SWITZERLAND: An Introduction to Corporate/M&A
Switzerland is a stable and modern market economy with an unemployment rate of around 2.5% (2018), a highly skilled labour force, and a GDP per capita that is among the highest in the world. According to the World Economic Forum’s Global Competitiveness Report 2018, Switzerland ranks fourth place globally in terms of competitiveness. The high ranking is driven by Switzerland’s efficient labour market, the sophistication of its businesses, its strength in innovation, and the availability and use of the latest technologies. Other key advantages of Switzerland as a business hub are its infrastructure, the availability of financial services and the quality of its education system. Switzerland’s reasonable corporate tax rates contribute to the country’s status as one of the most competitive economies.
After 2017 has seen continued high levels of M&A activity in Switzerland, M&A activity in 2018 saw a new record number of deals and remained on a high level in terms of deal value. All industries contributed to a strong year for M&A in Switzerland. Particularly noteworthy deals took place in the pharmaceutical sector (with Novartis selling its stake of its Consumer Healthcare joint venture with GlaxoSmithKline to GlaxoSmithKline for USD13 billion and acquiring AveXis and Endocyte for an aggregate of USD10.6 billion), industrial sector (ABB’s sale of its power grid business to Hitachi for USD9.4 billion), consumer markets sector (Nestlé’s strategic cooperation with Starbucks valued at USD7 billion and Richemont’s acquisition of YOOX Net-a-Porter) and the chemicals sector (Clariant’s strategic transaction with SABIC), all showing high levels of transformation or even disruptive changes. 2018 was also a very successful year for IPOs, with a record number of 12 IPOs on the SIX Swiss Exchange, as well as for private equity, where the number of deals in Switzerland reached the highest number since 2007.
For 2019, further changes to business and operating models are to be anticipated, not only in the large international companies but also the many Switzerland-based small and mid-sized firms. This is particularly due to the digitisation of business models. We expect M&A to continue being strong in the life sciences sector and to become more important in fintech and related sectors.
The Swiss Federal Government is relaxed about foreign investment and maintains favourable conditions for both Swiss and foreign investors. In principle, there are no restrictions for individuals and entities outside Switzerland wishing to do business in Switzerland or wishing to invest in businesses in Switzerland. One exception is the real estate sector, where federal law restricts the acquisition of residential real estate by persons living outside Switzerland; with regard to commercial real estate, there are, with a few exceptions, no such restrictions. Except for the financial sector (e.g. banks, securities dealers, insurance companies, and financial market infrastructures), the transportation sector and for certain professions (e.g. lawyers, auditors, healthcare and certain other professionals), there is in general no permit required for doing business in Switzerland.
Switzerland has a transparent, effective and reliable legal system. Swiss corporate law is characterised by a relatively low level of regulation, with the exception perhaps of say-on-pay and other compensation-related rules for listed companies. Swiss employment law is considerably less restrictive than in most of continental Europe, and social security contributions are significantly below the levels in many Western European countries.
The strength of the Swiss economy lies mainly in its international outreach and strong interconnectedness with the economies of other countries. Switzerland’s strong financial sector, which accounted for more than 9% of overall economic value creation in 2017, and Switzerland’s leading position in the global pharmaceutical, biotech, fintech, robotics and virtual reality industries attracts new companies and a qualified labour force.
Although Switzerland is not a member of the EU, it has strong relations with the EU, which are governed by a series of bilateral agreements. Under these agreements, Swiss employers can hire workers from EU/EEA countries without having to show a specific need. In 2018, the Swiss government negotiated a framework agreement on “institutional issues“ with the EU that aims to ensure that current and future agreements on market access are applied more consistently and efficiently. However, it is uncertain whether Swiss voters will approve the agreement. Switzerland has also been adapting its legal system to international standards—in particular EU standards—in many ways in order to ensure the equivalence and interoperability of Swiss laws, in particular in the financial sector.
Switzerland is currently undertaking a comprehensive corporate tax reform in order to abolish tax privileges for certain types of companies that the OECD no longer accepts. The reform would lead to a significant decrease of headline tax rates and introduce new competitive and internationally accepted measures. One of the proposed measures is the so-called licence box providing for reduced tax rates for certain income from patents and the like. If voters approve this tax reform in a referendum scheduled for 19 May 2019, it will take effect on 1 January 2020.
On 1 January 2019, the new Financial Services Act has taken effect, which governs a broad range of financial services, including cross-border services into Switzerland, and aligns the Swiss rules more closely to EU regulation. Another project in the legislative process is a comprehensive corporate law reform proposal aiming to strengthen corporate governance, to modernise the incorporation and capital structure of public and private companies in Switzerland and to increase legal certainty. The bill is currently being considered by the federal parliament.