SWITZERLAND: An Introduction

Switzerland Country Overview 2021 

Despite its relatively small size, Switzerland is home to several large and well-established international companies spanning a diverse range of industries. These include major banks such as Credit Suisse and UBS, large insurance and reinsurance corporations such as Zurich Insurance and Swiss Re, and food and beverage, healthcare and biotech companies such as Nestlé, Novartis and Roche. Switzerland is also home to mechanical and electrical engineering companies specialising in high-technology, knowledge-based production such as the Swatch Group, Oerlikon and ABB. Tourism also plays an important role for Switzerland’s economy. While Switzerland has large global companies, most businesses are small or medium-sized, and many of them specialise in niche machinery and high technology. Switzerland is one of the world’s most competitive economies, thanks to its large and well-established corporate base, modern infrastructure and highly skilled workforce. Its political stability, comparatively flexible labour market regulations, transparent legal system, efficient capital markets and low corporate tax rates also play a part.

Market developments 

Impact of the COVID-19 pandemic in Switzerland 

During the first wave of the COVID-19 pandemic in spring 2020 and during the second wave in autumn and winter 2020, Switzerland was among the countries with the highest number of COVID-19 cases per capita in the world. 

In response to the first wave, the Federal Council introduced a number of measures in March 2020 to slow the spread of COVID-19, including closures of schools, non-essential shops, bars and restaurants as well as entertainment and leisure facilities. The Federal Council also introduced emergency legislation to mitigate the economic impact of the COVID-19 pandemic, including compensation for short-time work and daily allowances for self-employed persons. The measures included an emergency bridge credit facility for SMEs guaranteed by the Swiss Federal Government (full guarantee for SME loans up to CHF500,000 and 85% for loans between CHF500,000 and CHF19.5 million), which was operated by 123 participating Swiss banks. The Swiss Federal State Secretariat for Economic Affairs (SECO) estimated that a total of 135,005 COVID SME loans up to CHF500,000 were granted with a total volume of CHF13.8 billion. Approximately one in five Swiss SMEs obtained a COVID SME loan. The total volume of the COVID emergency bridge credit facility was approximately CHF16.8 billion. Other emergency legislation enacted by the Federal Council included the COVID-19 insolvency ordinance, which entered into force on 20 April 2020 for a period of six months and, inter alia, provides SMEs with fast access to a protective moratorium for up to six months, subject to far fewer formal requirements than a general composition memorandum.

After withstanding the first COVID-19 wave in spring 2020 relatively unscathed, Switzerland was hit hard by the second wave in autumn 2020. Amid the emergence of a new and more virulent strain of COVID-19, the Federal Council enacted a new national lockdown that entered into force on 19 January 2021.

Because the emergency legislation enacted by the Federal Council in response to the first COVID-19 wave in spring 2020 automatically expired after six months, the Swiss Parliament enacted a COVID-19 act to provide a more permanent legal basis for the Federal Council to maintain the measures that remain necessary in order to deal with the COVID-19 epidemic. The COVID-19 Act covers a wide range of measures, including health care, worker protection, immigration law and asylum rights, compensation for loss of earnings and unemployment insurance. Furthermore, it provides for judicial, procedural, corporate and insolvency law measures and it lays the legal foundations for measures in the cultural and media sector.

Mergers and acquisitions 

The impact of the COVID-19 pandemic on Swiss M&A activity in 2020 and on the outlook for 2021 has been significantly lower than originally expected. Following a clear slowdown in Q2, a steady recovery set in in Q3 that is continuing, with a number of ongoing larger competitive auction processes, including the sale of Lonza Group's special ingredients unit expecting to fetch approx. USD3.9 billion pursuant to media reports. Key noteworthy M&A transactions in 2020 include the CHF2.2 billion acquisition of Swiss software firm Avaloq by Japanese NEC, the IPO (at NYSE) of Global Blue through a merger with Far Point Acquisition Corporation, and the USD5 billion acquisition of Veeam Software by Insight Partners. With attractive public markets, many M&A transactions have been dual-track (IPO and M&A) in the recent years and we expect that this trend will continue in 2021.

Capital markets 

Despite several IPOs in the pipeline that were expected to launch during the course of 2020, the outbreak of COVID-19 and the related volatility in the capital markets have impacted the Swiss IPO capital markets, with many deals put on hold. Nevertheless, two issuers had successful listings at the beginning of summer 2020 once market conditions improved slightly. Interestingly, both listings were spin-offs from larger Swiss publicly listed companies, specifically Ina Invest Holding, a new real estate company, was spun off from Implenia, an international construction and construction services company, and V-Zug Holding, a developer and manufacturer of household appliances, was spun off from Metall Zug, a large Swiss industrial group. 

In 2019, the Swiss IPO capital markets were significantly more active than in 2020. Swiss capital markets were still impacted by various global political and economic uncertainties, including the ongoing negotiations regarding Brexit and trade policy tensions between the USA, China and Europe, as well as other geopolitical concerns, and did not perform as strongly as in 2018. However, despite such mixed market conditions, there were five successful IPOs in 2019 on the Zurich-based SIX Swiss Exchange with an aggregate offering volume of approximately CHF3.1 billion, specifically Stadler Rail (CHF1.5 billion), Medacta Group (CHF589 million), Aluflexpack (CHF169 million), SoftwareOne (CHF798 million) and Novavest Real Estate (CHF52 million), accompanied by the listing of shares of Alcon and Achiko.

Pre-eminent key political and legal topics discussed in 2019/2020 

New financial market legal architecture 

The Swiss financial markets' legal architecture continued its significant transformation, with the entering into force of the Swiss Federal Financial Services Act and the Swiss Federal Financial Institutions Act on 1 January 2020.

One of the aims of the new rules is regulatory harmonisation with the relevant EU rules (in particular MiFID II, MiFIR, the Prospectus Regulation, the PRIIPs Regulation) to attain third-country equivalency thereunder, with adjustments made to reflect the specific circumstances of the Swiss financial markets. 

Because the EU’s third-country equivalence rules give the EU wide discretion in granting or withdrawing equivalence for a third country, relying on third-country equivalency to gain access to EU financial markets remains subject to substantial challenges. For example, the SIX Swiss Exchange is the fourth-largest stock exchange in Europe. In December 2017 the EU granted equivalence for Swiss stock exchanges only on a temporary basis for one year until 31 December 2018 amid open issues on a broader framework agreement that would define Switzerland’s ties with the EU. Subsequently, the EU let the temporary equivalence expire. As a reaction, Switzerland introduced emergency measures banning the trading of shares listed in Switzerland on EU stock markets, forcing European securities dealers to trade Swiss shares in Switzerland.

Swiss Financial Market Infrastructure Act 

As a first cornerstone, the Financial Market Infrastructure Act (FMIA) came into force on 1 January 2016. Following the end of the last transitional periods, all obligations and provisions of FMIA are now in full force and effect since 1 January 2019. The FMIA established a regulatory framework for financial market infrastructure and trading venues, disclosure of significant shareholdings in listed companies in Switzerland, insider trading and market manipulation, and public takeovers, each modelled after the relevant EU rules. The FMIA also introduced regulations applicable to the over-the-counter (OTC) derivatives market.

Swiss Federal Financial Services Act 

The new Federal Financial Services Act (FinSA) and its implementing ordinance, the Federal Financial Services Ordinance (FinSO) entered into force on 1 January 2020, subject to phase-in with respect to certain obligations thereunder.

The FinSA sets out cross-sector rules (except for insurance and insurance products, which are excluded) for the provision of financial services. It introduces a comprehensive and harmonised prospectus regime that aims to achieve harmonisation with relevant EU rules while reflecting specific Swiss circumstances.

In connection with the offering and listing securities in the Swiss market, the FinSA includes the following novelties:

• The requirement to approve all offering and listing prospectuses by a new regulatory body (the 'review body') that is licensed and supervised by the Swiss Financial Market Supervisory Authority (FINMA), subject to certain exemptions.

• A new obligation to publish a prospectus not only for primary but also for secondary public offerings of securities in Switzerland.

• The codification of the private placement exemption and other exemptions from the requirement to publish a prospectus based on accepted Swiss standards and the EU Prospectus Directive. 

• The requirement to prepare and make available a basis information document when offering financial instruments other than shares (or comparable equity securities) or certain debt instruments without derivative character to retail investors containing all necessary information to make an investment decision, presented in an easily comprehensible way and designed to make financial instruments easier to compare. 

According to the new regime, the review body must approve a prospectus prior to a public offering or an admission of securities to trading on a Swiss trading platform. However, for certain debt securities (e.g. bonds) a prospectus can be approved after its publication provided certain requirements are met, reflecting longstanding Swiss market practice. By preserving the advantage of the current approval process for listing prospectuses in the Swiss debt capital markets, Switzerland continues to ensure attractive time-to-market conditions for issuers of debt instruments.

The new prospectus rules entered into force on 1 December 2020.

The requirement to prepare and make available a basis information document pursuant to the FinSA will enter into force on 1 January 2022. During the transition period, the obligation to prepare and make available a "simplified prospectus" for structured products will continue to apply. Specific transitional provisions apply with respect to real estate and securities funds.

Swiss Federal Financial Institutions Act 

On 1 January 2020, the Federal Financial Institutions Act (FinIA) and its implementing ordinances, the Federal Financial Institutions Ordinance (FinIO) and the Supervisory Organisation Ordinance (SOO) entered into force. 

• The FinIA essentially harmonises the authorisation rules for financial service providers and will, for the first time in Switzerland, subject independent portfolio managers and trustees to licensing requirements and continuous prudential supervision.

• The FinIO details the conditions for authorisation and duties of financial institutions and their supervision.

• The SOO governs the authorisation conditions and activities of the newly introduced supervisory organisations that will be responsible for the ongoing supervision of portfolio managers, trustees and trade assayers in accordance with the Precious Metals Control Act.

Corporate tax reform 

Switzerland has been undergoing major corporate tax reforms. The so-called third corporate tax reform package proposed by the Swiss Federal Council intended to abolish certain tax advantages for holding, domiciliary and mixed companies pursuant to an agreement with the EU as well as implementing tax advantages deemed in line with EU rules.

The third corporate tax reform package hit a political roadblock when voters rejected it in a referendum with an unexpectedly high proportion of 59.1% of the popular vote in February 2017. The referendum added a lot of uncertainty, in part because it was unclear whether a new package would be in place within the timeframe agreed with the EU.

On 19 May 2019, Swiss voters approved the reform package with 66.4% of the popular vote in a referendum (combined with more than 2 billion Swiss francs of additional funding for Switzerland’s statutory pension system, AHV/AVS, as Federal Act on Tax Reform and AHV Financing (TRAF)). The aim of the reform package is to create an internationally compliant, competitive tax system for companies by abolishing existing tax privileges for companies that operate predominantly internationally (subject to phase-in) and introducing replacement measures including a general reduction of corporate income tax rates, a patent box, a special deduction for R&D costs, a step-up upon migration of companies or activities to Switzerland for tax purposes and the option for cantons to introduce a deduction for equity financing. It came into force on 1 January 2020. The implementation of the voluntary measures of the TRAF at cantonal levels may vary from canton to canton. 

Withholding tax reform 

Another troubled Swiss tax reform project relates to withholding tax. Currently, a Swiss issuer of bonds must deduct a withholding tax of 35% from interest (and certain other) payments made to investors inside and outside of Switzerland (debtor-based regime).

Because it may be difficult for investors outside Switzerland to reclaim Swiss withholding tax, the current system makes it impracticable for Swiss issuers to directly access investors outside Switzerland. This had a material adverse effect on Swiss capital markets for decades. To address this issue, the Swiss Federal Council published in December 2014 draft legislation to, among other things, replace the current debtor-based regime with a paying agent-based regime for Swiss withholding tax, where a withholding would be required only for Swiss individual investors. The Federal Council withdrew the draft legislation in June 2015 and mandated the Swiss Federal Finance Department to appoint a group of experts to prepare a proposal for reform of the Swiss withholding tax system. Because of a popular initiative to enshrine banking secrecy in the Swiss constitution, the project of the group of experts has been put on hold in 2015 pending the results of the popular vote. To facilitate compliance by banks with the tougher capital requirements under Basel III prior to the reform of the Swiss withholding tax system, the Swiss Federal Council exempted contingent capital instruments and bail-in bonds from the withholding tax until 2021.

On 9 January 2018, the banking secrecy initiative was withdrawn by its sponsors. Following this withdrawal, the Swiss Federal Council decided to resume the suspended reform of the Swiss federal withholding tax. The consultation draft of the Swiss Federal Council was issued on 3 April 2020. The proposal intended to replace the current debtor-based regime applicable to interest payments with a paying agent-based regime for Swiss federal withholding tax. On 11 September 2020 the Swiss Federal Council decided to submit for parliamentary consultation a legislation project abolishing the Swiss federal withholding tax on interest payments made under bonds and notes. The project is expected for the second half of 2021.