SWITZERLAND: An Introduction
Contributed by Dr. Ruth Bloch-Riemer of Bär & Karrer Ltd.
Located in the centre of Europe, Switzerland (officially the Swiss Confederation or Confoederatio Helvetica) is a mountainous, land-locked country with a multi-ethnic and multinational population of over 8 million people. The official languages are German, French, Italian and Romansh, but English is widely spoken, particularly in urban areas. The largest Swiss cities are Zürich, Geneva, Basel, Lausanne and Bern, the latter being the seat of the federal authorities and the country's capital.
Switzerland's political system is framed by federalism and direct democracy. The federal structure consists of three levels: the confederation, 26 cantons (similar to states; made up of 20 cantons and 6 half-cantons) and approximately 2,300 municipalities. The cantons enjoy broad autonomy in many areas such as taxes, public law and organisation of the courts within the limits of federal law. On the other hand, legislation in the field of civil and criminal procedure and substantive laws, including corporate and securities laws, is predominantly a federal matter, as is most financial market regulation. In the Swiss system of direct democracy, the people are given a direct say in the legislative process to an extent which is unparalleled by most other countries. Generally, the Swiss people have applied a pragmatic, measured approach to participating in popular votes in order to maintain the stability and prosperity of the Swiss economy.
Many factors make Switzerland an attractive place to do business and to live. Switzerland is a politically stable country with one of the highest per capita GDPs in the world. It is a prosperous and modern market economy with a low unemployment rate (around 2.4% as of October 2018), a skilled workforce and well-developed infrastructure including reliable public transport. The competitive tax environment, which is strongly influenced by the country's federal structure, leads to a moderate tax burden for both companies and individuals, supported by Switzerland's comparably wide network of typically favourable bilateral treaties in tax matters with other countries. Moreover, Switzerland was again, for the eighth year in a row, ranked as the world's most innovative economy in 2018 according to the Global Innovation Index.
Switzerland is home to a strong and internationally-oriented financial marketplace. The Swiss banks have mostly settled their disputes with the American Department of Justice and conform to the international standards for exchange of information (CRS). Switzerland implemented CRS legislation in 2017 and the first automatic exchange of information occurred by 30 September 2018 with the EU member states. In addition, new legislation is currently being developed to ensure the high quality standards of Swiss financial services. The Swiss Financial Market Supervisory Authority FINMA considers innovation key to the competitiveness and long-term success of Switzerland as a financial centre and is dedicated to removing unnecessary regulatory obstacles. The principle-based approach to financial regulation is conducive to enabling the development of new business models in the financial sector in general and the Fintech sector in particular. The centre for innovation in the areas of blockchain and cryptocurrencies, known as the Swiss crypto-valley, located in the region around the city of Zug, has continued to grow and develop. FINMA issued important guidelines during 2018 as to how to treat blockchain and cryptocurrency-related activities from a Swiss financial market regulatory perspective. Also the Swiss taxation landscape crystallised the relevant principles according to which blockchain and cryptocurrency-related activities are to be treated from a Swiss tax perspective.
Investors and businesses active in Switzerland benefit from a competitive and stable economy, a business- and innovation-friendly legal environment and an efficient and reliable judicial system, as well as one of the highest standards of living in the world. Switzerland's attractiveness for doing business is reflected by the number of global players with headquarters in Switzerland, such as the consumer products multinational Nestlé, large pharmaceutical companies Novartis and Hoffmann-La Roche, engineering company ABB and numerous financial institutions, including UBS, Credit Suisse, Swiss Re and Zurich. Switzerland is also an important hub for commodities trading companies. Additionally, numerous small and medium enterprises make up the backbone of the Swiss economy, in particular in the medical, biotech, and financial industries. Switzerland ranks first in Europe and fourth globally for economic freedom (according to the 2018 Index of Economic Freedom published by the Heritage Foundation), in particular due to its openness to foreign trade and investment.
Separately, numerous international bodies such as the World Trade Organization, the World Economic Forum and the International Organization for Standardization are headquartered in Switzerland, as are the International Olympic Committee, the international and European football bodies FIFA and UEFA and the International Ice Hockey Federation IIHF. Furthermore, the International Committee of the Red Cross is headquartered in Geneva, where the United Nations also maintains an office. Historically, Switzerland has an international reputation in mediation and diplomacy. It is one of the leading arbitration hubs in the world, hosting the international Court of Arbitration for Sport in Lausanne and the World Intellectual Property Organization in Geneva.
Switzerland continues to be an attractive place to take up residence, especially for wealthy foreigners considering political and fiscal developments and, in some parts of the world, instability. Switzerland appeals to new residents due to the reliability, simplicity and clarity its legislation, the competitive taxation system and its high quality of living, including excellent healthcare and schooling systems and its central situation within Europe and globally. Some wealthy foreigners who do not exercise a professional activity are eligible in the majority of cantons for lump sum taxation (also known as "forfait taxation"; taxation based on a person's living expenses as opposed to their worldwide income and wealth). A recent popular vote confirmed the application of the lump-sum taxation regime for the Swiss Confederation and a majority of Swiss cantons. Furthermore, the Swiss inheritance and gift tax system proves to be very competitive due to the tax exemption of transfers between spouses and, in most cantons, from parents to children. A recent popular vote confirmed the continuation of the system in place.
Half of Swiss exports go to Eurozone countries (over 15% to Germany alone), with Switzerland being the European Union's third-biggest trading partner after the United States and China. The outlook is positive, with a GDP growth of 1.5% expected for 2019 according to the State Secretariat for Economic Affairs SECO (compared to 0.9% in 2017).
The activity on the Swiss M&A market in 2018, with 168 M&A deals with a total volume of USD78 billion in its first half, exceeded the results of 2017 with 160 deals of USD69.3 billion in total. Switzerland represents 10% of all M&A transactions in Europe. The most significant deals in 2018 included Novartis's sale of its stake in a consumer healthcare joint venture with GlaxoSmithKline to the latter for USD13 billion. In April 2018, Novartis announced its takeover of the US stock exchange listed company AveXis for approximately USD8.7 billion. Moreover, Nestlé acquired the consumer packaged goods and food service distribution business of Starbucks. In 2017, the acquisition of Swiss biotech company Actelion by the US pharmaceutical and consumer goods manufacturer Johnson & Johnson for a total purchase price of approximately USD30 billion was the most significant deal. After the USD43.8 billion takeover of Syngenta by China National Chemical Corp in 2016, this was the second big-ticket deal on the Swiss M&A market within one year and among Switzerland's five largest transactions of all time. These acquisitions demonstrate the attractiveness of Swiss companies for foreign investors.
As for capital markets activity, twelve IPOs took place in Switzerland in 2018. The biggest IPO in Europe was the listing on the SIX Swiss Exchange of SIG Combibloc Group, a leading systems and solutions provider for aseptic packaging, with a market capitalisation of CHF3.937 billion (based on the first closing price). It represents a third of the total European market volume. Furthermore, Switzerland has established itself as a centre for Initial Coin Offerings (ICOs) by technology start-ups. In the first half of 2018 alone, six out of the fifteen largest ICOs were conducted through the Swiss crypto-valley, with amounts raised ranging from USD142.5 million to USD258 million.