Switzerland as a location for your family and business
Switzerland is a multi-ethnic, multilingual and multi-faith nation that has been a federal state since 1848. Switzerland is situated in the heart of Europe and has two major international airports in Zurich and Geneva with intercontinental links to the Middle East, Asia and the Americas with many short haul, low cost European connections and an excellent and well connected rail service. The capital of the country is Bern.
Switzerland is neither in the European Union nor in the European Economic Area but it does belong to EFTA (European Free Trade Association) and has established bilateral agreements with many countries to permit free trade. It is a relatively small country of 41,000 square kilometres and a population of approximately 8m with three main national languages: German, French and Italian. English is widely spoken throughout. The Swiss Franc is a currency that is a traditional haven in difficult political or economic times which has had the effect of raising the value of the Swiss Franc. Steps have been taken by the Swiss National Bank recently to sell the Swiss Franc and buy other currencies on the currency markets to offset this effect and encourage exports and lower the relative cost of doing business in Switzerland.
Switzerland has no natural resources and has learnt to excel in certain trades and disciplines and establish a worldwide reputation for quality. It is famous for precision instruments, the watch industry, biotechnology, pharmaceutical, light industry and, most famously, for its financial services which include many global trading houses. It has some 30% of the global fund of funds market, 5% of the single manager hedge funds market and Geneva in particular has been a centre of professionalism for Family Offices and Trusts managing the wealth of others in a confidential way.
1. Quality of life and cost of living
Switzerland regularly performs well in quality of living surveys that are regularly conducted. The surveys typically take into account the economic environment, access and price of consumer goods, housing, medical and health issues, nature, the political and social environment, public services and transport, recreation, schools, education and the socio-cultural environment. However, Zurich and Geneva regularly feature near the top of the list of international cities in terms of cost of living. This means that in terms of purchasing power parity (adjusting for wages) the standard of living is high and it tends to be viewed as a desirable expatriate location.
2. Labour market, skills and work permits
Switzerland boasts a wealth of qualified, multi-lingual staff in a company friendly jurisdiction. Zurich and Geneva have different profiles, with Zurich being a larger centre specialising in industry, insurance and commercial banking and Geneva specialising in the area of private banking and wealth management as well as being a centre for non-governmental organisations. Both centres have attracted holding and trading companies and Switzerland is popular with asset managers drawn by the investor access and has led to an influx of talent in fund management over the last few years.
Work permits for expatriates have not been a problem for EU citizens although the success of opening up the Swiss market has led to reports of permit shortages for certain cantons. However, the economic development departments of the cantons concerned are sensitive to the need to attract companies, investment and jobs. The permit process for non-EU citizens is longer and involves a search for a suitable Swiss/EU candidate before the expatriate obtains the permit.
3. Education and schooling
To quote the Geneva cantonal promotion department:
“The Lake Geneva Region has long been famous for the fine private schools that, for generations, attracted the children of kings, movie stars, diplomats and presidents. What is less well known is that Geneva’s public schools and universities are also exceptional.”
This statement is true across much of the country as there are a large number of independent private schools offering education in English. For the expatriate moving here from an English-speaking environment there may still be difficulty finding a place in the first choice of school depending on the age of the child as some schools are oversubscribed, so it is important to register for a place as soon as possible.
Schooling in the local system is an option that is worthy of consideration, especially for children who have not begun secondary education. The local system is free and the leaving certificate (the Maturité Fédérale) is similar to the French (or International) Baccalaureate and offers a passport to Swiss and international universities.
a) Social security and related labour costs
As a general rule, anyone who is gainfully employed in Switzerland is subject to Swiss social security (covering old age, survivors, disability, maternity, and accident insurance) and must contribute to a pension plan, which the company must fund by at least 50%. It is difficult to give hard and fast rules on contributions as these may vary by seniority, insurance cover and the generosity of the pension scheme chosen. The cost to the company of these social contributions and any extra insurance provided by the company could be typically anything in the 15-25% range of salary costs.
b) Housing types, availability and costs
In recent years Geneva has had a shortage of available accommodation at reasonable prices. Supply has started to pick up since the financial downturn but the property market is very illiquid. This is perhaps the biggest challenge facing the expatriate relocating to Geneva, as rental and outright purchase prices have been driven up by market forces. People commute into Geneva from the Canton of Vaud as well as from neighbouring France.
The barriers to home ownership have largely been abolished for foreigners, although banks set limits to the percentage that may be borrowed which has protected Switzerland from the worst of the housing bubble that affected so many other countries over the last few years.
Contrary to popular belief Switzerland is not a tax haven for the individual. There are federal, cantonal and municipal elements of total tax payable and corporation income tax rates vary from canton to canton from approximately 12% to 24%, including the Federal, Cantonal and Communal corporation tax rates. Personal tax rates vary depending on location, tend to be progressive, and are based on earnings and personal wealth. Certain cantons still allow for lump sum taxation where the person has no economic activity in Switzerland, but taxation on earnings and wealth at varying rates is the order of the day. In fact many expatriates with simple tax matters are subject to a pay-as-you-earn scheme known as source tax, with higher earners and those with fortunes above certain criteria needing to complete a tax return for each tax year, which runs to 31 December.
International comparisons of personal income taxes are difficult to achieve due to the wide variety of types of taxation on income ranging from wealth tax, church tax, state social security cover and so forth. Federal taxes are uniform but the cantons are free to set their own rates and compete for business with each other and other jurisdictions in Europe.
6. Regulatory overview
Switzerland had traditionally been a lightly regulated country, famous for banking secrecy and high quality of service. This situation has changed radically over the last few years; pressure from the US, some spectacular fines and closures and progressive costs of compliance have forced the closure of some banks and are leading to further consolidation within the sector.
The advent of the European Alternative Investment Fund Manager’s Directive (AIFMD) and the Swiss equivalent regulation, the Collective Investment Schemes Act (CISA), have brought many distributors, asset managers and investment advisors of foreign collective investment schemes under prudential supervision for the first time.
Remaining under the radar and continuing to access the Swiss and EU markets are no longer compatible objectives, so advice on how the regulatory changes affect your business are best checked with professional advisors before commencing activities.