note 1)
5/15 (Note 1)
nil/15 (Note 1)
15/35 (Note 5)
15/35 (Note 6)
10/15 (Note 1)
10/15 (Note 1)
10/15 (Note 1)
10/15 (Note 1)
nil/15 (Note 7)
Trinidad & Tobago
10?20 (Note 8)
5/15 (Note 1)
5/15 (Note 1)
The higher rate applies if the payment is received by a company
holding directly less than 25% of the capital of the Swiss paying
the recipient is a company
20% is refunded (making the effective rate 15%) if non residents
of France have substantial interests in the recipient company, if
the recipient company controls at least 20% of the Swiss company
and if the shares of either company are neither quoted at a stock
exchange nor traded over the counter
30% rate applies to dividends from jouissance rights,
participating loans and silent participations. Withholding tax
shall not exceed the tax chargeable on the profits out of which
the dividends are paid.
lower rate applies if the recipient is a company which owns at
least one third of the voting stock in the Swiss company
recipient is an individual no refund of the Swiss 35% withholding
tax is granted
zero rate applies where the payer is a corporate shareholder which
has a participation of at least 25% for a continuous period of at
least 2 years immediately preceding the distribution. 5% applies
where the participation requirement is satisfied but not for the
requisite period and 15% is the rate for smaller holdings.
lower rate applies if the recipient is a company which controls
directly or indirectly at least 10% of the voting power in the
Swiss paying corporation
BACK TO TOP
Switzerland has passed its own mutual assistance law, and is also a
party to a number of international mutual assistance treaties, some
multilateral and some bilateral, including the following:
- The European
Convention on Mutual Assistance in Criminal Matters, 1959;
- Treaty on Mutual
Assistance in Criminal Matters with the USA, 1973;
- The Federal Act on
International Mutual Assistance in Criminal Matters, 1983, as
amended in 1997;
- The European
Convention on Laundering, Search, Seizure and Confiscation of the
Proceeds of Crime, 1993.
The Federal Act,
particularly since the 1997 amendments, enables the transmission
of documents and information abroad for the purposes of criminal
proceedings. From the point of view of banking secrecy the
following can be said about the current situation:
According to a
recent decision of the Federal Supreme Court the transmission
of such information requires the permission of the Swiss
police authorities who must inform the customer about the
order and give him a right to appeal;
It is not
permitted to forward information on persons who are not the
subject matter of the investigation;
not be given if
authorities might use the information for purposes other
than those for which it was requested;
alleged is not equally punishable in Switzerland;
state does not offer Switzerland reciprocal treatment in
The offence is
related to tax, politics or military matters.
The Swiss authorities
now grant administrative assistance as well as judicial assistance.
Administrative assistance is regulator to regulator contact as
opposed to judicial assistance which takes place between judicial
authorities within the scope of civil or criminal legal
In March, 2003, the Swiss government announced that it had
ratified a legal co-operation agreement with Italy. Although the
accord had been agreed four years before, legislation introduced
by the Berlusconi government giving Italy the right to dismiss the
findings of investigations carried out in other countries, meant
that the Swiss authorities were reluctant to ratify the agreement.
However, according to a government statemen, a series of recent
rulings in Italy's High Court had clarified the situation and
allowed the two parties to resolve their differences over legal
The Swiss Federal
Banking Commission which regulates banks, mutual funds, stock
exchanges and security dealers
is the regulator charged with rendering administrative assistance.
A number of conditions attach to the granting of administrative
assistance by the Swiss Federal Banking Commission namely:
The foreign authority must be recognized by the Commission as a
supervisory authority authorized to request administrative
The foreign authority may only use the information for the
purposes of direct supervision of the institution concerned;
The foreign authority must be bound by official or professional
The foreign body can only re-transmit the information under very
restrictive circumstances. This is called the principle of
specificity and means that information that was given for the
purposes of a criminal offence such as drug dealing cannot be
used in proceedings for tax evasion. In practice the foreign
authority must confirm that it will not so transmit the
information unless required to do so by a competent court
against whose decision it will appeal. Since the grant of
assistance by the commission is discretionary if specificity
cannot or was not guaranteed future assistance may be denied
though in practice the commission is always eager to be seeing
to play its part;
If the information requested gives the name of a client he must
be notitfied and given time to contest the decision;
There is a right of appeal to the Federal Supreme Court.
Banking secrecy in Switzerland is evidently under threat from the
international crusade currently being waged, overtly against
money-laundering, but with a sub-agenda of fiscal harmonisation
and information exchange. Switzerland is holding fast so far
against the tide, but may have to give way in the future to a
certain amount of information exchange. Along with Luzembourg,
Switzerland refused to sign the OECD's declaration in late 1999
against 'unfair tax competition'. It did sign the unanimous OECD
declaration in April 2000 on information exchange and banking
secrecy, but stated immediately afterwards that in its opinion it
already conformed to the necessary standards.
However, the task of enforcing regulation in the non-banking
sector initially proved to be an uphill struggle for the new Money
Laundering Control Authority. According to the Swiss Money
Laundering Reporting Office's latest annual report, of the 311
reports of suspicious transactions in 2001, only 75 came from the
country's 7,000 non-bank financial intermediaries. Of those 75,
very few have resulted in prosecution, according to Swiss
officials. Then in 2002 the number of suspected cases of money
laundering rose sharply, with 652 cases being referred to the
Money Laundering Reporting Office - an increase of 56 per cent
over the previous year. The ministry said more rigorous control
and reporting practices among Switzerland's non-banking sector
were the main reason for the increase. The total amount of money
suspected of having been laundered fell from SFr2.7 billion ($2
billion) in 2001 to SFr667 million in 2002. Since 1998, only one
per cent of reported cases have led to a conviction.
In addition to dealing with the passive resistance of the
non-banking sector and staffing shortages at the Money Laundering
Control Authority, its chief Dina Balleyguier also faced the
challenge of deciding if any other sectors should be brought,
doubtless unwillingly, under the umbrella of greater supervision
'There are about 10...open-ended questions,' she explained in
November 2001: 'One is whether commodities traders must have a
license with us; another is whether asset traders with one-man
offshore companies should be included. Another is whether someone
doing asset management for their family should be included. It's
The Swiss government is also considering extending existing money
laundering laws to cover art and jewellery trading companies.
Following the introduction of enhanced legislation on traditional
financial institutions and banks in Switzerland, laundering funds
through non-traditional channels such as art dealers, jewellery
traders, and money changers has become an increasing problem for
Although Swiss-based asset managers are already overseen by the
country's anti-money laundering unit, the goverment has also
announced that is considering whether the sector should be put
under the authority of the Swiss Federal Banking Commission, which
oversees banks, brokers, and investment funds.
Below is a joint response, from The Swiss Federal Banking
Commission and the National Bank, to the members of the Financial
Stability Forum who complained about the Switzerland's inclusion
on an OECD list issued in May of countries whose financial systems
posed a risk to global stability.
To All Members of the FSF Berne/Zurich,
5 September 2000
Financial Stability Forum -
List of "Offshore Financial Centres" (OFC)
Dear Mr . . . Mrs
In May 2000, the Financial Stability Forum (FSF) published a list
of "Offshore Financial Centres" (OFC) defined with respect to
their compliance with international standards in the financial
area. This list also includes Switzerland.
Switzerland is an international financial centre with a
significant amount of business with non-residents. The same
applies to other countries like the USA and the UK. However, it is
incorrect to intermingle the typical features of international
financial centres, such as the importance of financial business
with non-residents, with the characteristics of "Offshore
Financial Centres" as established by the OFC working group of the
FSF itself (page 9, table 2 of the report). In fact, none of these
characteristics apply to Switzerland. In our country:
-Business and investment income is taxed at rates close to the
average of OECD countries. The overall tax burden of 33.8% in
Switzerland (total tax revenue as % of GDP) is above the OECD
average and higher than in the United States (29.7%), Japan
(28.8%) or Australia (29.8%).
-A withholding tax of 35% applies to all
interest and dividend payments of Swiss
issuers or debtors, irrespective of the
domicile of the recipient. The incorporation
regime follows international standards. In
particular, there is no regulatory or
supervisory distinction between onshore/offshore
or resident/non-resident activities. In
Switzerland, there are neither
offshore-licences nor is there preferential
treatment for offshore activities. No
shell-branches or brass-plate banks are
-The supervisory regime for financial services is in line with
international standards and G10 standards in particular.
-Regulation does not offer the possibility to create trusts.
-Financial institutions without physical presence in Switzerland
can not be licensed by the Swiss Federal Banking Commission (SFBC)
and, therefore, can not lawfully operate as such from
-Swiss supervisors have full access to all files and privacy
protection for bank customer information is no obstacle to
international mutual assistance in criminal matters such as money
laundering, corruption, insider trading or tax fraud.
-The volume of non-resident business does not "substantially
exceed" the volume of domestic business despite the fact that, in
general, the share of international transactions tends to be
higher in smaller countries than in larger economies. In terms of
funds under management, the share of domestic and foreign
securities holders is about equal.
-The financial sector accounts for 11% of GDP.
The FSF argues that many supervisory and regulatory authorities of
major financial centres referred to Switzerland as an OFC. This is
certainly not an acceptable reason for placing Switzerland on the
Forum's list. We urge you to take into due consideration that
Switzerland is a G10-member with a regulatory and supervisory
regime that is in compliance with international standards.
Therefore, it is not understandable why Switzerland should be
assessed as an OFC.
Swiss Federal Banking Commission
Dr Kurt Hauri Chairman
Swiss National Bank
Dr Hans Meyer Chairman of the Governing Board.
In 2001 the European Union began negotiations with Switzerland to
attempt to gain agreement to the information-sharing required as
part of the EU's withholding tax directive and without which it
will not be effective.
Switzerland was politely helpful, offering to extend its 35%
withholding tax on resident savings income to non-resident account
holders, and to distribute much of the tax collected among EU
member states, but the government was adamant that it will not
shift on the issue of banking secrecy. The Finance Minister,
Kaspar Villiger confirmed this, commenting frequently that: 'Banking
secrecy is not negotiable'.
Jean-Baptiste Zufferey, a Swiss tax expert and professor at the
University of Fribourg expresses the situation more bluntly: 'It's
not because we fear banks would lose business, but most Swiss
people have an attachment to the idea that a human being is
entitled to financial privacy. It is the problem of foreign
countries if they cannot tax their citizens. We in Switzerland
don't have to help other countries do their job.'
This posed a serious problem for the EU - not just because the
alpine jurisdiction is home an estimated one third of the world's
offshore wealth, but because other countries, in particular
Luxembourg and Austria, had said that they would refuse to back
information exchange plans if Switzerland does not participate.
The EU had set the end of 2002 as the deadline for final adoption
of its information exchange plans, but Luxembourg's refusal to
accept the Swiss compromise position as acceptable meant that
negotiations continued into 2003.
After last-minute haggling by Italy and Belgium, it was agreed by
mid-2003 that the Directive would enter into force in 2005.
The Swiss banking fraternity certainly doesn't admit to any
regulatory weaknesses, and is up in arms about what it sees as
incorrect foreign attitudes towards Swiss banking. “We cannot have
a situation where people claim that in Switzerland, control
weaknesses supposedly keep occurring,” Urs Roth, chief executive
of the Swiss Bankers Association told an August, 2003 seminar.
"Where Switzerland has excessive regulation compared with the
foreign competition, nothing is done about it. In the long run
this may produce a widening gap that could be very damaging for
our banks and therefore our economy," warned Roth.
In January, 2004, Switzerland and the Organisation for Economic
Co-operation and Development reached a long-awaited compromise
deal over certain Swiss tax practices deemed harmful by the OECD.
Following two days of discussions with the Paris-based
organisation’s fiscal affairs committee, Swiss officials agreed to
exchange information with other countries on Swiss holding
companies, one of a number of issues that has dogged the
relationship between Switzerland and the OECD in recent years.
Wilhelm Jaggi, Switzerland's ambassador to the OECD, stated that
the agreement represents a “good and balanced solution for all
sides." However, he was keen to emphasise that the issue remains
entirely separate from the more delicate matter of banking
The two parties also managed to resolve another sticking point
involving the issue of administrative notes on how taxable profits
are defined by firms. But a third tax issue concerned with the
method by which commercial expenses are deducted from tax
statements remains unresolved.
Further agreement was reached, however, in the area of
transfer-pricing, and the Swiss authorities have agreed to warn
domestic firms to abide by OECD guidelines when transferring
profits to subsidiary companies.
It has also emerged that the OECD is to undertake further analysis
of the tax regimes under which Swiss finance and leasing companies
In May, 2004, agreement was provisionally reached with Switzerland
over the implementation of the EU Savings Tax Directive. The Swiss
government had agreed the text of the Directive, but refused to
sign it until assurances were given by the European authorities
that the Schengen agreement on cross-border crime would not force
it to compromise its banking secrecy by reporting on tax evasion,
which is not a crime in Switzerland.
compromise is that Switzerland will provide legal assistance under
the terms of the Schengen agreement in cases relating to indirect
taxes such as customs, VAT, and alcohol and tobacco levies, but
will be exempted from providing such assistances in cases of
Later in the month, representatives
from Switzerland and the European Union signed the nine 'bilaterals
II' agreements covering various topics including tax and the free
movement of people. They had been held up pending agreement on the
Savings Tax Directive.
The agreements concern: the taxation of savings; co-operation in
the fight against fraud; the association of Switzerland to the
Schengen acquis; participation of Switzerland in the “Dublin” and
“Eurodac” regulations; trade in processed agricultural products;
Swiss participation in the European Environment Agency and
European Environment Information & Observation Network (EIONET);
statistical co-operation; Swiss participation in the Media plus
and Media training programs; and the avoidance of double taxation
for pensioners of the Community institutions.
A protocol to the existing agreement on the free movement of
persons was also signed, extending the agreement to the new EU
wing parties such as the Swiss People's Party, opposed to the
plans to cooperate more closely with Brussels on security and
other matters, threatened to force a referendum on the issue, but
by November it was clear that the government was going to be able
to put through the necessary implementing legislation with needing
a referendum, and the Savings Tax Directive duly came into force
in July, 2005, with Switzerland applying a 15% withholding tax to
the returns on savings of EU residents.