SWITZERLAND: An Introduction
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 around 8.5 million people. The official languages are German, French, Italian and Romansh, but English is widely spoken. The largest Swiss cities are Zurich, Geneva, Basel, Lausanne and Berne, the latter being 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 (states) and approximately 2,200 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 in most other countries. Generally, the Swiss people have applied a pragmatic, measured approach to popular votes in order to ensure 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 2.5% as of mid-2019), 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. In 2019 Switzerland was, for the ninth year in a row, ranked as the world's most innovative economy according to the Global Innovation Index.
Switzerland is home to a strong and internationally-oriented financial marketplace. The Swiss Financial Market Supervisory Authority FINMA considers innovation key to the competitiveness and long-term success of Switzerland as a financial centre. It is dedicated to removing unnecessary regulatory obstacles for advanced business models while maintaining a high standard of oversight and enforcement against bad actors. 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. In recent years, the region around the city of Zug has established itself as a centre for innovation in the areas of blockchain and cryptocurrencies, and is known as the Swiss crypto-valley. In 2019, FINMA has for the first time issued banking and securities dealers’ licences to two pure-play blockchain service providers.
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 Financial Services. 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, in particular due to its openness to foreign trade and investment.
Separately, numerous international bodies such as the World Trade Organization, World Economic Forum and World Intellectual Property Office 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 and the World Health Organization are headquartered in Geneva, where the United Nations also maintains an office.
Switzerland continues to be an attractive place to take up residence, especially for wealthy foreigners who are eligible for lump sum taxation (taxation based on a person's expenditure, as opposed to their income).
Half of Swiss exports go to Eurozone countries (over 15% to Germany alone), with Switzerland being the EU's third-biggest trading partner after the United States and China. While economic growth has only been moderate and not gone over 0.5% in 2019, the outlook is slightly more positive with a sizeable GDP growth of 1.7% expected for 2020 according to the State Secretariat for Economic Affairs SECO (although some of the growth will be due to the effect of major sporting events). Switzerland traditionally has a positive trade balance, despite not exporting natural resources: the surplus was CHF30.5 billion in 2018.
The activity on the Swiss M&A market remains strong. After all-time record deal volumes in 2018, deal activity in Switzerland has only slightly declined in 2019. The most significant deals of the year were the acquisition of Nestlé Skin Health by a consortium led by Sweden-based private equity investor EQT and the Abu Dhabi Investment Authority for a total purchase price of approximately CHF10.2 billion and the public exchange offer by DSV A/S for all publicly held registered shares of Panalpina Welttransport (Holding) AG for approximately CHF4.6 billion. Seven IPOs took place in Switzerland in 2019. The biggest IPO was the listing on the SIX Swiss Exchange of Alcon AG, a spin-off of the eye care division of Novartis, with a market capitalisation of CHF28.369 billion. These transactions are prime examples for the attractiveness of Swiss companies for foreign investors.