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. The Swiss federal system grants Switzerland’s 26 cantons (i.e., states) and largest municipalities significant independence to shape investment policies and set incentives to attract investment. 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 8.4 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 workforce, and famously well maintained infrastructure and transportation networks. U.S. companies also choose Switzerland as a gateway to markets in Eastern Europe, the Middle East, and beyond. Furthermore, U.S. companies select Switzerland because hiring and firing practices are less restrictive than in other European locations.
In 2018, the World Economic Forum rated Switzerland the world’s fourth most competitive economy. This high ranking reflects the country’s sound institutional environment and high levels of technological and scientific research and development. With very few exceptions, Switzerland welcomes foreign investment, accords national treatment, and does not impose, facilitate, or allow barriers to trade. According to the OECD, Swiss public administration ranks high globally in output efficiency and enjoys the highest public confidence of any national government in the OECD. Switzerland’s judiciary system is equally efficient, posting the shortest trial length of any of the OECD’s 35 member countries. The country’s competitive economy and openness to investment brought Switzerland’s cumulative inward direct investment to USD 750 billion in 2016 (latest available figures) according to Swiss government sources.
Many of Switzerland’s cantons make significant use of financial incentives to attract investment to their jurisdictions. Some of the more forward-leaning 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. The first proposal to introduce legislation that would have abolished preferential corporate tax treatment for foreign companies (CTR III) was rejected by Swiss voters in a February 12, 2017 referendum. The new Federal Act on Tax Reform and Swiss Pension System (AHV) Financing (TRAF) proposal to bring Switzerland’s corporate tax system in line with OECD standards was approved by the Swiss parliament on September 28, 2018 and was accepted by 64.4 percent of Swiss voters in a May 19, 2019 popular vote.
Entering into force on January 1, 2020, TRAF will oblige Swiss cantons to offer the same corporate tax rates to both Swiss and foreign companies, but will allow cantons to continue to set their own cantonal rates and offer incentives for corporate investment through deductions and preferential tax treatment for certain types of income.
Individual income tax and corporate tax rates vary widely across Switzerland’s 26 cantons, depending upon cantonal tax incentives. In 2017–2018, Zurich, which is sometimes used as a reference point for corporate location tax calculations within Switzerland, had a combined corporate tax rate of 21.15 percent, which includes municipal, cantonal, and federal tax.
Key sectors that have attracted significant investments in Switzerland include IT, precision engineering, scientific instruments, pharmaceuticals, and machine building. Switzerland hosts a significant number of startups.
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). The Swiss Federal Council decided on February 9, 2014, to exclude foreign-held companies from bidding on particular critical infrastructure projects that have a strong nexus between information and communication technologies (ICT) and the Federal Administration. While the Federal Council’s decision does not spell out specific sectors subject to this exclusion, it is widely interpreted to apply to ICT projects linked to areas such as Switzerland’s defense, railways, energy grid, and the Swiss National Bank. A legal interpretation of this decision is still pending. Were a foreign bidder to challenge a bidding exclusion based on this decision, a Swiss court would determine whether the ruling applied to the specific sector involved.
Switzerland follows strict privacy laws and certain data may not be collected in Switzerland, as it is deemed personal and particularly “worthy of protection.”
According to WIPO’s World Intellectual Property Indicators, in 2017 (latest available) Switzerland ranked 8th globally in filing patents, 11th in industrial designs, and 14th in trademarks, reflecting Switzerland’s overall strong intellectual property protection. While Switzerland enforces intellectual property rights linked to patents and trademarks effectively, enforcement of copyright on the internet has been less effective. In 2018, USTR confirmed Switzerland’s ranking on its Special 301 Watch List due to protection of copyrighted material online. If approved by parliament in 2019, a new Copyright Act is expected to address this issue as of 2020.
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 (e.g., telecommunications, certain types of public transportation, postal services, alcohol and spirits, aerospace and defense, certain types of insurances and banking services, and salt). 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. Switzerland’s agricultural sector receives heavy government support (direct payments comprise two thirds of an average farm’s profits) and has one of the lowest levels of productivity among OECD members.
Liechtenstein’s investment conditions are identical in most key aspects to those in Switzerland, due to its integration into 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). Liechtenstein participates in the EU single market through the European Economic Area (EEA), unlike Switzerland, which has opted for a set of bilateral agreements with the EU instead. Liechtenstein has a stable and open economy employing 38,661 people (2017), exceeding its domestic population of 38,114 (2017) and requiring a substantial number of foreign workers. In 2017, 70.1 percent of the Liechtenstein workforce were foreigners, mainly Swiss, Austrians and Germans, 55 percent of which commute daily to Liechtenstein. (Liechtenstein was granted an exception to the EU Free Movement of People Agreement, enabling the country not to grant residence permits to its workers). Liechtenstein is one of the world’s wealthiest countries. Liechtenstein’s gross domestic product per capita (at current USD) amounted to USD 164,993 in 2016 and is the highest in the world. According to the Liechtenstein Statistical Yearbook, the services sector, particularly in finance, accounts for 61.9 percent of Liechtenstein’s jobs, followed by the manufacturing sector (particularly machine tools, precision instruments, and dental products), which employs 38 percent of the workforce. Agriculture accounts for less than 1 percent of the country’s employment.
Liechtenstein reformed its tax system in 2011. Its corporate tax rate, at 12.5 percent, 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.
Table 1: Switzerland – Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||3 of 180||https://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||38 of 190||https://www.doingbusiness.org/rankings|
|Global Innovation Index||2018||1 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$249, 968||https://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$80,560||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|