Today we’ll take a look at one of my personal favorite countries: Switzerland.
Sitting at the heart of Europe, this fiercely neutral country hosts everything from stunning nature to several of the world’s largest international organizations to fine watchmaking to punctual and clean trains. It also has a world-renowned banking sector and several tax advantages.
Switzerland is a quadrilingual country: German, French, Italian, and Romansh. However, for the purposes of international finance, German and French are dominant to the point of Italian and especially Romansh terminology being nearly unheard of.
Switzerland lies at the center of Europe. It has seen everything from Gothic tribes to Roman empires to medieval chivalry to French revolutions to a civil war to modern-day global conflicts, and peace and prosperity. All of these have led to the fiercely independent, neutral, and stalwart nation that it is today.
In 1648, Switzerland was formally and legally declared independent from the Holy Roman Empire.
150 years of relative peace but some economic hardships followed, until France under the guise of the French revolution invaded Switzerland in 1798. The French invaders changed Switzerland to a republic called the Helvetic Republic (République Helvétique). The cantons lost most of their independence, which was deeply unpopular across Switzerland.
By 1803, Switzerland was reshaped, giving cantons greater independence. The cantons of Aargau, St. Gallen, Vaud, Ticino, Thurgau, and Grisons joined at this time.
In the 1815 Vienna Congress, the Swiss confederation was restored and was joined by the cantons Geneva, Valais, and Neuchâtel.
A brief civil war broke out in 1847, fought over a mostly religious conflict between Protestants and Catholics. After the end of the civil war, Switzerland enacted a new constitution which gave cantons independence, but also with a federal government with responsibilities on matters relating to military, trade, and most legal matters. This was followed by rapid industrialization, and the Swiss economy grew strong.
During World War I, all parties respected Switzerland’s neutrality. The Swiss Army was mobilized and stationed in areas considered at risk of invasion. Owing to its neutrality and financial stability, the Swiss banking sector started taking off considerably. Switzerland also played an important role in peace negotiations and was a safe haven for the intellectuals of Europe.
The threats against Switzerland were much greater in World War II, with Germany considering an invasion. Both sides of the war violated Switzerland’s airspace, and Switzerland responded by engaging both Allied and Axis planes.
Just as in World War I, the Swiss banking sector benefited from the instability in Europe and much of the rest of the world. Enormous amounts of money and gold were deposited in Swiss banks.
Switzerland today is a wealthy and stable nation, known globally for its banking sector, low taxes, watchmaking, fine chocolate, and direct democracy. It’s the headquarters of many of the world’s largest and most well-known international organizations, such as the Bank for International Settlements, the European Organization for Nuclear Research, European Free Trade Association, World Health Organization, World Intellectual Property Organization, World Trade Organization, International Air Transport Association, International Organization for Standardization, and the International Red Cross.
Salaries in Switzerland are very high, often double those of surrounding countries. This makes Switzerland unfit for low-skill jobs, but on the other hand, it makes it attractive to highly skilled professionals. Coupled with strong employment laws and European standards on vacation days and sick leave, it’s no surprise that the talent pool in Switzerland is among the highest you can find in Europe and the world.
Swiss companies are taxed on three levels: federal, cantonal, and communal (municipal).
The federal tax rate stands at 8.5%. Cantonal and communal tax rates vary significantly. Cantons and communes compete on tax rates to attract business, but not without considering the possible negative ramifications.
The total tax rate varies from 14% to 25% with the eastern German-speaking and the central German/French-mixed cantons typically having the lowest tax rates, such as Schwyz, Nidwalden, Zug, and Zürich. The French-speaking western parts have the highest tax rates.
However, taxes are not quite that simple in Switzerland. It’s possible to get an effective tax rate of under (sometimes far under) 10% using tax planning, and by special agreements with the commune or canton whereby tax is paid in advance at an agreed-upon sum. These agreements are reached on a case-by-case basis and must usually benefit the canton or commune in some significant way (such as employment).
Costs as such are not particularly high, but surrounding financial requirements—especially the share capital requirements—make Switzerland a generally unattractive jurisdiction for forming nonresident companies.
Forming a Swiss company can in and of itself cost no more than a few hundred to 1,000 CHF with incorporation mills like Startups.ch. For nonresidents or companies with more sophisticated needs, there is a seemingly endless supply of accountancy firms and law firms all over the country that can help with formation. Tariffs vary enormously.
AG–Aktiengesellschaft; SA–Société Anonyme
This is the premier legal form in Switzerland. It is the most trusted and prestigious.
Share capital must be at least CHF100,000, of which CHF50,000 must be paid during formation. The share capital must be divided into shares at no less than CHF0.01 per share.
A minimum of one director and one shareholder are required. Corporate directors are not permitted, but corporate shareholders are. Nominees often act as directors.
Names and nationalities of directors, but not shareholders, appear in the Zefix online public records.
Companies must file annual returns. Audits are required for companies with a turnover of CHF40 million or a turnover of CHF20 million and more than 250 employees.
There’s nothing like Swiss banking. A lot of jurisdictions do banking very well, but as a whole, none of them beats Switzerland.
The Swiss banking sector can be divided into five categories:
- large banks;
- cantonal banks;
- private banks;
- foreign banks; and
- other banks.
For a full list of banks, see the Swiss Financial Market Supervisory Authority (FINMA) website.
These banks are UBS and Credit Suisse. It’s sometimes argued that Julius Bär belongs to this category, but I find its focus on private banking too dominant and instead place it under private banks.
UBS and Credit Suisse are the only Swiss banks that cover all banking services from retail/personal banking to small local companies to large international companies to private banking and everything in between.
Nonresident personal accounts with UBS or Credit Suisse are very rarely opened. The banks do it sometimes in exchange for a large deposit, but not large enough to qualify for private banking.
From time to time and on a case-by-case basis, UBS and Credit Suisse accept nonresident businesses even if they aren’t turning over enormous sums of money. Having ties to Switzerland helps.
There are 24 cantonal banks, closely corresponding to the number of cantons in Switzerland (26). Cantonal banks are government owned (owned by their canton) and almost exclusively engage with customers within the canton. To be a customer with a cantonal bank without living in that canton, you essentially have to have lived in the bank’s canton before.
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Barring rare exceptions, ZKB is the only cantonal bank available to nonresidents (who aren’t and haven’t lived in Zürich or Switzerland)—but only for private banking, which starts at CHF500,000.
Services are rarely offered in languages other than the language or languages of the canton. The bigger ones and some of the smaller ones sometimes offer English.
Wealth management is at the core of Swiss banking, and private banking is available with almost every Swiss bank, including the giants and the cantonal banks. However, there’s a group of banks dedicated entirely to private banking. These are often referred to as private banks.
Some of the more noteworthy are:
Some of the private banks are family-owned banks, having been in the same family often since the 1700s or 1800s, and are referred to as family banks.
Minimum deposit requirements vary wildly and are often negotiable (to a degree), but it’s rare for amounts under CHF100,000 to be accepted. Some banks might take you on for less but won’t assign you a private banker (account manager) or may withhold other services until you reach a certain amount. The likes of UBS, Credit Suisse, Julius Bär, LGT, and Pictet expect somewhere in the range of CHF500,000-2 million and will virtually never deviate from this.
Most of these banks do not issue cards and are unsuitable for anything other than corporate or personal wealth management.
Being one of the world’s finest banking centers, many if not most of the world’s major banks have established themselves in Switzerland either as a licensed bank or as a representative office.
The small and medium-sized enterprises and retail banking business is entirely dominated by Credit Suisse, UBS, and cantonal banks. No foreign bank even tries to compete in those sectors. Foreign banks are focused on private banking or corporate banking.
Some noteworthy foreign banks in Switzerland include:
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Below I’ve grouped all banks that don’t fit into any of the aforementioned categories.
Gruppo Cornèr Banca is available to retail customers across the country, though focused on the Italian-speaking part of Switzerland. The bank sometimes accepts nonresidents, although almost exclusively for private banking.
The Swiss Post runs a bank called PostFinance, which is quite popular in Switzerland. It’s a perfectly adequate bank for those without sophisticated needs. PostFinance offers basic banking services and does so very well. It accepts nonresident customers from neighboring countries.
Banking secrecy in Switzerland goes back in one form or another to the Old Confederacy, with some of the country’s oldest banks tracing their roots back to the 1700s, prior to the French invasion.
However, banking secrecy as we know it today was not formalized until 1934 with the legendary Bundesgesetz über die Banken und Sparkassen (Loi fédérale sur les banques et les caisses d’épargne), or Federal Act on Banks and Savings Banks.
Contrary to many sensationalist headlines, the law remains in effect to this day.
It has, however, been amended; and although there were always conditions under which information could be disclosed, these conditions have been expanded to allow for exchange of information.
Living in Switzerland
Although expensive, the quality of life in Switzerland is among the highest in the world, if not the highest. Infrastructure is top tier in most aspects.
Mastering at least one of the local languages isn’t necessary, but you cannot expect to fully assimilate until you do.
It’s very easy to get comfortable in Switzerland.
The personal taxation structure in Switzerland varies between cantons and municipalities, just like the corporate tax. Corporate and personal income taxes vary from just under 19% to around 40%. More on that here. The German-speaking part is lower taxed than the French-speaking part.
Although there is no federal wealth tax, cantons and communes may levy one.
It’s always wise to investigate the tax situation in the relevant canton(s) and municipalities. For income tax, the website Comparis does a good job of giving indicative answers.
Income from foreign businesses and foreign immovable properties are exempt from taxation.
The federal government and some cantons permit what’s called “lump sum tax,” whereby a person is taxed on expenses instead of worldwide income. This type of individual arrangement is normally reserved for non-Swiss high-net-worth individuals (and usually ones with no professional engagements in Switzerland) whose lump-sum tax would be so high that the canton is willing to forgo regular tax in favor of expense-based taxation.
Immigration and Relocation
For EU and EEA citizens with a job in Switzerland, all you need is to show up at your municipal office with your passport and your contract.
If the job is for less than 12 months, you’ll be issued an L permit valid for at most 12 months. If it’s an indefinite (permanent) job, you’ll be issued a B permit, valid for five years. Sometimes, an L permit is issued but replaced with a B permit within a few months.
B permits are extended automatically every five years as long as you remain employed. However, if you’re unemployed for 12 months, your next B permit may only be valid for one year.
A B permit can also be issued to those who can prove that they have sufficient financial means to sustain themselves. This can include both wealthy people and foreign entrepreneurs.
After you’ve lived in Switzerland for five years, you can apply for a C permit; it’s a settlement permit which many value more highly than having a new B permit issued. Among other things, C permit holders are paid gross salaries, whereas B permit holders have taxes deducted at source. C permits are permanent work and residence permits not tied to any canton or employer.
Non-EU/EEA citizens face a much stiffer challenge.
While the procedure is much the same as above, getting the first permit is much more difficult. Jobs can only be given to third country nationals (nationals who are neither Swiss, EU, nor EEA) if it’s a highly specialized role which cannot be reasonably filled by a first or second national. Senior management positions and specialist professionals are the most likely to qualify.
While it lacks ease of doing business and low taxation, Switzerland is nonetheless one of my favorite countries. Having spent considerable time in many jurisdictions, there is nothing that comes close to Switzerland. Hong Kong is similar to Singapore; Cayman Islands are similar to many other Caribbean islands and Bermuda; but nothing is similar to Switzerland.
Editor’s Note: In addition to Switzerland, there are other attractive jurisdictions that are cause for optimism. However, things can change quickly. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible. That’s where International Man comes in. Be sure to get the free IM Communiqué to keep up with the latest on the best international diversification options to maximize your personal freedom and financial opportunity.
The information in this article is based on Streber’s personal experiences and has not been independently verified. As always, do your own due diligence.
Streber works as a consultant and director for a wide range of companies and has broad experience in offshore banking, offshore incorporation (formation and maintenance of offshore companies), taxation, privacy, ecommerce, merchant accounts, online payments, and all other things the privacy-minded entrepreneur might find interesting. You can read Streber’s blog here.