Establishing a business in Switzerland

A Q&A guide to establishing a business in Switzerland.

This Q&A gives an overview of the key issues in establishing a business in Sweden, including an introduction to the legal system; the available business vehicles and their applicable formalities; corporate governance structures and requirements; foreign investment incentives and restrictions; currency regulations; and tax and employment issues.

To compare answers across multiple jurisdictions, visit the Establishing a business in... Country Q&A Tool.

This article is part of the global guide to establishing a business worldwide. For a full list of contents, please visit www.practicallaw.com/ebi-mjg.

Contents

Legal system

1. What is the legal system in your jurisdiction based on (for example, civil law, common law or a mixture of both)?

Switzerland has a legal system, which is ultimately based on concepts of Roman civil law. The codes and statutes that govern Swiss commercial law are not exhaustive, but it is a principle-based law that requires judgment in its application.

The federal nature of the constitution of the Swiss Confederation (uniting 26 states into a federal nation) and the autonomy of communes on certain matters means that Swiss statutory law is federal, cantonal and communal. While most commercial laws are governed by federal legislation (including the law of contract and tort, company law, and securities law), cantonal law may contain specific rules relating to a specific company's activity (such as, planning and construction, regulated business activities and administrative procedure).

 

Business vehicles

2. What are the main forms of business vehicle used in your jurisdiction? What are the advantages and disadvantages of each vehicle?

The two main forms of business vehicles in Switzerland are the:

  • Company limited by shares (Aktiengesellschaft/société anonyme/società anonima).

  • Limited liability company (Gesellschaft mit beschränkter Haftung/société à responsabilité limitée/società a garanzia limitata).

Both forms are incorporated with a separate legal personality and a membership primarily based on capital contributions. In addition both companies have sole liability for their own debts (to the exclusion of the individual members). The company limited by shares is suitable for both small and large enterprises (including those listed on a stock exchange, as there is no separate company type for public companies). However, the limited liability company, which requires less initial capital, offers some additional flexibility in governance and has some specific requirements (such as, restrictions on the transferability of shares and disclosure of all shareholders' identity in the commercial register) is more suitable for smaller businesses.

Legal forms that can also be used as business vehicles in specific circumstances are:

  • Co-operative (Genossenschaft/société cooperative/società cooperative), which can be used for non-profit organisations that provide a direct benefit to their members).

  • Association (Verein/association/associazione), which can be used for professional organisations that do not conduct their own commercial operations).

  • Partnership limited by shares (Kommanditaktiengesellschaft/société en commandite par actions/società in accomandita per azioni).

  • Foundation (Stiftung/fondation/fondazione), which is a legal entity that does not have members, but may have beneficiaries and which is mostly used for charitable purposes.

Unincorporated forms of businesses include the:

  • Sole proprietorship (Kollektivgesellschaft).

  • Simple partnership(société en nom collectif).

  • General partnership (società in nome colletivo).

  • Limited partnership (Kommanditgesellschaft/société en commandite/società in acomandita).

Except for the sole proprietorship, these forms are not widely used in business practice because all or at least some of the members have full and personal liability. A limited partnership in which the general partner is a corporation (such as the German GmbH & Co. KG) is not permitted under Swiss law.

 

Establishing a presence from abroad

3. What are the most common options for foreign companies establishing a business presence in your jurisdiction?

A foreign company can enter into a joint venture with a local company, buy an already existing local company or set up a partnership to engage in business in Switzerland. The most common options are:

  • Setting up a local branch.

  • Incorporating a subsidiary company.

Local branch

A local branch office is a business establishment, which carries out similar business activities to the company's head office and benefits from a degree of economic and commercial independence from the head office. The branch has no independent legal personality and depends on the principal company. Therefore, the principal company is responsible for all the liabilities and undertakings of the Swiss branch office. The branch office is subject to Swiss law and must be registered in the Swiss commercial register, together with its appointed authorised representatives. At least one representative with single signatory power or two representatives with joint signatory power must live in Switzerland.

Subsidiary company

A Swiss subsidiary company is an entity with its own legal personality established under and governed by Swiss law. Typically the foreign parent company holds the majority of the shares of the subsidiary company and exercises management control. Although the Swiss subsidiary company is legally independent from the foreign parent company, the degree of its commercial and economic independence will vary. In principle, the foreign parent company is not liable for the debts or undertakings of the Swiss subsidiary.

Most common legal forms of subsidiaries in Switzerland are companies limited by shares or limited liability companies. On incorporation, the statutory minimum company capital in Swiss currency (CHF100,000 for companies limited by shares and CHF20,000 for limited liability companies) must be paid in to the company. These companies gain their legal personality when registered in the Swiss commercial register. At least one authorised representative with single signatory power or two authorised representatives with joint signatory power must live in Switzerland and must be entered in the commercial register. The shares (of a company limited by shares) or the quotas (of a limited liability company) can be issued or transferred to third parties. In addition, a subsidiary company limited by shares can ''go public'', by listing its shares on a stock exchange.

The advantages of local branches over subsidiary companies are as follows:

  • Local branch offices and subsidiary companies are subject to both Swiss corporate income tax on profits and annual capital tax on taxable equity. However, profits that are repatriated to the head office by the branch office are not subject to withholding tax in Switzerland.

  • The establishment of a branch office can be simpler and cheaper. In addition branch offices are quicker to dissolve in the event of liquidation and the operation costs (such as registration costs for changes in the commercial register) are usually cheaper than that of a subsidiary company.

  • For local branches, no statutory minimum company capital is required.

  • A branch office is favoured against a subsidiary company if the operations in Switzerland are intended to be temporary or if the prospect is uncertain.

The advantages of subsidiary companies over local branches are as follows:

  • As a branch is part of, and dependent on, the foreign principal company, the principal company is directly liable for its debts and undertakings and the branch is directly affected by a liquidation or insolvency proceeding of the principal company.

  • Swiss customers may prefer to do business with a local company (subsidiary) over a foreign company (branch office).

In practice, the financial advantages of branch offices usually do not outweigh the advantages of local subsidiaries with regard to the non-liability of the parent company for debts and undertakings of the subsidiary company.

 
4. How can an overseas company trade directly in your jurisdiction?

A foreign company can generally trade in Switzerland without obtaining a licence, except in the case of a regulated business, which (like a Swiss company operating in the same sector) usually requires a licence (see Question 19). Trading may be undertaken on a pure cross-border basis (that is, by means of post, telecommunication and occasional business travel to Switzerland) by establishing a representative or branch office in Switzerland or by co-operation with a Swiss individual or legal entity acting as agent, distributor, franchisee or similar. Practical limitations may follow from immigration law, which limits the number of days in a year that foreign nationals can stay on Swiss territory without obtaining a residence and work permit (see Question 31).

If the foreign company's business activity in Switzerland takes the form of a local branch establishment (see Question 3), the branch must be registered in the Swiss commercial register.

 
5. What are the formalities for setting up a partnership?

General partnerships

General partnerships (Kollektivgesellschaften) are governed by Articles 552 to 593 of the Swiss Code of Obligation (CO) and must consist of at least two partners (natural persons). The general partnership is created as soon as the partners have entered into a partnership agreement. Registration with the commercial register is mandatory (it is constitutive for businesses pursuing non-commercial aims and declaratory for businesses pursuing commercial aims).

A general partnership has a quasi-legal personality. This means that it can acquire rights, enter into commitments, take legal action and be sued under its name. Assets are owned by the partners in the form of joint ownership. The partnership is liable for any commitments entered into by the managing partner in its name and any tortious act committed by a partner in the exercise of their partnership function. The partners are jointly and severally liable against third parties for any obligations of the partnership. However, the assets of a partner are only liable in a secondary capacity (that is, on the exhaustion of the partnership's assets). Persons joining the general partnership after the establishment are jointly and severally liable with their entire assets for any existing obligation of the partnership. Creditors can pursue claims against the partnership for five years after its dissolution. Internal liability is governed by the individual partnership agreement.

Limited partnerships

Limited partnerships (Kommanditgesellschaften) are governed by Articles 594 to 619 of the CO. Like general partnerships, limited partnerships have a quasi-legal personality. However, in contrast to general partnerships, legal entities can be partners in a limited partnership (but only as limited partners). The minimum number of partners is two, of which at least one natural person must have unlimited liability (that is, a general partner, (Komplementär)). For the other partners (that is, limited partners (Kommanditäre)), liability is limited to a specific amount registered in the commercial register. Registration with the commercial register is mandatory (it is constitutive for businesses pursuing non-commercial aims and declaratory for businesses pursuing commercial aims). The limited liability of partners is conditional on their registration with the commercial register or if third parties are otherwise informed of this limitation.

 
6. What are the formalities for setting up a joint venture?

International joint ventures (JVs) are common in Switzerland and can take a variety of legal forms. The formalities to establish a JV vary according to the legal form used. For example, contractual joint ventures can be formed by the conclusion of one or more agreements between existing legal entities but corporate joint ventures require the incorporation of a new company (see Question 8). In addition, for corporate joint ventures, agreements usually play an important role in defining the governance of the venture (for example, a shareholders' agreement between the JV partners in respect of the JV company) and the day-to-day business relations (for example, ''satellite" agreements between the JV company and its founders).

 
7. Are trusts available in your jurisdiction?

Trusts are not available under Swiss substantive law. However, similar results can sometimes be achieved in specific situations by other legal means.

In 2007, Switzerland ratified the HCCH Convention on the Law Applicable to Trusts and on their Recognition 1985. Therefore, the Swiss courts will, in principle, recognise the effects of trusts validly created under a foreign law chosen by the settlor in the instrument creating the trust.

 

Forming a private company

8. How is a private limited liability company or equivalent corporate vehicle most commonly used by foreign companies to establish a business in your jurisdiction formed?

Regulatory framework

A company limited by shares (AG) and a limited liability company (GmbH) are both forms with separate legal personalities (Swiss Code of Obligations (CO)). Members are called shareholders (and sometimes quotaholders for the GmbH) and their liability is limited to the registered company capital. Some small to medium businesses choose the limited liability company due to its lower minimum company capital and flexible governance structure (for example, the ability to require shareholder approval for certain management decisions, or to define additional funding obligations in the articles of association). However, the disclosure requirements of a limited liability company are stronger than those of a company limited by shares. The company capital of a GmbH amounts to at least CHF20,000 (to be fully contributed upon incorporation), whereas an AG requires a share capital of at least CHF100,000 (of which at least CHF50,000 must initially be paid up).

The competent authority for the incorporation of an AG or GmbH is the commercial register authority of the respective canton in which the entity will be registered.

Tailor-made or shelf company

Companies limited by shares and limited liability companies are usually tailor-made. However, shelf companies are available and legally permissible if permitted in the company's articles of association.

Shelf companies should not be confused with shell companies (Mantelgesellschaften), which are liquidated companies that have not yet been deleted in the Swiss commercial register. The purchase of shares of a shell company is considered void.

Formation process

The company formation process for an AG or a GmbH in Switzerland is as follows:

  • The pre-clarification process which includes checking the availability of the proposed company name, appointing a notary to notarise the deed of incorporation and locating the necessary information for the incorporation.

  • Preparation of incorporation documents and collection of signatures.

  • Notarial incorporation, such as notarisation of the founders' meeting. If the founder will not participate in the meeting, a proxy (power of attorney) will be required. This must be entered into in front of the public notary (it is usually legalised and apostilled, if legalisation takes place outside of Switzerland).

  • Registration in the commercial register.

The following original documents must be filed with the competent commercial register (paper filing):

  • Application to the commercial register.

  • Public deed of incorporation.

  • Articles of association.

  • Declarations of acceptance of the directors (in case of an AG) or the managing officers (in case of a GmbH, only required if their position is based on appointment and not automatic as a consequence of being a quotaholder).

  • Legalised (and apostilled, if legalisation takes place outside of Switzerland) signatures of all persons who are authorised to sign on behalf of the company and therefore must be registered in the commercial register.

  • Proof that the independent statutory auditors have accepted their appointment or, as the case may be, an opting-out declaration, waiving the right to elect auditors if the requirements for a mandatory (limited or full) audit are not fulfilled.

  • "Stampa" declaration (cantonal form) (that is, a declaration by the founders confirming that there are no other contributions-in-kind, envisaged acquisitions of assets, offsetting of claims or special privileges than what is stated in the registered documents).

  • "Lex-Koller" declaration (cantonal form), (that is, a declaration by the founders confirming that the company does not intend to acquire real estate that is not used as a business facility (Article 2, paragraph 2, lit. A, Swiss Federal Act on the Acquisition of Real Estate by Foreigners).

  • If a foreign company is a quotaholder in a GmbH and therefore must be registered in the commercial register, a recent certified and apostilled extract from the foreign commercial register or an equivalent document proving the existence of the legal entity.

  • If the company does not have its own offices, a written domicile acceptance declaration issued by the domicile-holder stating that the company has been granted legal domicile at the place where it is registered.

  • In case of cash contributions, a certification of a bank showing that the contributions have been deposited in a blocked bank account.

  • If there are contributions in kind, acquisitions of assets, intended acquisitions of assets, offsetting of claims or special privileges, then the following additional documents must be presented:

    • contracts of contributions in kind and/or contracts of acquisition of assets and any additional required documents;

    • a founders' report signed by all founders; and

    • an auditor's report by a state-supervised auditing company, an accredited auditing expert or accredited auditor.

The usual time frame for a straightforward incorporation is normally approximately two weeks, with the preparation and execution of the incorporation documents taking one week and the registration with the commercial register usually occurring within another week.

The incorporation process is completed with the registration of the company in the relevant commercial register and the official publication in the Swiss Official Gazette of Commerce. A legalised commercial register extract is then issued to the founders. The establishment of the company becomes legally effective on the day of the registration in the register, which is indicated in the extract.

The fees for a straightforward incorporation, depending on whether the documents are prepared by the founders or their lawyer or notary are between CHF2,000 and CHF6,000. Further costs include the commercial register fees (which are usually less than CHF1,000, depending on the company's capital and number of signatories to be registered), the fees for a blocked bank account (if applicable) and the fees for a domicile to be paid to the domicile holder (if applicable).

The company name of a newly formed AG or GmbH can in principle be freely chosen. However, it must be sufficiently distinguishable from other company names formerly registered. In addition, the legal form (AG or GmbH) must be included in the company name. Central elements of the company name may be names derived from a surname, the company's object or an imaginative name and descriptions of the business. The company name must be clear as well as true and must not be misleading.

Changing the name of a company is a relatively straight-forward process. The articles of association must be amended. This must be done in a shareholders' meeting and the resolution must be notarised in a public deed. If the shareholders cannot attend the meeting in person, they can be substituted by way of a written (legalised and apostilled, if legalisation takes place outside of Switzerland) proxy. The amended articles and the public deed must be filed together with an application to the competent commercial register. This procedure takes approximately one to two weeks depending on the availability of the shareholders and the workload of the competent commercial register office. The fees for preparing the documents and filing the application are about CHF2,000. Further costs include the commercial register fees, which are usually less than CHF1,000.

Company constitution

Every company has its own articles of association, the composition of which forms an integral part of the incorporation process. Usually, standard articles of association are used as a starting point and are then adapted to the requirements of the case (in particular with regard to the company name, company purpose and company capital). The articles of association are filed with the competent commercial register. Therefore they are publicly available. Any change to the articles of association must be resolved by the shareholders in a public deed and again filed with the competent commercial register.

Depending on the requirements of the specific company, the articles of association can be supplemented by organisational regulations issued by the company's supreme executive body (the board of directors of an AG, or the managing officers of a GmbH). The shareholders can also enter into a shareholders' agreement between themselves, in which they regulate the exercise of certain rights (such as voting rights) and agree to other covenants. These documents are not filed with the commercial register, and are typically not public.

 

Financial reporting

9. What financial reports must the company submit each year?

Swiss companies and branches of overseas companies in Switzerland have a duty to keep accounts and prepare financial reports in accordance with the Swiss Code of Obligations (CO). The financial reports are integrated in the annual business report and submitted to the competent corporate body of the company (for example, for a company limited by shares the report is submitted for approval to the ordinary general meeting of the shareholders but does not need to be filed with the commercial register and is not normally publicly available). The annual accounts (the financial statements of the individual entity) comprise the balance sheet, the profit and loss account and the notes to the accounts. There are additional duties for publicly traded companies and certain larger companies. These larger companies must appoint an auditor to conduct an ordinary audit if they exceed two of the following thresholds in two successive financial years:

  • A balance sheet total of CHF20 million.

  • Sales revenue of CHF40 million.

  • 250 full-time positions on annual average, such as preparing a cash flow statement or drawing up a situation report.

 

Trading disclosure

10. What are the statutory trading disclosure and publication requirements for private companies?

In correspondence, on order forms and invoices and in official communications, the company name entered in the commercial register must be given in full and must not be amended. This includes the legal form (AG for a company limited by shares and GmbH for a limited liability company). In addition, shortened names, logos, trade names, brand names and similar can also be used.

The company name, statutory seat, purpose of the company, capital structure, board of directors, other signatories and statutory auditor are among other information published in the commercial register. Any changes must be filed with the commercial register for publication.

 
11. How do companies execute contracts or deeds?

Under Swiss law, a company executes contracts or deeds through its board of directors (company limited by shares in case of (AG)) and its managing officers (for a limited liability company (GmbH)) or other authorised signatories. The persons authorised to represent the company must sign by appending their signature to the business name of the company. They can either have sole signature authority or a joint signature authority (that is, at least two authorised signatories must sign, for the representation of the company to be effective). Members of the board of directors, managing officers and other signatories must be registered with the commercial register.

 

Membership

12. Are there any restrictions on the minimum and maximum number of members?

There is no maximum number of members for Swiss legal structures. The minimum number of members, however, depends on the business vehicle. The following legal structures require one person only:

  • Sole proprietorship (that is, one natural person as the sole proprietor).

  • Company limited by shares (that is, at least one natural person or legal entity as a shareholder).

  • Limited liability company (that is, at least one natural person or legal entity as a shareholder).

General partnerships or limited partnerships require a minimum of two members. Although, partners of general partnerships must be natural persons, limited partnerships must consist of at least one natural person with unlimited liability (that is, a general partner (Komplementär) and at least one natural person or legal entity with limited liability (that is, a limited partner (Kommanditär)).

 

Minimum capital requirements

13. Is there a minimum investment amount or minimum share capital requirement for company formation?

The minimum contribution or minimum share capital requirement for a company's formation depends on its legal structure. There are no statutory stipulations on the minimum contribution for sole proprietorships, general partnerships or limited partnerships. The statutory minimum capital for the formation of a limited liability company is CHF20,000. The mandatory nominal capital of a limited liability company is divided into shares (or quotas) with a nominal value of at least CHF100 each. Each share must be fully paid up. The minimum formation capital for companies limited by shares is CHF100,000, of which a minimum of 20% of the nominal value of each share, but in any case at least CH50,000, must be paid in. The share capital can be divided into shares with a nominal value of at least CHF0.01 each.

 
14. Are there restrictions on the transfer of shares in private companies?

Bearer shares of a company limited by shares are freely transferable to the acquirer through the delivery of share certificates incorporating the shares. The transfer of registered shares of a company limited by shares may be subject to approval by the board of directors, if this restriction is stipulated in the articles of association. A transfer may not, however, be prohibited per se.

In the case of a limited liability company, transfers of shares are normally permitted subject to approval of the shareholders' meeting. The articles of association can, however, depart from that default rule (for example, by dispensing with the approval or prohibiting transfers of shares).

 

Shareholders and voting rights

15. What protections are there for minority shareholders under local law? Can additional protections be given?

Swiss company law provides for:

  • The rights of every shareholder in a company limited by shares (AG) or a limited liability company (such as, the right to participate and vote in the general meeting, the right to receive an annual business report and the right to bring judicial action against unlawful shareholder resolutions).

  • Minority rights, that require a certain minimum holding of shares (for example, shareholders controlling at least 10% of the company's share capital may require the calling of an extraordinary shareholders' meeting or bring judicial action for the appointment of a special auditor (AG only)). These protections can be extended in the articles of association. In a AG, further minority rights (such as, the right to nominate a member of the board of directors) can be implemented through the creation of different classes of shares.

In addition, legal provisions requiring a qualified majority for certain resolutions of the general meeting also protect minorities (see Question 17).

The liability of shareholders is limited to their obligation to pay up any unpaid portion of the issue price of their shares. In a limited liability company (but not in a company limited by shares), the articles of association can give shareholders a duty to inject further capital into the company (if required and called in by the managing officers) up to a defined amount. However, it is not possible to provide for direct liability of shareholders to the company's creditors.

 
16. Are there any statutory restrictions on quorum or voting requirements at shareholder meetings? Do quorum or voting rights need to be proportionate to shareholdings?

In a company limited by shares or a limited liability company, votes must be counted either:

  • Based on the nominal value of the shares held by each shareholder.

  • If so provided in the articles of association, based on the number of shares held (which yields a different result, only if shares with different denominations are outstanding).

The law does not require mandatory attendance at shareholders' meetings, but provides for majority requirements (simple majority or qualified majority depending on the subject of a proposed resolution). As a general rule, this can be further increased but not decreased by a company's articles of association.

 
17. Are specific voting majorities required by law for any corporate actions (for example, increasing share capital, changing the company's constitution, appointing and removing directors, and so on)?

Certain shareholder resolutions require a qualified majority. For example, in a company limited by shares, a qualified majority (that is, a majority of at least two thirds of the votes represented and an absolute majority of the nominal values of shares represented) is required for the following:

  • Changes in the company's registered purpose or legal seat.

  • Share capital increases with certain special features.

  • Dissolution or merger of the company.

In extraordinary cases, higher majorities apply (for example, 90% of all votes for a merger in which certain shareholders are squeezed out of the company against compensation in cash). In addition, the consent of every single shareholder is required for example, where a company proposes to move from a commercial to a charitable purpose.

 
18. Can voting majorities required by law be disapplied to protect a minority shareholder (for example, through class rights or weighted voting)?

The majority requirements provided by law (simple or qualified majority depending on the contents of a proposed resolution) can, as a general rule, be increased (thereby giving a minority shareholder a veto power) but not decreased, by a company's articles of association. The question of whether the statutory simple majority requirement can be increased by the articles in the case of certain resolutions that are necessary for the proper functioning of the company (for example, the periodic election of the board of directors) is disputed. Shares with increased voting power (compared to capital participation) can be created through the issue of shares with different nominal values, where the articles of association provide that every share (irrespective of nominal value) carries one vote.

 

Sectoral restrictions

19. What are the conditions or restrictions on establishing a business in specific industry sectors? Are there industry sectors in which it is not permitted to establish a business?

Many activities in the financial services sector are regulated and subject to licence requirements. For example, banks, securities dealers, collective investment schemes and insurance companies are subject to prudential regulation and can only be established after obtaining a respective licence, which is conditional on a number of prudential requirements (such as, capital adequacy, liquidity and risk concentration limits, fit-and-proper tests for directors, executive officers and significant shareholders). Other financial intermediaries, such as asset managers, are only subject to anti-money laundering regulations. These regulations require them to adhere to a self-regulatory organisation, which monitors their compliance.

Other sectors where new businesses may require a licence or concession include education, employment agencies, energy, gambling, health care, public transport and so on. A few business sectors are reserved to state-owned enterprises (for example, pawn broking and salt extraction).

 

Foreign investment restrictions

20. Are there any restrictions on foreign shareholders?

In general, there are no restrictions on foreign shareholders in a Swiss private company.

However, foreign shareholders cannot own land in Switzerland without a permit (see Question 22). In foreign shareholder with a controlling interest in companies in certain regulated sectors (such as, banking and insurance) are subject to additional licensing requirements.

 
21. Are there any exchange control or currency regulations?

Switzerland does not currently maintain exchange controls or currency restrictions.

 
22. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?

The Swiss Federal Act on the Acquisition of Real Estate by Foreign Persons (AREFA) provides that foreign persons cannot acquire real estate in Switzerland, other than certain commercially used real estate, without a permit (which is only available under special circumstances). The acquisition of one or more shares in a company (other than a company listed on a Swiss stock exchange) that is set up to hold Swiss real estate is treated like a direct acquisition of the land. In addition, legal entities that are governed by foreign law or in which foreigners hold a controlling position (which is assumed in the case, among others, of a shareholding of more than one third of votes or capital) are treated as foreign persons for purposes of the AREFA.

 

Directors

23. Are there any general restrictions or requirements on the appointment of directors?

Swiss law does not generally restrict who can be elected to the board of directors of a company limited by shares, or to serve as managing officer of a limited liability company in respect of:

  • Age, except that a person must be of adult age (that is, over 18 years old).

  • Nationality.

  • Gender.

  • Criminal or bankruptcy record.

The law requires, however, that each company must be represented by registered signatories who are resident in Switzerland (which can be satisfied by one or more directors or managing officers, respectively or by other senior officers whose signature authority is recorded in the commercial register). The identity of all directors or managing officers is made public by registration in the commercial register.

 

Board composition

24. What are the legal requirements for the composition of a company's board of directors?

Structure

In principle, Swiss corporate law provides for a one-tier board structure in companies limited by shares. The board of directors has overall management responsibility for a company and is tasked with the ultimate supervision of all persons entrusted with management. In practice, however, a structure similar to a two-tier board structure can be established through the delegation of executive management (with the exception of non-transferrable duties of the board of directors) to:

  • A single director.

  • A board committee.

  • Non-members by the board, provided that the board is authorised by the shareholders in the articles of association and that the board's organisational regulations permit this.

A two-tier board structure is mostly established in listed companies.

Swiss limited liability companies usually have a one-tier management structure in which the managing officers perform all important management tasks but can also delegate certain responsibilities to other persons under their supervision.

Number of directors or members

A company limited by shares must have at least one director. There is no maximum number. The same applies for the number of managing officers in a limited liability company. If several directors or managing officers are elected, one of them must be elected chairperson. At least one director/managing officer or one other senior manager who can represent the company with individual signatory power (or two such persons who can represent the company with joint signatory power) must be resident in Switzerland.

Employees' representation

Employees are not entitled to be represented on the company's supreme executive body (board of directors or managing officers).

 

Reregistering as a public company

25. What are the requirements for a business to reregister as a public company?

Swiss company law does not require a company limited by shares to formally reregister if it intends to have its shares listed on a stock exchange. However, a comprehensive revision of its articles of association (to be registered with the commercial register) will be required in practice, as the articles of private and public companies require different rules. In addition, the company must comply with the listing requirements of the relevant stock exchange.

Limited liability companies are not suitable for listing on a stock exchange. Therefore it must become a company limited by shares before it is listed. The Swiss Merger Act governs this procedure, which ensures that the requirements of the new legal form are satisfied (similarly to an incorporation procedure) but preserves the company's legal identity.

 

Tax

26. What main taxes are businesses subject to in your jurisdiction?

Direct income and capital taxes

Swiss resident companies are generally liable to federal, cantonal and municipal corporate income taxes on their worldwide income. At the cantonal and municipal level Swiss resident companies are also subject to an annual capital tax on their net equity (paid-in share capital, surplus and retained earnings). Income and capital attributable to a foreign permanent establishment or foreign real estate are exempt from Swiss taxes. Losses can be carried forward for seven years for income tax purposes. In addition, a tax relief (participation deduction) is provided with regard to dividend income derived by companies from qualifying participations (fair market value of at least CHF1 million or 10% participation).

At federal level the effective corporate income tax rate is 7.83% (8.5% before tax). At cantonal and municipal level corporate income tax varies. Therefore, current combined (federal, cantonal, municipal) income taxes effectively range from 11.26% (Meggen, canton of Luzern) to 24.41% (Chancy, canton of Geneva). The effective cantonal capital tax burden ranges from currently 0.001% (Uri, canton of Uri) to 0.525% (Basel, canton of Basel-City), depending on the canton and the municipality.

Companies with mainly foreign or holding activities can benefit from reduced cantonal and communal taxes, both on income and capital (privileged taxation as mixed company or holding company).

Taxpayers must file annual tax declarations for their corporate income and capital taxes.

Value added tax

Individuals, partnerships and legal entities that carry out a business activity in an independent manner are subject to a Swiss value added tax (VAT) on a federal level, provided that the aggregate gross annual turnover from taxable transactions amounts to at least CHF100,000. VAT returns must be filed at the end of each quarter and the tax remitted to the authorities within 60 days of the end of the respective calendar quarter. VAT applies as a general rule at 8% on most supplies of goods and services. A special 2.4% VAT rate is applied on basic necessities such as food and non-alcoholic beverages, medicines, and certain newspapers, magazines and books. Hotel services are taxed at a reduced rate of 3.6%.

Capital issuance stamp duty

The issuance of shares in connection with the incorporation of a Swiss company or an increase in its share capital is generally subject to capital issuance stamp duty at 1% of the fair market value of the contribution, with a one-time tax exempt threshold of CHF1 million of contributed capital, which is exempt from this stamp duty. Stamp duty also applies on other equity contributions by the direct shareholder, subject to exemptions in certain restructuring or recapitalisation cases. The stamp duty must be self-assessed and is generally due for payment 30 days after the tax liability has arisen.

Securities transfer stamp duty

Securities transfer stamp duty is levied on the transfer of taxable securities, for example, shares, if a Swiss securities dealer participates in the transaction either as a party or as an intermediary/broker. Swiss/Liechtenstein banks, but also companies holding taxable securities with a book value of at least CHF10 million generally qualify as securities dealers. The securities transfer stamp duty rate is 0.075% per party in the case of Swiss securities and to 0.15 % per party otherwise. Exemptions for certain parties or in case of reorganisations may apply. The stamp duty must be self-assessed and is usually due for payment 30 days after the quarter the tax liability has arisen.

Federal withholding tax

Withholding tax (WHT) is levied on profit distributions by Swiss resident companies at a rate of 35%. WHT must be withheld by the distributing entity and charged to the recipient of the income within 30 days of the due date of the distribution. Swiss resident persons can have a full refund of the WHT if they duly report the underlying income. Foreign shareholders can have a refund based on applicable double tax or bilateral agreements (see Question 28). Subject to certain conditions, (such as intercompany dividends) the tax liability can be fulfilled by reporting instead of paying the WHT. WHT can be self-assessed.

In addition, WHT applies on interest for bonds, if these are held by more than 10 or 20 non-bank lenders (depending on the terms of the bonds).

 
27. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

A business is generally liable to Swiss income and capital taxes if it is resident for tax purposes in Switzerland or if it has an economic connection to Switzerland (non-tax resident).

Tax resident

A business is considered tax resident in Switzerland, and therefore subject to a tax on its worldwide income (see Question 26), if it is incorporated in Switzerland or it has its place of effective management and control in Switzerland.

Non-tax resident

A non-tax resident business is subject to a limited Swiss tax liability for domestic source income if it has an economic connection to Switzerland such as a permanent establishment (PE) or real estate located in Switzerland. Under Swiss domestic tax law a PE is a fixed place of business where business activities of an enterprise are conducted. Examples of a PE under Swiss tax law include a branch, factory, workshop, sales office, permanent agency, mine or a construction site, which is operated for a period of more than 12 months.

Permanent establishments are not subject to capital issuance stamp duty, but may be subject to securities transfer stamp duty and withholding tax on interest.

 
28. What is the tax position when profits are remitted abroad?

Profits remitted abroad by a Swiss company as dividends, hidden dividends or liquidation proceeds are subject to withholding tax (WHT) of 35%. WHT applies to companies incorporated in Switzerland or foreign companies that are managed in Switzerland and perform a business activity in Switzerland. WHT must be borne by the recipient or it is grossed up to 53.8%. Based on one of the more than 90 double tax treaties concluded with Switzerland or the EU savings agreement, WHT can be reclaimed in part (non-refundable tax usually amounts to 15%) or in full for qualifying participations (generally at least 10% in the Swiss company). In the latter cases, the WHT liability can also be reduced at source by applying the so-called notification procedure. It requires a prior request and approval by the Swiss federal tax authorities.

Generally, Swiss double tax treaties are modelled after the OECD Model Tax Convention on Income and on Capital and apply to individuals or companies that are tax resident in the other contracting state under the respective domestic tax law. Most Swiss double tax treaties apply to companies if considered opaque for tax purposes. Partnerships are in most jurisdictions (including Switzerland) generally considered transparent for tax purposes. Therefore, the partners must apply for tax relief under most Swiss double tax treaties.

 
29. What thin-capitalisation rules and transfer pricing rules apply?

Thin capitalisation rules

The thin capitalisation rules are based on an asset test. Permitted debt is calculated based on the debt rates for underlying asset categories (for example,100% for cash, 85% for receivables and 70% for participations and intangibles). The permitted debt is calculated on the book or fair market value of the assets. Financing companies can finance up to six-sevenths of their balance sheet with debt. Debt covers all non-equity positions, however, consequences only arise if the permitted debt is exceeded due to intercompany debt. The following tax consequences apply in this case:

  • The exceeding debt is qualified as hidden equity, subject to annual capital tax.

  • Interest on this amount is not tax deductible and, as hidden dividend distribution, is subject to withholding tax.

Transfer pricing

Switzerland does not have specific transfer pricing legislation or regulations. Swiss tax laws stipulate that business expenses must be commercially justified to be deductible; otherwise they will be added to the taxable profit. To be commercially justified, a transaction must serve a business purpose and be at arm's length. Transactions with related parties which are not at arm's length constitute a hidden profit distribution to the shareholder or related person or hidden contribution to a subsidiary.

In addition, Switzerland follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010 when taxing multi-national companies. With respect to intercompany interest, the Federal Tax Administration issues minimum and maximum interest rates on an annual basis, which serve as safe haven rates. Deviating rates can be justified based on a third party test.

For more information on tax on corporate transactions see: PLC Tax on Corporate Transactions global guide.

 

Grants and tax incentives

30. Are grants or tax incentives available for companies establishing a business in your jurisdiction?

Tax holidays for new or expanded business

Tax holidays can be granted at federal as well as at cantonal level for the establishment of new businesses and for the expansion of businesses for a maximum of ten years. A significant change of business can be treated in the same way and can qualify as the establishment of a new business.

To qualify for a tax holiday, the business must be in the interest of the local economy of the respective canton. The criteria taken into consideration generally include the creation of new jobs (at least ten to 20 jobs) and technological development, competition with existing local businesses, the impact of individual tax revenues expected from the jobs created and so on. The respective tax holiday can lead to a significant reduction or exemption of the profits.

At federal level, tax holidays are also available, however, in specific regions only. The respective business must be of economic relevance for the whole region. Therefore, not every new or additional business that is granted a tax holiday at the cantonal level can obtain a tax holiday at federal level as well.

Tax holidays are not granted by the tax authorities, but by the government. The approvals usually include certain requirements (such as investment amounts, number of jobs to be created and claw-back provisions) if the business is ceased within a certain timeframe.

Special tax regimes

For certain activities, special tax regimes on a cantonal and municipal level (holding, domiciliary and mixes company regimes) may be granted. These result in a partial exemption from cantonal or municipal income tax for foreign related income (mixed company) or full exemption in case of holding companies and reduced capital tax rates. In addition, reduced taxation on cantonal, municipal and federal level exists for finance branches and principal companies.

Switzerland committed to abolish these special tax regimes within the next few years due to the pressure from the EU and OECD while introducing corresponding measures to reinforce the fiscal attractiveness of Switzerland. The measures are currently in the legislative process of the corporate tax reform III and include the introduction of a patent box, notional interest deduction and a special tax rate for the goodwill created under a privileged tax regime for up to five years.

 

Employment

31. What are the main laws regulating employment relationships?

The main laws regulating employment relationships in Switzerland are the Swiss Code of Obligations (CO) and the Swiss Labour Act and its Ordinances (public law provisions). In addition, additional legislation contains specific rights or obligations relevant for employment relationships, such as the Swiss Federal Act on Posting of Workers, the Swiss Federal Act on Gender Equality and the Swiss Federal Act on Data Protection (mainly public law provisions).

As a general rule, the private law provisions to be found in the CO only apply if an employment relationship is governed by Swiss law. Public law provisions (such as provisions on maximum weekly working time, health protection or the mandatory minimum working conditions for all employees posted to work in Switzerland by foreign employers) usually apply to all employees working in Switzerland, regardless of any choice of law (where permitted) in the individual employment contract.

 
32. What prior approvals (for example, work permits, visas, and/or residency permits) do foreign nationals require to work in your jurisdiction?

The requirements applicable to foreign nationals to enter the Swiss labour market are listed in the following legislation:

  • Federal Act on Foreign Nationals (AuG) (Aliens Act).

  • Decree on Admittance, Residence and Employment (VZAE).

For European citizens, the Bilateral Treaty on the Free Movement of Persons applies.

Any foreigner entering Switzerland with or without a business visa can carry out gainful activities in Switzerland for up to eight days per calendar year without having to apply for a work permit. Visa requirements apply independently of work permit requirements. Even if a person does not need a visa to enter and stay in Switzerland (for example, US citizens for up to three months), this does not mean that the person can work in Switzerland without a work permit.

Work permits

Different types of permit are available depending on the person's nationality.

Employees from non-EU or non-EFTA countries:

  • Work permits for citizens of non-EU or non-EFTA-countries are subject to a nationwide quota.

  • The issue of work permits depends on whether the conditions of work and salary are consistent with Swiss standards. Additional payments (for example, allowances) can be required to match Swiss standards.

  • These employees are only permitted to the Swiss labour market if:

    • no appropriate candidate throughout Switzerland and EU/EFTA-countries can be found; and

    • they are considered specially qualified for the position in question.

  • The employer must prove that it has complied with these conditions of work and salary.

  • The local labour market does not have priority in intra-company transfers of highly qualified specialists and executive personnel under the terms and provisions of the General Agreement on Trade in Services (GATS), if the employee has worked abroad for the same group of companies for at least one year. However, the requirements regarding nationwide quotas and the conditions of work and salary apply. The following documents or information must be submitted for a transfer within a group of companies for highly qualified specialists:

    • the reason for the application (including information about the company, the project, the job and the foreign employee);

    • a written employment contract or an assignment contract/letter (including information about salary, allowances and/or coverage of expenses while in Switzerland); and

    • a copy of a valid passport.

  • All requests of citizens from non-EU or non-EFTA-countries must be submitted with substantiated evidence. This includes documents about work conditions (assignment letter or work contract), job description and information about the person (curriculum vitae, diploma and certification). The request must be submitted to the cantonal State Ministry of Economic Affairs and Employment. The State Ministry of Economic Affairs and Employment of the respective canton, the Federal Migration Office and the Migration Office of the respective canton must then examine the documents. The request will only be approved if all three authorities agree.

  • For citizens of countries that must have a visa (including the USA), the Swiss representation (embassy or consulate) is authorised to issue a visa. After entering Switzerland, registration at the local residence office of the community where the employee will live must be made within 14 days if the residence lasts longer than three months.

EU-25 or EFTA citizens:

  • These citizens right to a work permit provided that an employment contract with a Swiss company has been concluded.

  • Applications for (short-term) work and residence permits must be filed with the local authorities. A stay in Switzerland of an EU/EFTA employee (or a non-EU/EFTA citizen that has been holding a valid EU/EFTA work permit for at least one year) of an EU/EFTA company for gainful activities for less than three months per calendar year can be registered online. Usually, the following documents must be submitted:

    • passport copy;

    • name and address of the employer in Switzerland;

    • job title and project in Switzerland;

    • start date;

    • workdays;

    • end of work; and

    • hourly wage.

  • The request is submitted and dealt with in the same way as for employees from non-EU/EFTA countries. Employees must be registered at least eight days before they start work. In addition, each company only has 90 days to let its employees work abroad, independently of how many employees work on the same day(s) in Switzerland.

Citizens of Romania and Bulgaria (EU-2 citizens):

  • The regulations for EU-25/EFTA citizens apply. However, it must be verified that no proper candidate could be found in Switzerland. In addition, EU-2 citizens must apply for a work permit for any gainful activities that exceed eight days per calendar year (not just after the 90-day period applicable to EU-25/EFTA citizens). The following documents must be submitted:

    • an employment contract/assignment letter;

    • a job description;

    • a copy of the passport;

    • a passport photograph;

    • evidence that no proper candidate could be found in Switzerland; and

    • a curriculum vitae with diplomas and credentials.

  • The request is submitted and dealt with in the same way as for employees from non-EU/EFTA countries.

Residence permits

In general, every foreign citizen who pursues remunerated employment in Switzerland that lasts longer than four months, or who is not visiting Switzerland as a tourist, requires a residence permit.

 

Proposals for reform

33. Are there any impending developments or proposals for reform?

The negotiations between Switzerland and the EU regarding the Bilatérales 3 are currently still pending, but have been affected by the acceptance in February 2014 of the popular initiative against mass immigration. The purpose of the initiative is, in essence, to limit immigration into Switzerland by introducing quotas. It also calls for the renegotiation of the agreement for free movement with the EU. The Swiss Federal Council is at present working on the initiative's implementation from a legislative perspective, which is to occur within three years of the people's vote. The consequences of the initiative on future co-operation between Switzerland and the EU, in particular in the areas of research and education, are unclear. Switzerland is currently holding talks with the EU on a solution to apply the initiative against mass immigration without jeopardizing the existing Bilatérales 1 and 2.

Currently also pending is draft legislation regarding protection of employees in cases of lawful whistleblowing.

 

The regulatory authorities

Swiss Federal Office for the Commercial Register

Main activities. The federal authority has oversight of the cantonal authorities that maintain the commercial register (the official register of companies and other registered businesses) for their respective territories. It also maintains a website permitting searches of all Swiss commercial register data (free or for a fee) (Zefix).

W www.bj.admin.ch/bj/de/home/wirtschaft/handelsregister.html; www.zefix.ch

Swiss Financial Market Supervisory Authority

Main activities. This is the federal authority that supervises the most regulated financial service providers in Switzerland (banks, securities dealers, investment funds, insurance companies and so on). The authority's website provides access to legislation and regulatory guidance in this field (partly also available in English).

W www.finma.ch



Online resources

Swiss Confederation – the Federal Council

W www.admin.ch

Description. This is the official website of the Swiss federal government and contains chronological and systematic databases of Swiss federal legislation in the official languages of Switzerland. A limited selection of legislative documents is also available in (non-binding) English translation. For other legislative documents, unofficial English translations may be available from websites of universities, private law firms, audit firms and so on. These are best identified via web search engines.

Swiss Federal Supreme Court

W www.bger.ch

Description. This is the official website of the Swiss Federal Supreme Court, which contains information on the Court and a database in which all of the Court's decisions (since 2007) are accessible in their original language (free of charge for basic searches).

Swisslex

W www.swisslex.ch

Description. This is a commercially operated, searchable database of Swiss legal materials (court decisions, journal articles, treatises and commentaries) and contains the primary online research tool on Swiss law. This website requires subscription.



Contributor profiles

Roland Truffer, Partner

Bär & Karrer AG

T +41 58 261 52 85
F +41 58 261 50 01
E roland.truffer@baerkarrer.ch
W www.baerkarrer.ch

Professional qualifications. Switzerland, Lawyer

Areas of practice. Banking and insurance; internal investigation and cross-border proceedings; reorganisation and insolvency; capital markets; listed companies; corporate governance and board advisory.

Recent transactions

  • Advising UBS on the transfer of its CHF300 billion retail and corporate and wealth management business, booked in Switzerland to UBS Switzerland AG.
  • Advising as transaction counsel on the placement of CHF250 million 0.25% convertible bonds by Swiss Prime Site.
  • Advising the joint book runners on placement of CHF200 million 2.75% convertible bonds by Basilea Pharmaceutica AG.
  • Advising Temasek Holdings (Private) Limited on investment into Dufry.

Languages. German, English

Susanne Schreiber, Partner

Bär & Karrer AG

T +41 58 261 52 12
F +41 58 263 52 12
E susanne.schreiber@baerkarrer.ch
W www.baerkarrer.ch

Professional qualifications. Switzerland, Lawyer

Areas of practice. Tax; mergers and acquisitions; ; real estate; listed companies; banking and insurance.

Recent transactions

  • Advising UBS on the transfer of its CHF300 billion retail and corporate and wealth management business, booked in Switzerland to UBS Switzerland AG.
  • Advising Gedeon Richter on the acquisition of Finox Holding.
  • Advising Valora on the sale of Naville Distribution to 7Days Group.
  • Advising Castik Capital on its partnership with Switzerland's Acrotec Groupe.
  • Advising as transaction counsel on placement of CHF250 million 0.25% convertible bonds by Swiss Prime Site.

Languages. German, English

Thomas Stoltz, Partner

Bär & Karrer AG

T +41 58 261 59 32
F +41 58 261 59 01
E thomas.stoltz@baerkarrer.ch
W www.baerkarrer.ch

Professional qualifications. Switzerland, Lawyer; civil law notary

Areas of practice. Notarial services; employment; migration and social security.

Recent transactions

  • Advising Valora on Sale of Naville Distribution to 7Days Group.
  • Advising Castik Capital on its Partnership with Switzerland's Acrotec Groupe.
  • Advising CSA Energy Infrastructure Switzerland on its Acquisition of a Stake in the Swiss Transitgas Pipeline.
  • Advising The Kusnacht Practice on the Acquisition of a Controlling Stake in Double Check.
  • Advising TE Connectivity on Completion of Acquisition of Jaquet Technology Group.

Languages. German, English, Dutch

Laura Widmer, Counsel

Bär & Karrer AG

T +41 58 261 54 94
F +41 58 261 59 01
E laura.widmer@baerkarrer.ch
W www.baerkarrer.ch

Professional qualifications. Switzerland, Lawyer

Areas of practice. Litigation; arbitration; general corporate and commercial; internal investigation and cross-border proceedings; employment; migration and social security; mergers and acquisitions.

Recent transactions

  • Advising the banks on IPO of VAT Group.
  • Advising HNA Group on its all cash public tender offer for gategroup Holding.
  • Advising freenet AG on the Acquisition of 24% in Sunrise Communications.
  • Advising Syngenta on the all cash offer of ChemChina to acquire Syngenta for over US$43 billion.
  • Advising KKR on US$50m investment in GetYourGuide.

Languages. German, English


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