SWITZERLAND: An Introduction

Chambers HNW 2019 Practice Area Overview - Switzerland

Contributed by Tina Wüstemann of Bär & Karrer AG

Switzerland is known as an attractive place for wealthy individuals, families and family offices, particularly due to its economic and political stability, competitive tax regime, high-quality service industry along with a strong and international financial market plus a high standard of living. Beyond that, HNW individuals and their families appreciate Switzerland as a place where they can live largely away from the spotlight.

The strong economy is reflected in Switzerland being amongst those countries with the highest GDP per capita (both nominally and at purchasing power parity). According to the State Secretariat for Economic Affairs, Switzerland's unemployment rate averaged 2.6% in 2018, a ten-year low. During 2019, the unemployment rate continued to decrease. The prosperous market environment is based particularly on the service industry, consisting of banks and insurance companies, as well as the manufacturing and pharmaceutical sector. Many global players from these industries, such as banks like UBS and Credit Suisse, consumer products multinational Nestlé, technology multinational ABB or pharmaceutical companies Novartis and Hoffmann-La Roche have their headquarters in Switzerland. Numerous small and medium-sized enterprises make up the backbone of the Swiss economy, in particular in the medical, biotech and financial industries, including private banking. Additionally, numerous international institutions, such as the World Trade Organization, the World Economic Forum, the International Olympic Committee, the international and European football associations FIFA and UEFA and many more, are based in Switzerland.

Many wealthy individuals or families decide to relocate to Switzerland with currently roughly a quarter of Switzerland's population made up of foreign nationals. Switzerland's clear and consistent legal environment as well as its efficient judicial system allow for flexible and reliable wealth and estate planning particularly in an international context. Switzerland is also an attractive place to live due to its well-developed infrastructure, including excellent health care and a distinguished education system. From a cultural perspective, Switzerland has a lot to offer. Most notably, Switzerland's fine art market displays an enormous variety – be it for art collectors or simply art admirers – and there is no other country with as many museums per head of population as Switzerland.

According to Credit Suisse's global wealth report 2018, Switzerland has the highest wealth per adult (USD 530,240), followed by Australia (USD 411,060) and the United States (USD 403,970). While there are no official numbers about the amount inherited in Switzerland each year, a study initiated by the Swiss national television company SRF revealed that, for 2015, assets inherited by Swiss residents amounted to roughly CHF 63 billion. Compared with other countries in Europe, Swiss people can, on average, expect to inherit even more wealth in the future, although they will do so at a relatively older age. This is explained by Switzerland's high prosperity and the average life expectancy of 81 years for men and 85 years for women. Consequently, it is expected that by 2020 roughly two thirds of all heirs will be over 55 years old. As a result, inheritances are usually no longer used to establish a business or to finance family life as people often do not receive an inheritance until after they have retired.

Swiss estate planning, particularly in a domestic context, is driven by distinct principles of Swiss succession law. Most notably, the Swiss forced heirship regime grants the children, the spouse and, as the case may be, the parents a compulsory share of the estate. These rules are currently undergoing a revision, where the intention is to abolish the parents' forced share and to reduce the children's forced share. Such a change would allow for more flexible planning in cases where Swiss succession law governs an estate, given that the testator will have more freedom in relation to the distribution of his or her assets upon death. In addition to the ongoing revision of Swiss inheritance law, further changes of succession law are currently under debate, to look at the succession rules for private businesses. The changes proposed by the Swiss Federal Council are set to facilitate the continuation of a testator's business by his or her successors and alleviate the restrictions imposed by the current forced heirship rules. All these innovations are certain to be welcomed, given today's diverse and often complicated family structures and the corresponding growth in the complexity around managing national and international estates.

Due to the significant number of foreign nationals living in Switzerland, wealth and estate planning in Switzerland – more often than not – includes international aspects. Swiss conflict of law rules have established a number of provisions to allow for flexible planning in such circumstances. In particular, a foreign national may choose the law of his or her nationality to govern the estate. Doing so can act to exclude what are often seen as the undesirable forced heirship provisions of Swiss succession law. Furthermore, the use of foreign entities and legal structures, such as trusts, is common in international planning situations with a Swiss nexus. Since Switzerland's ratification of the Hague Trust Convention in 2007, the use of foreign trusts in Switzerland has undoubtedly increased and so has the number of trust disputes argued before the Swiss courts.

The Swiss taxation system is particularly competitive from an international perspective and attracts many foreign individuals or families to relocate to Switzerland. In the majority of cantons, those wealthy foreigners who do not exercise a professional activity are eligible for lump-sum taxation (also known as "forfait taxation"), whereby the taxation is generally based on a person's living expenses as opposed to their worldwide income and wealth. A popular vote confirmed the application of the lump-sum taxation regime for the Swiss Confederation and a majority of the Swiss cantons. Furthermore, the Swiss inheritance and gift tax system has shown itself to be highly competitive due to the tax exemption for transfers between spouses and, in most cantons, from parents to descendants. The continuation of this system was also confirmed by a popular vote.