Swiss Legal System, Taxes and Investment Incentives

1.1 Setting tip a Business
Switzerland‘s pro-business legal system makes it easy to start operations within the country. Incorporating in Switzerland can usually be accomplished within two weeks.

There are two types of legal entities most common for business activities in Switzerland: joint stock companies (AG/ SA) and limited liability companies (GmbH, SàrL). It is also popular for foreign companies doing business in Switzerland to operate through branch offices or work with distributors / agents.

No special permits are needed to purchase real estate for business purposes.

Swiss labor law is widely recognized as liberal in comparison to the relatively over-regulated system found in the rest of Western Europe. A company’s ability to hire and terminate personnel is very flexible. Social contributions are comparably small, working hours per week are at a record high and strikes are virtually unheard of. These and other factors explain why more and more international companies decide to locate their operations in Switzerland.

Hiring staff from outside of Switzerland or transferring executives to Switzerland is easy for a variety of reasons:

• Beginning 2007, work and residence permits will be granted without restriction to all members of the EU upon presentation of an employment confirmation or an employment contract. For qualified personnel from non-EU or EFTA countries, flexible work and residence permit rules remain in place along with user-friendly procedures for obtaining the respective permits.

• The high quality of life, first-class healthcare system and wide availability of English-teaching international schools satisfies even the most demanding executives and their families.

1.2 Taxes
The Swiss tax system is considered highly attractive by a broad spectrum of international investors. Taxes are levied on the federal, cantonal (state) and communal (municipal) levels. Tax rates are low by European comparison, both for corporations and for individuals.

In Switzerland, there is a healthy tax competition between the cantons, whereby tax rates vary for corporations and individuals depending on their tax status and location.

1 .2.1 Corporate Taxes
Switzerland is known worldwide for its attractive corporate tax regime. Tax rates are among the most competitive for international onshore locations.

Switzerland enjoys an excellent reputation for the open and business-friendly relationships between tax authorities and taxpayers. Accordingly, companies are very much encouraged to enter into discussions with the tax authorities to clarify uncertain tax issues and / or to rule specific tax practices. Solutions are generally reached in an amicable and timely manner.

Under the general corporate taxation rules, companies are subject to tax at maximum rates that range between 13% and 25% depending on the canton and municipality of residence. Dividends and capital gains from substantial shareholdings are entitled to participation relief, thereby virtually eliminating tax on such transactions.

Many companies that decide to locate in Switzerland may apply for a special tax status. Thus the tax rates mentioned above tend to apply mainly to operating companies conducting business activities in Switzerland primarily for the local market.

1 .2.2 Special Tax Privileges

Holding companies i.e. companies holding substantial participations in other companies, are basically exempt from taxation on dividend and capital gains income from their substantial shareholdings. Other income such as interest income and management fees are subject to tax only and the federal level at the effective tax rate of 7.8%. A tax ruling is generally recommended to confirm the tax status and to deal with any company specific issues.

For companies with predominantly foreign business activities (i.e., at least 80%) and / or those conducting only administrative activities in Switzerland, special tax privileges may be available under the auxiliary (mixed) company regime or the domiciliary company regime. With an appropriate tax ruling, such companies are subject to tax at effective rates generally ranging between 8% and 11% on foreign source income, while Swiss source income is subject to tax at normal rates. Such tax rulings are often obtained in Switzerland for international trading companies, principal structures, headquarter operations, finance and IP activities to name just a few.

1 .2.3 Individual Taxes
Taxes for individuals are lower in Switzerland than in most other industrialized countries, leaving more disposable income available for individuals. A family with an income of US $ 100,000, pays taxes ranging between 8% and 20% depending on the canton and municipality of residency.

For high-net-worth individuals, who decide to move to Switzerland and do not intend to pursue gainful employment, a special lump sum taxation status may be available, resulting in some of the most competitive tax rates worldwide.

1.3 Economic Investment Incentives
Economic investment incentives (such as the granting of tax holidays and other financial incentives) are offered by most cantons for projects bringing new industry info the respective region that create jobs. The Swiss Confederation will also offer economic incentives (in specific designated areas) for certain types of projects. Investors are encouraged to check carefully into the potential options available.

Economic investment incentives may most notably include tax holidays for up to 10 years on qualifying projects. The process is a political process involving the designated authorities in the respective canton as well as the Swiss Confederation (to the extent federal incentives are pursued).