SWITZERLAND: An Introduction to Corporate/M&A

Switzerland's political system is based on federalism and direct democracy. The federal structure consists of three levels: the confederation, 26 cantons (states) and approximately 2,140 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.

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 2.1% as of December 2023), a skilled workforce and well-developed infrastructure, including reliable public transport. In 2023 Switzerland was, for the 13th year in a row, ranked as the world's most innovative economy according to the Global Innovation Index.

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 (which helps to attract talents). Switzerland ranks first in Europe and second globally for economic freedom, in particular due to its openness to foreign trade and investment.

Switzerland is home to a strong and internationally oriented financial market place and has a very strong start-up and blockchain landscape attracting investors and workforce alike.

The regulatory environment is very investor friendly. To this day, there are no general foreign investment restrictions in Switzerland based on national interests and applying irrespective of the industry sector which would impose general notification obligations to foreign investors (this may potentially change as there is a legislative project underway concerning the implementation of a still liberal investment control regime). Exceptions apply for certain industries and sectors (eg, banking, securities trading, insurance and real estate). The Federal Law on Acquisition of Real Estate in Switzerland by Non-Residents (Lex Koller) restricts the acquisition by foreigners of real estate properties that are not used for the permanent establishment of a trade, production or other business run in a commercial way, a craftsman’s establishment or a free profession (non-commercial properties). In particular, residential properties not used for commercial activities are subject to the Lex Koller which also applies to Swiss companies which are ultimately owned by non-Swiss citizens. Further, even though Switzerland is not a member of the European Union, European directives and regulation play an important role, such as GDPR, which is directly applicable to Swiss-based companies doing business in the EU. This has led to EU companies asking their Swiss business partners to be GDPR-compliant. Consequently, the Swiss legislature has worked out a reform of the Federal Act on Data Protection, which came into force on 1 September 2023.

On 1 January 2023, the long-awaited reform of Swiss corporate law entered into force, which led to increased flexibility in various areas such as the introduction of the concept of a capital band (meaning that the shareholders’ meeting can authorise the board to increase and/or reduce the share capital within a predefined bandwidth of up to 50% of the share capital upwards and downwards during a maximum period of five years) as well as the strengthening of certain minority rights (eg, the expansion of the shareholder resolutions requiring a supermajority – ie, affirmative vote of two thirds of the represented voting rights and more than half of the represented share capital).

As of the financial year 2023, certain businesses will have to comply with the new ESG reporting criteria, depending on their size and significance. Starting as of 2024, the board of directors of in-scope Swiss companies are required to sign-off and publish an annual ESG report that takes non-financial factors into account. The report covers non-financial topics such as corporate strategy, emerging dangers to the environment, personnel, human rights, as well as the efforts the organisation has taken in this regard. Companies subject to ordinary audit and active in the exploitation of certain commodities must prepare a report regarding payments to governmental bodies. Larger companies with minimum 250 FTE and either a balance sheet exceeding CHF20 million or revenues exceeding CHF40 million must prepare an ESG report and have it approved by the board and the shareholders’ meeting. Companies (i) importing or processing certain minerals and metals from conflict regions or (ii) offering products or services which are under suspicion of having produced or involving child labour must implement a management system regarding their supply chain, assess risks and have compliance with their duties of care reviewed by an external expert. The board must publish the reports online and ensure that such reports remains publicly accessible for at least ten years.

In December 2023, the Federal Council in Switzerland made a decision to implement the OECD/G20 minimum tax rate with the introduction of a supplementary tax (ie, a supplementary tax will be levied if the minimum tax rate is not reached) as of 1 January 2024, despite some calls to postpone it. The amended constitution, accepted by the Swiss public in June 2023, paved the way for this implementation and serves the purpose of preventing the erosion of the Swiss tax base in favour of other countries, the strengthening of framework conditions, as well as ultimately Switzerland’s effort to comply with global minimum taxation standards.

This new minimum tax rate will exclusively apply to large multinational enterprises with a global annual turnover of at least EUR750 million. In Switzerland, this pertains to a limited number of domestic and a few thousand foreign corporate groups. Consequently, around 99% of companies in Switzerland remain unaffected by the reform and will maintain their current tax treatment.

Activity on the Swiss M&A market remains strong following the record-level of deal activity in 2021 and 2022. However, the negative movement on the stock markets, the prospects of runaway inflation, fears of recession, Russia’s invasion of Ukraine, and further geopolitical risks dampened the risk appetite of M&A investors. The total M&A deal activity for the year 2023 was slightly lower than in 2022. Swiss small and medium-sized enterprises (SMEs) continued to be attractive targets for investors in 2023. Just as in 2023, the M&A deal flow and volume was particularly dominated by the industrial and TMT markets and continued to be strong in the pharmaceutical and life science sector.

Arguably the most remarkable deal of the year unfolded through the rescue and merger of Switzerland’s two largest banks, UBS and Credit Suisse, following discussions initiated jointly by the Swiss Federal Department of Finance, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank. Moreover, Novartis completed the spin-off of the Sandoz generics and biosimilars business, and Sandoz Group AG debuted as an independent, publicly traded company in October 2023. Another noteworthy deal formed the acquisition of Teck Resources Ltd by the Swiss raw material trading and mining company Glencore amounting to around USD80.7 billion. The aforementioned mergers and acquisitions keep transaction volume in 2023 remarkably high while private equity activity slightly decreased, yet remains a significant driver on the Swiss M&A market.

Despite the above-mentioned uncertainties, we generally expect the Swiss M&A market to be strong in this new year with private equity firms holding a record amount of dry powder and thus poised to drive future M&A opportunities in Switzerland in 2024.