Switzerland

KEY COUNTRY FACTS
System of government:	federal republic
Population:	8.06 million
Currency:	Swiss Franc (CHF)
FX regime:	free float
GDP:	$646bn (2013)
IGTA member:	yes
FATF member:	yes
Treasury association:	Swiss Association of Corporate Treasurers (SwissACT)
Other professional financial/banking associations:	Swiss Bankers’ Association

Financial regulatory framework

Bank supervision

The independent Swiss Financial Market Supervisory Authority (FINMA) carries out all bank supervision.

Exchange controls

The national currency of Switzerland is the Swiss Franc (CHF). Switzerland applies controls on residents’ purchases of securities abroad if the assets represent more than 30% of the technical provisions of an insurance company. Foreign investment in shipping vessels, airlines, real estate, energy providers, and broadcasting is subject to controls.

Taxation framework

Corporate taxation

The flat rate of corporation tax is 8.5% on profit before taxes for companies at the federal level and, depending on the place of the legal seat, in the range of approximately 4% to 18% at the cantonal/communal level. Taking into account both the federal and cantonal/communal income tax, the combined effective income tax rate is typically between 12% and 22% for companies subject to ordinary taxation, depending on the place of residence. The effective tax rate is 7.83% after deduction of income and capital taxes Residents are subject to taxation on their worldwide income after the deduction of business expenses. However, the tax obligation does not extend to business operations, permanent establishments (PEs) and real estate situated abroad. Non-residents are subject to taxation on income derived from PEs or from immovable property located in Switzerland. Income tax can be deducted from capital tax in a few cantons.

Capital gains tax

Capital gains on business assets are treated as income for federal and cantonal/communal tax purposes.

Withholding tax

A federal withholding tax of 35% is levied on dividends paid to resident and non-resident companies, subject to tax treaties. Resident companies can apply for refund of the 35% withholding tax based on Swiss law. Generally, no withholding tax is levied on interest. Exceptions apply to interest derived from deposits with Swiss banks, bonds and bond-like loans, which are subject to a 35% withholding tax at the federal level. Interest paid to a non-resident on receivables secured by Swiss real estate is subject to tax at source.

Thin capitalisation

Safe haven thin capitalisation rules require a minimum equity ratio for each asset class (e.g. receivables may be debt financed by 85%, investments by 70% and intellectual property by 70%). In addition, safe haven interest rates apply.

Transfer pricing

Switzerland has no specific transfer pricing regulations but follows the general OECD transfer pricing guidelines and therefore applies the arm’s length principle to related-party transactions. The same principles are applied for federal and cantonal/communal purposes, irrespective of whether the transaction is domestic or international. There are no formal documentation requirements or a specific penalty regime for transfer pricing adjustments.

Indirect tax

VAT is levied on resident and non-resident enterprises, unless the taxable domestic turnover is lower than CHF 100,000. In addition, VAT is also levied on the importation of goods and services. Affiliate companies and branches with a seat in Switzerland may form a VAT group, which would be considered as a single taxable person. Non-residents without taxable activities in Switzerland can reclaim VAT provided that their foreign activities would be taxable under Swiss law, and that their country of residence grants reciprocal treatment to Swiss companies. The standard rate is 8%. Reduced rates of 2.5% and others exist for certain kinds of services. Financial services are in principle exempt from VAT.

Tax information provided by Deloitte Touche Tohmatsu and Deloitte Highlight 2014 (www.deloitte.com).

Banking service provision

Switzerland is one of the world’s most over-banked countries with 257 legally independent banks. The country is a major international financial centre, particularly in the provision of private banking services. Switzerland’s banking sector is dominated by two universal banks, UBS and Credit Suisse, which together account for just 46% of the country’s total assets. In addition to these banking giants, there are 24 cantonal banks (state-guaranteed semi-governmental banks), 58 regional and savings banks (smaller universal banks assigned to individual regions) and 316 Raiffeisen banks (local credit co-operatives) regrouped in a single federative structure operating in Switzerland. Switzerland has attracted many foreign institutions. Most specialise in private banking and investment management. There are 29 branches of foreign banks in Switzerland. Swiss Post also offers financial services via its banking arm, Postfinance, and has a considerable market share, especially in the retail sector.

Clearing and payment systems

Clearing systems

In Switzerland, payments are processed primarily via the Swiss National Bank (SNB), commercial banks and PostFinance. The SNB effectively acts as a settlement centre between the banks, and between PostFinance and the banks. Responsibility for monitoring and controlling the flow of funds also lies with the SNB.

SIC, an RTGS system operated by SIX Interbank Clearing AG, clears and settles all high-value payments as well a high percentage of low-value payment transactions, including cheques.
PostFinance, through its dense nationwide payment clearing network, processes a large number of domestic retail payments.

Despite not being a member of the EU, Switzerland conducts the majority of its international payments traffic with EU members. In 1999, Switzerland set up a euro-component, euroSIC, to clear domestic and cross-border € payments. euroSIC currently operates as a sub-system in SIC, alongside the RTGS system for transactions denominated in CHF. The German-registered clearing bank, SECB (Swiss Euro Clearing Bank), currently provides euroSIC, via the multicurrency multiSIC platform, with a direct link to TARGET2 via Germany’s TARGET2 Bundesbank (TARGET2-BBk) component. SIX Paynet, a sister company of SIC, operates an online payment application called payCOMweb for credit transfers in DTA format and direct debits (LSV+ and BDD). Payments can be initiated online by payCOMweb before processing in SIC.

Payment instruments

Credit transfers are the main cashless method of payment in Switzerland. The use of direct debits is also commonplace. Cheques are essentially a retail instrument and their usage is limited. Implementation of the Single Euro Payments Area (SEPA) standards is under way in Switzerland. All debit cards issued since 1 January 2008 have been SEPA-compliant. SEPA credit transfers (SCTs) have been available since 28 January 2008, while SEPA direct debits (SDDs) became available in November 2009.

Credit transfers – Credit transfers are the main cashless method of payment in Switzerland. An XML-based SEPA data format for €-denominated credit transfers has been available since 28 January 2008. The SEPA Credit Transfer (SCT) scheme has 174 participant banks from the CHF zone (163 from Switzerland and 11 from Liechtenstein). Paper-based credit transfer usage is limited to smaller companies and private individuals.
Direct debits – Direct debits (Lastschriftverfahren – LSV) are principally used for regular retail payments such as the payment of household utilities.

All direct debit agreements now automatically include the right of refusal by the debtor. The upgraded LSV scheme (LSV+) was launched on 11 November 2005 and is available in both CHF and €. LSV+ is an easier and faster version of the old LSV procedure. The Business Direct Debit (BDD) is used within the business sector and, unlike in LSV+, agreements do not include the right of refusal. BDDs are available in both CHF and €. The Core and B2B (business-to-business) SEPA direct debit (SDD) schemes have been available since 2 November 2009. STEP2 introduced a cross-border direct debit processing service to coincide with the launch of the SDD on that date. A SEPA direct debit processing service was also introduced by the SIX Group in conjunction with the Frankfurt-based Swiss Euro Clearing Bank (SECB) and Luxembourg’s CETREL on 2 November 2009.

Cheques – Never a popular method of non-cash payment in Switzerland, cheques accounted for less than 0.0015% of non-cash transactions by volume in 2012. Since January 2002, eurocheques have no longer been guaranteed, which has significantly reduced cheque usage.
Postal giros – Postal giros are mainly used in a retail context. Swiss Post also offers the worldwide Western Union Money Transfer service.
Card payments – Payment cards are widely used in Switzerland. At the end of April 2014, there were approximately 9.1 million debit cards and 6.3 million credit cards in circulation in Switzerland. Debit cards are most often used among retail consumers. Visa, Visa V PAY, Maestro and Postcard debit cards are in circulation in Switzerland, as are Visa, MasterCard, American Express and Diners Club credit cards. Since January 2008, banks have been obliged to issue only SEPA-compliant EMV chip payment cards. All cards in Switzerland, as of 1 January 2011, are now expected to be EMV chip cards.
Electronic money – Switzerland is home to a multi-purpose pre-paid card scheme, CASH, a product of the Swiss banks and PostFinance. Used for a multitude of purposes, CASH cards can store amounts between CHF 20 and CHF 300. Despite the available infrastructure, the use of card-based electronic money has so far remained limited. Maestro debit cards with a CASH function are no longer issued by banks.
Cross border – High-value and urgent credit transfers are settled via euroSIC. The Frankfurt-based SECB (Swiss Euro Clearing Bank) provides euroSIC’s link to TARGET2 (via Germany’s TARGET2-Bundesbank national component) and acts as a correspondent bank for third-party payments. Cross-border EUR-denominated payments are cleared by euroSIC, via swisseuroGATE, which is connected to the EU’s RTGS systems.

Banks are also able to transfer cross-border payments equal to or below €50,000, via euroSIC using swisseuroGATE, to European Economic Area (EEA) member states. swisseuroGATE is linked to the EU’s RTGS systems, Germany’s EMZ (retail payment system), plus the Euro Banking Association’s (EBA) STEP2 (a pan-European ACH for bulk payments in €) and STEP1 systems. The SECB has established an agreement with Netherlands-based Equens that allows for the bilateral clearing of cross-border SCTs and SDDs between euroSIC and both the Dutch Equens Clearing and Settlement System and the German Equen ZVS Clearing System.

Cash and bank account management

Account availability

Residents are allowed to open convertible domestic currency (CHF) and foreign currency accounts both within and outside Switzerland. Non-resident accounts are also allowed to open convertible domestic currency (CHF) and foreign currency accounts in Switzerland. The SNB, and consequently the Swiss banking community, does not distinguish between resident and non-resident accounts. It is not common practice to pay interest on current accounts in Switzerland. Where paid, the interest will be minimal. The exact amount of interest depends on the general conditions offered by a bank. Overdraft facilities are widely used by companies in Switzerland for short-term financing.

Money laundering

Switzerland has enacted anti-money laundering legislation, including legislation in line with the first two EU anti-money laundering directives (Money Laundering Law of 1998, complemented by various Money Laundering Ordinances from the Swiss Banking Federation, and the Regulation of December 2010 from the Federal Financial Market Supervisory Authority). A Financial Action Task Force (FATF) member, Switzerland observes most of the FATF-49 standards. Switzerland has established a financial intelligence unit (FIU), the Money Laundering Reporting Office – Switzerland (MROS), which is a member of the Egmont Group.

Supplied by BCL Burton Copeland (www.bcl.com). Data as at February 2014.

Liquidity management

An international comparatively advantageous tax jurisdiction, Switzerland is often selected by Swiss-based and foreign multinationals as their central treasury location under the form of a business co-ordination centre. The main advantage of locating in Switzerland is low corporate income tax, the historical absence of exchange controls, the ability to acquire specialist staff locally, Switzerland’s central geographical position and good communications. However, because of the favourable tax treatment, expert advice is required with regard to the fiscal treatment of group transactions by non-Swiss tax authorities.

Cash concentration

Cash concentration is allowed and widely offered by the international cash management banks as well as the major Swiss banking groups. Non-resident bank accounts may participate in a cash concentration structure.

Notional pooling

Banks are not permitted to offset credit and debit balances and the use of notional pooling is fairly limited with cash concentration techniques generally being favoured by the corporate marketplace. Notional pooling is permitted between resident and non-resident companies. Notional pools can mix currencies and include several legal entities.

Cross border issues

Both cross border cash concentration and notional pooling are allowed.

Electronic and internet banking

Switzerland has embraced electronic banking with all the major banks offering electronic banking including, increasingly, online facilities. The majority of Swiss and international banks offer electronic banking services that include intra-day domestic and cross-border account balance reporting as well as transaction initiation. End-of-day automated domestic and cross-border sweeping arrangements are offered by some international cash management banks. All the major banks offer some form of internet banking for both corporate and retail users, with the online banking services of Crédit Suisse and UBS being the market leaders.

Liquidity management

Short-term investments

Bank account surplus balances – Banks are free to offer interest on all bank accounts held by residents and non-residents although interest-bearing current accounts are not common and yields are low.
Time deposits – Time deposits are available in maturities ranging from overnight to over one year. Deposits held by large domestic companies usually have maturities of three or six months.
Certificates of deposit – CDs are issued by commercial banks, with maturities exceeding one year.
Treasury (government) bills) – The Swiss National Bank auctions money market debt register claims on the government’s behalf on a weekly basis with maturities of three, six, nine and 12 months. The denomination and minimum investment is CHF 50,000.
Central bank bills – The SNB auctions SNB bills in CHF on a weekly basis with maturities ranging from one week up to one year. SNB bills in CHF are issued in denominations of CHF1m. The SNB also auctions SNB US$ bills on a fortnightly basis with maturities of one, three and six months. The denomination and minimum investment for SNB US$ bills is $500,000.
Commercial paper – No Swiss commercial paper market exists. Commercial paper is however issued in CHF in the Euromarket by large companies with maturities of one, two, three or six months.
Repurchase agreements – Repos are available and used by banks in Switzerland. Switzerland is home to a lively interbank repo market.
Mutual Investment Funds – Money market funds are available in major currencies from numerous leading banks in Switzerland to both domestic and foreign investors. They are often domiciled in Luxembourg for regulatory reasons but are still managed from Switzerland.
Banker's acceptances – There is no evidence of companies in Switzerland using BAs as short-term investment instruments.
Corporate and municipal bonds – Large companies issue bonds, which are listed on the SIX Swiss Exchange.