Laura Widmer of Bär & Karrer in Zurich provides an introduction to the business environment in Switzerland
Located in the centre of Europe, Switzerland is a mountainous, landlocked country with a population of about 8 million people. The official languages are German, French, Italian and Romansh. English is widely spoken. The largest Swiss cities are Zurich, Geneva, Basel and Bern, the country's capital.
Switzerland is largely influenced by its federalism and its direct democracy. It is formally a confederation but similar in structure to a federal republic. The federal structure consists of three levels: the Confederation, 26 cantons (states) and approximately 2,400 communities. The cantons enjoy broad autonomy in many areas such as taxes, public law and organisation of the courts within the limits of federal law. To a great extent, legislation in the field of civil and criminal procedure and substantive laws, including corporate and securities laws, is a federal matter. Under Switzerland's system of direct democracy, the people are given a direct say in the legislative process. So far 12 initiatives are planned for 2016, including an initiative on a new surveillance law.
Many factors make Switzerland an attractive place to do business and to live. Switzerland is a politically stable country with one of the highest per capita GDPs in the world. It is a prosperous and modern market economy with a low unemployment rate (a little over 3%) and a skilled labour force. Moreover, the competitive tax environment which is strongly influenced by the country's federal structure, leads to a moderate tax burden for both companies and individuals. Overall, investors benefit from a competitive and stable economy, a business-friendly legal environment, an efficient and reliable judicial system, a low crime rate as well as one of the highest standards of living in the world.
Switzerland's attractiveness for doing business is reflected by the number of global players with headquarters in the country, such as the consumer products multinational Nestlé, large pharmaceutical companies Novartis and Hoffmann-La Roche, engineering company ABB, and numerous financial institutions, including UBS, Credit Suisse, Swiss Re and Zurich Financial Services. In addition to large blue-chips, numerous small and medium enterprises make up the backbone of the Swiss economy, in particular in the medical, biotech and financial industries. Switzerland ranks first in Europe (and fourth globally) for economic freedom, in particular due to its openness to global trade and investment enabling Switzerland to become one of the world's most competitive and innovative economies.
Numerous international bodies such as the World Trade Organisation, World Economic Forum and World Intellectual Property Office are headquartered in Switzerland, as are football's FIFA, UEFA, rugby's EPCR and ice hockey's IIHF.
Half of Swiss exports go to Eurozone countries. Switzerland is the EU's second-biggest trading partner, behind only the USA. As a consequence, the Swiss National Bank's surprising decision to abandon the SFr/Euro exchange rate peg in January 2015 severely affected Switzerland's economy. As an immediate reaction, the Swiss Market Index (SMI) dropped by 10%. Since then, the independent Swiss National Bank has conducted major market interventions to prevent further appreciation of the Swiss franc. This decision to abandon the exchange rate peg posed a challenge to Swiss exporters and the tourism industry, which are trying to adapt by lowering their production and service costs. Further restructurings and consolidations can be expected to take place in the next few years. On the other hand, the decision increased the general purchasing power of Swiss companies. Switzerland experienced deflation of -1.1% in 2015 and a rate of -0.5% was forecasted for 2016, re-entering positive territory in 2017.
In terms of M&A activity, recent highlights were the acquisition of Syngenta by ChemChina for more than $43 billion and the merger of Chubb and Zurich domiciled ACE to one of the leading global insurance groups, with a volume of approximately $28.3 billion. Another noteworthy deal was the takeover bid for Kuoni Travel Holding launched by the Swedish private equity firm EQT for a price of SFr370 per share.
As for recent capital markets activities, so far three companies went public in 2016, one of them being VAT Group, a global market leader for high-end vacuums.
A series of significant new laws and regulations entered into force in 2016. Special mention should be made of the Financial Market Infrastructure Act, which brings existing Swiss regulation of financial market infrastructure in line with international standards in various areas. Furthermore, rules around cash payments have been tightened, i.e. more checks are required by traders faced with cash payments of over SFr100,000 and aggressive advertising of small loans has been outlawed. On the tax side, there was a large increase in Swiss carbon tax, and persons eligible for forfeit taxation (taxation based on a person's expenditure, as opposed to their income) now have to pay higher taxes due to a change in the tax bases calculation.
Bär & Karrer
About the author
Laura Widmer is a SBA certified specialist in employment law. She advises on employment law issues in domestic and international M&A transactions, in particular related to reorganizations and business transfers as well as employment matters for key employees such as employee participation and incentive agreements. She also represents clients in all kinds of commercial matters before Swiss courts of all levels and acts as party counsel in international arbitration.