The Swiss federal system grants Switzerland’s 26 cantons (i.e., states) significant independence to shape investment policies and set incentives to attract investment. At the national level, the Swiss government enacts laws and regulations governing corporate structure, the financial system, and immigration, and concludes international trade and investment treaties. This federal approach to governance has helped the Swiss maintain long-term economic and political stability, a transparent legal system, an extensive and reliable infrastructure, efficient capital markets, and an excellent quality of life for the country’s 8 million inhabitants. Many U.S. firms base their European or regional headquarters in Switzerland, drawn to the country’s low corporate tax rates, productive and multilingual work force, and famously well maintained infrastructure and transportation networks. U.S. companies also choose Switzerland as a gateway to service markets in Eastern Europe, the Middle East, and beyond. Furthermore, U.S. companies select Switzerland due to its lenient labor laws when compared with other European locations.
In 2016, the World Economic Forum once again rated Switzerland the world’s most competitive economy – the country’s eighth consecutive #1 ranking. That high ranking not only reflects the country’s sound institutional environment, but also Switzerland’s ubiquitously high levels of technological and scientific research and investment. With very few exceptions, Switzerland welcomes foreign investment, accords it national treatment, and does not impose, facilitate, or allow barriers to trade. According to the OECD, Swiss general public administration ranks #1 globally in output efficiency, while Switzerland’s public administration enjoys the highest public confidence of any national government in the OECD. Switzerland’s judiciary system is equally effective and efficient, posting the shortest trial length of any of the OECD’s 35 member countries. Its competitive economy and openness to investment brought Switzerland’s cumulative inward direct investment to USD 863 billion in 2015.
Many of Switzerland’s cantons make significant use of financial incentives to attract investment to their jurisdictions. Some of the more aggressive cantons have occasionally waived taxes for new firms for up to ten years. However, this practice has been criticized by the European Union, –Switzerland’s top trading partner, with which Switzerland has many bilateral treaties–and is consequently likely to be phased out between 2018 and 2020. The first attempt to introduce legislation that would have abolished tax privileges for foreign companies was rejected by Swiss voters in a February 12, 2017 referendum. New draft legislation to bring Switzerland’s corporate tax system in line with OECD standards is expected later in 2017. Individual income tax rates vary widely across Switzerland’s 26 cantons. Corporate taxes also vary depending upon the country’s many different tax incentives. Zurich, which is sometimes used as a reference point for corporate location tax calculations within Switzerland, has a combined corporate tax rate of roughly 25%, which includes municipal, cantonal, and federal tax.
There are no “forced localization” laws designed to require foreign investors to use domestic content in goods or technology (e.g., data storage within Switzerland). Nevertheless, the Swiss Federal Council decided on February 5, 2014, to exclude foreign-held companies from working with the Swiss government or related entities when the work was related to critical infrastructure. A legal interpretation of this decision is still pending in the Swiss court system. Businesses also need to be aware that Switzerland follows strict privacy laws and certain data may not be collected in Switzerland, as it is deemed personal and particularly “worthy of protection.”
While Switzerland effectively enforces intellectual property rights linked to patents and trademarks, Swiss authorities are less rigorous in enforcing copyright laws on the internet. Switzerland has subsequently become a base for global online piracy, with a number of online piracy platforms managing their operations in and from Switzerland. In 2016, USTR placed Switzerland on its Special 301 Watch List due to continuing shortcomings in protecting copyrighted material online.
Some formerly public Swiss monopolies continue to retain market dominance despite partial or full privatization. As a result, foreign investors sometimes find it difficult to enter these markets. Additionally, the OECD ranks Switzerland’s educational, healthcare and agriculture costs and subsidies as relatively “high” when rated against output. The Swiss agricultural sector remains one of the most protected and heavily subsidized markets in the world. Despite heavy government support (direct payments comprise two thirds of an average farm’s income), Switzerland’s agricultural sector has the second lowest productivity among OECD members.
Liechtenstein’s investment conditions are identical in most key aspects to those in Switzerland, due to its dependence on the Swiss economy. The two countries form a customs union and Swiss authorities are responsible for implementing import and export regulations. Both countries are members of the European Free Trade Association (EFTA, including Iceland and Norway), an intergovernmental trade organization and free trade area that operates in parallel with the European Union (EU) and participates in the EU’s single market. Liechtenstein has a stable and open economy employing 36,755 people – more than the domestic population of 36,680 – and requiring a substantial number of foreign workers (mainly Swiss and Austrians). Some 53% of the Liechtenstein workforce are foreigners commuting daily to Liechtenstein, as an exception to the Free Movement of People allows Liechtenstein not to grant residence permits to its workers. Liechtenstein is one of the world’s wealthiest countries. Adjusted for purchasing power parity, its USD 157,040 per capita gross domestic product (GDP) is the highest in the world. According to the Liechtenstein Statistical Yearbook, the tertiary [services] sector accounts for 61% of Liechtenstein’s jobs, particularly in finance, followed by the secondary sector (particularly machine tools, precision instruments, and dental products), which employs 38% of the work force. Agriculture accounts for less than 1% of the country’s employment.
Liechtenstein reformed its tax system in 2011. Its corporate tax rate, at 12.5%, is one of the lowest in Europe. Capital gains, inheritance, and gift taxes have been abolished. The Embassy has no recorded complaints from U.S. investors stemming from market restrictions in Liechtenstein.
|TI Corruption Perceptions Index||2016||5 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2017||31 of 190||www.doingbusiness.org/
|Global Innovation Index||2016||1 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country (billion USD, stock positions)||2015||USD 155||http://www.bea.gov/
|World Bank GNI per capita||2015||USD 84,630||http://data.worldbank.org/