How to do Business in Switzerland
Table of Contents
- Executive Summary
- Country Profile
- Location and Size
- Topography and Climate
- Flora, Fauna and Natural Resources
- Brief History of Switzerland
- Population and Ethnic Composition
- Language, Religion and Education
- Political and Legal System
- Foreign Policy and Membership in International Organizations
- The Role of the European Membership for Switzerland
- Macroeconomic Indicators
- Foreign Direct Investment
- Research and Development
- Foreign Trade and Trade Barriers
- Financial Institutions, Currency and Stock Exchange
- Industries and Logistics
- Taxation in Switzerland
- Setting up a Company in Switzerland
- Other Factors to Consider before Setting up a Company
- Intellectual Property Rights
- Business Etiquette and Culture
- Greet Hofstede Culture Dimensions
- Switzerland Profile Data
- Executive summary
Switzerland is a mountainous country located in Europe with the city of Berne as its capital. Switzerland has a population of approximately 8.04 million people with reference to the latest census report. The country is also home to four ethnic groups which include the Germans, French, Italians and Rhaeto- Romansh. The country operates through three levels of government which are the federal, the canton and the communal levels. In addition, it is also a multiparty democracy where citizens actively participate in its political process. In terms of foreign policy, one way through which the government realizes this objective is by ensuring tha the people of Switzerland are represented at the highest levels of any international organization. The average corporate taxation rate in Switzerland in the period between 2006 and 2014 has been determined as 17.90%. The process of establishing a business in Switzerland is relatively easier and faster due to the existing legislations that allow foreigners to trade within the jurisdiction. This has been necessitated by the existence of laws and cultural practices that enhance competition and high level performance.
- Country Profile
Location and size
Switzerland is located in west central Europe where it borders Germany and France to the North, Liechtenstein and Austria to the east and Italy to the South. The county is landlocked and it covers about 41, 290 square kilometers, this makes it twice the size of New Jersey (swissworld.org). The capital of Switzerland is Bern which is located along Aare River which is on the northern part of the country. The largest city is Zurich and the country is also home to other cities of greater significance on the international platform such as Geneva, Lausame and Basel (swissworld.org).
Topography and climate
Switzerland falls in the category of mountainous countries in Europe. This is because more than 60% of the country is covered by the Alps. These Alps form part of the mountainous system that characterizes Europe. Within these Alps there are several ranges such as the Penine range which is the highest peak of Switzerland considering that it is 4,600 meters. There is also the Swiss plateau which on average is 400 meters above sea level and extends by about 560 kilometers. In addition, the principle river system in the country results from the Rhine and other rivers. Switzerland is also famous for its lakes such as Lake Geneva and Lake Lugano among other lakes (swissworld.org).
In terms of climate, Switzerland falls under the climatic transition zones since it is subject to the of the Mediterranean, Arctic and Atlantic influences. The annual mean temperatures of the country are at 9° Celsius (48° F). The highest temperature ate often during the summer where the country experiences temperatures between 18° C and 21° C. However, the winter is considered as the lowest in terms of temperatures since the country experiences 0C. Spring and Autumn are often characterized by warm winds blowing from the Alps (swissworld.org). The amount of rainfall that different regions in this country receive is dependent of the altitude. The higher the altitude the greater the amount of precipitation that a region experiences.
Flora fauna and natural resources
Switzerland is home to different plants and animals. Animals are both domestic and wild and they include cattle, dogs, wolfs, cat, deer, beaver, domesticated pigs, and the birds among other animals. The lakes also contain animals such as fish. Plants in Switzerland are largely those that contribute to the forest cover of the country especially the trees. In addition, the evidence of the availability of both cash crops, food crops and wild plants is in the presence of fruits, seeds, textile and different tools that are named from the products of plants (swissworld.org).
Natural resources in Switzerland appear in numerous categories for instance; water is an abundant natural resource in the country due to availability of lakes and the rivers that keep sustaining these lakes. However, other forms of natural resources such are mineral are limited in the country. There exists few deposits of iron and manages in Jura. In addition, other mineral of commercial value in the country include granite limestone, building stones and salt. Land is also a natural resource that exists in Switzerland considering that about 11% of the county is arable, 30% is forested while the rest are the mountainous regions that serve the tourist attraction purpose (swissworld.org).
Brief history of Switzerland
Switzerland was originally inhabited by Helvetians who were under the roman rule in the 1st century. During this period, the country flourished in commerce. After the invasion of the region by the Germanic tribes, in the year 800, Switzerland became a protectorate of the Charlemagne Empire. Through a series of considerations and battles, Switzerland through the Congress of Vienna was re-established as a sovereign state. The country throughout this period continued to witness growth and in 1850 it became the second most industrialized state among the European countries. Being a neutral state in the Cold war era Switzerland continues to enjoy the privilege provided by the warring factions and at the collapse of the Soviet Union the country joined the American postwar order (swissworld.org).
Population and ethnic composition
Switzerland has a population of approximately 8.04 million people with references to the latest population census report. The country is also home to four ethnic groups which include the Germans, French, Italians and Rhaeto- Romansh (swissworld.org).
Language religion and education
Switzerland is a multi-ethnic society and this makes it a multilingual state. The country has four national languages and they include Italian, French, Raetoroman and German. In term of religious, the country does not have an official religion though Christianity is a popular religious denomination. There exist other religious groups though in a small population such as Islamic and Jewish religions. In relation to education, the country operates on a devolved system where the local government bearing the responsibility of providing this service. In addition, at the lowest level of the education structure is the elementary school which is followed by the secondary school. The highest levels of education are the universities and colleges (swissworld.org).
Political and legal systems
The political structure is charceterize3d by the organization of the country into a confederation. Being a federal parliamentary republic, the country operates through three levels of government which are the federal, the canton and the communal levels. Other political bodies that are essential for the functioning of the country include the Supreme Court, the Legislative assembly (swissworld.org).
Switzerland is a multiparty democracy that allows its citizens to participate as members of political parties. The major parties include the Social democratic Party, the Christian Democratic Party and Free Democratic Party (swissworld.org). Citizens participate in different party processes as delegates whose membership to these parties is by subscription and belief in the parties’ ideologies.
On the legal platform it is often important for those interests in establishing businesses to adhere to the legal requirements as defined by the government of Switzerland. For private corporations in the country, it is a requirement that part of their base capital is divided into shares and distributed to different entities in the private and public sectors. The government with the mandate of the people of Switzerland must have a stake in every in every private corporation that desires to invests in the country (swissworld.org). In addition, the taxation law in Switzerland allows the government to collect revenue from corporation in the country. The amount of tax is often calculated based on the net income that any business acquired in the process of conducting it business initiatives within the country. In addition, it is also legal for the government to collect revenue through corporate tax rates (swissworld.org).
- Foreign policy and membership in international organizations
The foreign policy as designed by the government of Switzerland is often meant to ensure the realization of its interest while participating in international organizations. One way through which the government realizes this objective is by ensuring tha the people of Switzerland are represented at the highest levels of any international organization. In addition, through its machinery and involvement in international political and economic endeavors, the government of Switzerland often realizes its interests by increasing the population of Swiss citizens at the executive level of international organizations. Through its foreign policy, the government also provides support to its citizens seeking employment opportunities in international organizations (swissworld.org).
In terms of membership to international organizations, Switzerland has been ranked as the 190th member since it was only in 2002 that the county became an official member of the United Nations. It is however surprising since the country is home to UN European headquarters and has been an active participant in numerous peacekeeping initiatives for the organization (swissworld.org).
Despite the exiting hesitation by Switzerland to become a major of major international organizations, the country has been an active participant in other international organizations and it has been able to form strong political and economic ties with different organizations. These include the European free trade Association (EFTA) which it joined in 1960 to facilitate the removal of trade restriction among member states. The country is also a member of the Organization for Economic Cooperation and development (OECD) which plays the role of boosting different countries in the development of their economic infrastructure. Being a member of the World Bank and the international monetary fund, Switzerland has become a major contributor to the improvement of developing economies in terms of the reduction of poverty and the promotion of financial stability in these countries (swissworld.org).
- The Role of the European Membership for Switzerland
The involvement of Switzerland into the European Union also characterized the nature of the country’s foreign policy. The desire to maintain its sovereignty, while boosting its ability to make important decisions in the European Union contributed to the delay in signing to become a member of the organization. Switzerland is not a member of the European Union but operates as a partner to the organization on the basis of bilateral agreements. This has been heighted by the ability of to operate as an independent state but enjoy specific benefits that are associated by being members of affiliate organizations to the European Union (swissworld.org). One of the trade agreements between EU and Switzerland is for the country to allow citizens from EU member states to live, travel and work in the country. In addition, Switzerland is also a major exporter of finished products and an importer of raw materials. This makes the European Union one of the major trade partners for the country. This is because EU member state account for 60% of the country’s exports and 80% of the imports. Through the Economic Free trade Association and the signing of the Free Trade Agreement in early 1970s, the country has continued to facilitate the operation of the EU as a way of gaining mutually from the available resources from EU member states (swissworld.org).
One way through which the country has ensured the progress of its laws with those of the EU is through numerous instances of bilateral negotiations in 1999 and 2004. Through these agreements it was possible for the two parties to develop a list of ten treaties that were to define their relationship and the alignment of their legal procedures. Through these laws and treaties Switzerland continues to enjoy benefits as other European member states without losing any aspect of its sovereignty to the European Union (swissworld.org).
In terms of the rates of inflation, Swiss economy has been experiencing higher rates of deflation especially income prices. This has been attributed to cheaper cost of the means of production such as fuel and the raw materials. In addition, availability of labor and automation of the production and manufacturing system has also contributed to the decline in inflation rates (swissworld.org).
In terms of industrial production the country is currently experiencing an increase in its production rates due to the availability of labor and raw material that are imported into the country art relatively low prices. One of the contributing factors in the decline in the cost of energy and the elimination of trade restrictions between Switzerland and the exporting countries is the availability of labor. Government policies have also been cited as major contributing factors to the increase in industrial production since it allows more foreign and local investors to participate in the economic process (swissworld.org).
Switzerland has a low unemployment rates especially among the youth. This is attributable to the availability of employment opportunities arising from high rate of foreign and local investments. Since 1990 the country has been undergoing a stable increase in its gross domestic product (GDP). In 2014 for instance the country had a gross domestic product of $800 billion which was about 10% rise form that of 2013 (swissworld.org).
Foreign Direct investment
Foreign direct investment in Switzerland is a reflection of the level of foreign ownership of production facilities. For facilities to be classified as part of foreign direct investment, the share of foreign ownership must be equated to at least 10% of the value of the company (swissworld.org). Foreign direct investment in Switzerland can be in the manufacturing, agricultural or and other sector within the country. In addition, Switzerland also allows for foreign direct investment in the creation of something new this can occur in the form of acquisition, or a joint venture. Since 1983 to 2013 foreign direct investment in Switzerland is at an annual average of 2.9% with its minimum at -1.3% in 2013 and a maximum of 13.3% in 2006 (swissworld.org).
Research and development
Research and development initiatives in Switzerland focus on the production of high quality goods and services for the local and international markets. Businesses in the country operate on a niche strategy which allows even small enterprises to focus on a small range of quality products hence establishing a position on the global market. In Switzerland compared to other countries a high percentage of its workforce are in research and development. This explains why the country spends about 3% of its gross national product on research and development as a way of building a strong competitive advantage internationally (swissworld.org).
Financial Institutions, Currency and Stock Exchange
Banks and other financial institutions in Switzerland perform an indispensable function in the expansion of the country’s economy. The financial sector employs about 6% of the Swiss workforce including thousands of staff from other countries. The financial sector in Switzerland is also a major leader in offshore private banking considering that it has been able to close more than 25% of all private offshore finances. UBS and Credit Suisse are major forces in the Swiss and international economy since they have the ability to generate more than 33% of their profits from offshore operations. In terms of currency, Switzerland operates the Swiss franc which is one of the stable currencies in the world today (swissworld.org).
The leading entity in operating the stock exchange in Switzerland is the Six Swiss Exchange. This is especially in trading of shares, investment funds, bonds and exchange traded funds. In addition, the major stock market index for this entity is the Swiss Market Index which comprises of 20 of the major and most liquid large and mid-cap Stock Price index equity securities on the basis of free float market capitalization. in the period of 1988 and march 2015, the Stock Market Index (SMI) in Switzerland has been averaged at 5360.60 index point with the long time highest index of 9531.50 index point sin 2007and the lowest at 1287.59 index points in 1991 (swissworld.org).
Industries and Logistics
Industries in Switzerland majorly focus on highly developed and specialized production of its goods and services. This is a competitive advantage that distinguishes Swiss companies from their competitors. In addition, through research and development initiatives that different firms have been involved in, the industries within the country have also improved on reliability, innovation and levels of customization. Some of the important industrial sectors in Switzerland include machine and metalworking, textile, pharmaceuticals, food and beverage, trading, shipping and logistics (swissworld.org).
In terms of logistics and shipping, about 4% of the country’s gross domestic product is derived from this sector. In addition, the logistic sector is also responsible for the employment of about 1305, 000 people in Switzerland. One of the major reasons for the success of this industry is the availability of infrastructure that ensures easy flow of commodities from the production sector to the consumers at the local and international levels (swissworld.org).
Taxation in Switzerland
When equated to other nations in the European Union, Switzerland ranks the lowest in terms of taxation rates. This explains why the country is home to different highly competitive local and international corporations. The low rates of taxation can be attributed to tax exemptions on Swiss companies operating overseas. There are different levels of taxation considering that the country operates on three levels of government. This means that the Federal government, the cantons and the communal levels of government will level taxes on businesses on different grounds. The federal taxes for instance comprise those taxes that are charged on the salaries of individuals. The cantonal and communal taxes are controlled by the tax regulatory laws as designed by the federal government (swissworld.org).
The average corporate taxation rate in Switzerland in the period between 2006 and 2014 has been determined as 17.90%. This highest corporate tax rate was in 2006 at 21.20% while the record low was in 2014 at 17.90%. The Swiss Federal Tax Corporation has the responsibility of handling taxation related issues which are inclusive of the amount of taxes levied at different government levels. In addition, this corporation also has the responsibility of ensuring that every individual and corporation within Switzerland remits their tax returns as required by law (swissworld.org).
- Setting up a Company in Switzerland
The establishment of a company in Switzerland is considerd as a relatively easier process. The Freedom of Trade and Industry as developed by the government of Switzerland allows anyone including foreigners to establish companies in the country of become a major shareholder in any of the existing companies. However there are some sectors such as the hotel industry and financial sector among other that require some level of authorization. The process of establishing a company in Switzerland requires the company owner to establish a legal structure of the business. The determination of this structure will be through the Swiss Code of Obligation that is applicable to both foreign and local investors. The Swiss Code of Obligations recognizes the following forms of company’s general partnerships, simple partnerships, joint ventures and franchising (swissworld.org).
The second step in the process of setting up a company will be the determination of the availability of the business name. This is the name under which the company plans to operate. This name in Switzerland can be chosen freely with exemption of regional offices which often operates on the same business name as that of their headquarters. The potential business name is then taken through a review process to establish its availability through the Central Business Name Index in the registry office at the federal level (swissworld.org).
The third stage in in starting a company in Switzerland is the verification of the business domicile. This is an address that must exist prior to the creation of the company. The domicile is the ideal location of the business. However, in absence of this location the business can be registered on a notary address (swissworld.org).
The deposition of capital is the nest step in registering a business in Switzerland. The potential company owner is expected to deposit CHF 20, 000 in a Swiss bank. The situation is however different for a stick company which is expected to deposit CHF 100, 000 in full or 50% of the capital in a Swiss bank account (swissworld.org).
The submission of notarized documents to the federal commercial registry is the step that follows the process of depositing capital. These documents disclose the property of the company owner(s). After this process the company is entered into the commercial registry and this gives it trading rights protection as an incorporated institution. for a company to be entered into the commercial registry it must possess a business name, address, activities, a list of vetted board of directors, signatories and founder names, and details of publication. In addition, the completion of this process will require the company to register with the Federal Social Authority to verify the company on Value Added Tax (VAT) liability with the tax administrative body in Switzerland (swissworld.org).
Determination of the governing bodies is the next step in the process of establishing a business in Switzerland. This will help the company owners in determining their representatives in Switzerland. They include the auditors and directors and members of the board. The Swiss law allows foreigners to take up these positions. However, it is a legal requirement that at least one of the directors or signatories be domiciled in Switzerland (swissworld.org).
The determination of audit procedures is the next step. This is a requirement especially if the company is to be listed in the stock market. in addition, this process is also considered possible in situations where the company owns assets that exceed 10 million Swiss francs, its total revenue exceeds 20 million Swiss francs or in situations where more tha 50 employees operate on a fulltime basis (swissworld.org).
The next process would be the cost of setting up a company. These include the fees that are charged in the process of registering a company. For example, notaries and entry into commercial registry fees are approximately 2,000 Swiss francs. Any form of advice or assistance that is received from the attorney general is charges at a fee that ranges between 2,000 and 5, 000 Swiss francs. This form of assistance and the fee charged is however dependent on the structure of the company or in situations where the company requires some special form of additional agreement to ensure its legal formation (swissworld.org). These agreements would include those of the shareholders, requisition for tax holidays or tax rulings. The fees these agreements are often charged by notaries or lawyers. Other costs that are incurred in the process of setting up a business in Switzerland include a corporate capital tax which is 1% of the corporate capital. This is however applicable if the capital of the company exceeds 1 million Swiss francs (swissworld.org).
Switzerland operates on a centralized system of setting up businesses to ensure that both domestic and foreign investors are subjected to equal terms and conditions that define the process. In addition, though this process it is also possible for the government to ensure high level of competition within the industry (swissworld.org).
- Other Factors to Consider before Setting up a Company
Switzerland, according to a report released by transparency international in2014 is ranked as one of the least corrupt countries on the global platform. According to this report the corruption perception index among the Swiss is at 8 in scale of one to 10 (transparency.org). In addition, Swiss national believe that their government is effective in handling corruption related course. This is evidence that the citizens of this country are aware of corruption and its possible effects on the wellbeing of the nation’s economy (transparency.org). In addition, different levels of government and the private sectors have instituted laws and legislations that help in minimizing the possibility of corruption especially in the procurement and logistic centers. There are also strict measures that have been instituted against individuals identified as corrupt and this prevents the popularity of corruption related crimes in the country. The legal system through the Supreme Court in Switzerland has also established strict measures against corrupt public and private sector official with the objective of making the country a corruption free zone (transparency.org).
Intellectual property rights
The Swiss Federal institute of Intellectual Property is responsible for the establishments of laws and regulations that define intellectual property rights in Switzerland. The sole mandate of this institution lies in ensuring that it provides local and foreign businesses with the most appropriate and effective security system for intellectual property (swissworld.org). This has been enabled through the creation of high level protection procedures for any form of business within the country. In addition, this body also has the responsibility of ensuring that the protective mechanisms that it institutes are in agreement with the international protective rights system as a technique of certifying that its autonomous functionality does not infringe on other businesses on the global platform (swissworld.org).
An additional role of this body is to play the advisory role to the federal government as a way of facilitating the process of adequate representation of businesses within Switzerland. This has also been necessitated by the mandate of the organization to provide the necessary information which is aimed at optimizing the available opportunities for business to use in intellectual property protection system for their economic wellbeing. The Swiss Federal institute of Intellectual Property also operates a commercial service which ensures that the provision of patent services buy intersecting different areas where businesses are perceived to be active (swissworld.org).
While protecting the interests of different business, this organization is also charged with the responsibility of protecting consumers from illegal products that may be harmful to their health. This is through the provision of services that are appropriate to the needs and demands of the consumers (swissworld.org).
- Business Etiquette and Culture
Greet Hofstede Culture Dimensions
In terms of power distance index Switzerland ranks relatively low. This is because it is a society that believes in the minimization of inequalities. This means that power in this society is decentralized and the employees expect to be consulted as a way demonstrating a direct and participatory communication approach (geert-hofstede.com).
In term of individualism, the Swiss society is highly individualized since every citizen is expected to take responsibility towards personal growth. This explains the high levels of competition in various sections of the economy. In employment, hiring and promotion of employees is highly competitive and it is based on merit (geert-hofstede.com).
Switzerland is also ranked as a highly masculine society since members of this society are driven by competition. The management at an organization level is expected to make decisive deliberations while emphasizing on equity, competition and high performance (geert-hofstede.com).
- Switzerland Profile Data