As early as the Middle Ages, Switzerland served as an important connecting link between various European nations. The constitution, which forms the basis of the present federal republic, was passed in 1848 and revised on several occasions in the course of the decades which followed. In accordance with the underlying principle of federalism, jurisdiction is divided among the Confederation and the member states (cantons). Only such matters as are designated in the constitution as falling within " the competency of the Confederation " can be dealt with by federal legislation and administration, while all other matters are the responsibility of the cantons. In line with the spirit of constitutionality, the separation of power into legislative, executive and judiciary branches has been largely realised on both the federal and the cantonal levels. This is one of the main factors which has made for a high degree of judicial security in Switzerland.

2. Neutrality and international co-operation

In the year 1815, Swiss neutrality, which is the basis for its foreign policy, was solemnly recognised by the Congress of Vienna as " being in the political interest of all Europe ". Ever since then Switzerland has been pursuing a policy of armed neutrality linked with the readiness to collaborate with all nations. For example, Switzerland numbered among the founding members of the European Free Trade Association in 1959/1960, and in July 1974 it signed a Free Trade Agreement with the EEC. On the basis of these treaties, customs duties on industrial goods traded among the EFTA nations and the Common Market countries have been largely eliminated. Switzerland is also a member of OECD and GATT.

3. Stable political environment and liberal constitution

Although the population of Switzerland which exceeds six million, is composed of people possessing different cultural backgrounds and belonging to four different language groups, the political situation of the country is very stable and distinguished by a large amount of tolerance and personal freedom. Both employers and workers realise that their common interests are more important than their differences. Social peace has reigned for decades, thus contributing to the well above-average level of the population's standard of living.The economic system of Switzerland is based on the principle of freedom of trade and commerce, which is guaranteed by the federal constitution although certain qualifications have been introduced in some areas over the years.

4. Strong economic ties with other countries

The economy owes its highly developed state to no small extent to its close interaction with the economies of other nations. The lack of domestic resources of fuels and raw materials as well as the impossibility of growing sufficient food on poor soil make large imports necessary. On the other hand it should be noted that industry, which largely manufactures high-quality products, sells almost half - in some industries more than 90% - of its output abroad. Total exports of merchandise in recent years equalled almost one third of the country's national income. International links are also very close in tourism, telecommunications and the financial sector. Total income from service transactions and capital investments is sufficient, as a rule, to offset even large trade balance deficits. The Swiss balance on current account therefore closes with a surplus almost every year.

5. Efficient financial centre

The country has greatly strengthened its financial potential in widely varying fields of international capital transfers, especially following World War II, and has evolved into one of the world's leading financial centres. This development is also clearly reflected by its international investment position. At the end of 1989, Switzerland's assets and investments abroad, including official monetary reserves, totalled SFr. 713 billion. Deducting from this sum the Swiss liabilities to foreigners, estimated at SFr. 433 billion, one arrives at a net position for Switzerland of SFr. 279 billion.

6. Industrial climate

The Swiss industrial climate is based on the free enterprise system and on the freedom of trade and commerce. The governments (federal, cantonal and communal) intervene as little as possible in decisions of corporate management. Switzerland has enjoyed a climate characterised by extremely high political, economic and social stability. In recent decades, any "combative" measures on the labour market have been renounced in contracts between the trade unions and employer associations. For these reasons, strikes and lockouts are virtually unknown in Switzerland. Employees are highly motivated, strive for high quality and are personally committed to their work. The economy is becoming increasingly more service-oriented, and in the secondary sector an even stronger tendency is toward special products of the highest quality, while mass production has generally shifted abroad.

7. Framework of industry

Most Swiss businesses are small, family-owned corporations with employee shareholders, sole proprietorships or partnerships. Generally, most large businesses are publicly held corporations with a more or less wide spread of shareholdings, but there are also many larger businesses closely held by only a few individuals, mostly families. There are only a few state-owned corporations, but in general these have no great importance for the economy as a whole. The increasing trend of companies going public was halted by the stock market crash in October 1987 but there is an ongoing general trend toward concentration, and mergers and acquisitions are frequent.

II. Business entities

8. Guide to 'business' entities

a) As a general rule, Swiss company law is codified ; investors can choose from only a limited number of legal forms for doing business (and thus are precluded from creating their own forms either by contract or otherwise).

b) Choice of entity - The most common form used by foreign and domestic investors is the corporation - Aktiengesellschaft (AG) - Societe anonyme (SA) Societa anonima (SA).

c) Capital requirements - Minimum share capital of a corporation is SFr 50,000 (effective from July 1st, 1992 : SFr 100,000) in any combination of bearer or registered shares. No upper limit.

d) Founders' requirements - Upon formation, there must be three shareholders but this may later be reduced to one. At least one founder must be a Swiss citizen resident in Switzerland but this may be on a nominee basis only.

e) Foreign ownership/participation in management - Foreign investors may be on the board of directors but a majority must be Swiss citizens resident in Switzerland. No requirements exist for an employee representation on the board of directors or for a supervisory board.

f) Repatriation of funds - Annual net profits may be distributed freely after appropriation of the required amount of profit to the legal reserve and adoption of the financial statements by the shareholders meeting. Interim dividends out of current income are disallowed. Initial investment may be repatriated freely upon dissolution of the corporation.

g) Liquidating an investment - Basically there are no restrictions on the transferability of ownership in shares, and a corporation may be liquidated upon a resolution of the shareholders' meeting without any restrictions.

h) Tax considerations - All separate legal entities are treated equally for tax purposes according to corporate tax laws. The same holds true for partnerships and sole proprietorship which are taxed according to the rules for individuals.

i) Professional advice - It is advisable to obtain professional advice at an early stage to ensure smooth setting-up and regulatory compliance.

9. Forms of business enterprise

The formation and organisation of business entities are governed by the third section of the Code of Obligations (Obligationenrecht - Code des obligations - Codice delle obbligazioni) of 1911, as amended. The Principal Forms of Companies

a) Corporation : Aktiengesellschaft (AG) - Societe anonyme (SA) - Societa anonima (SA). A business entity with an authorised capital divided into bearer or registered shares. The shareholders' liability is limited to the nominal capital invested in the corporation.

b) Private limited company : Gesellschaft mit beschrankter Haftung (GmbH) - Societe a responsabilite limitee (SarI) - Societa a responsabilita limitata (Sari). A business entity with a limited capital divided into "partnership shares". Any change in or transfer of "partnership shares" requires an amendment of the statutes. The "partnership share" holders' liability is limited to the nominal capital invested.

c) General partnership : Kollektivgesellschaft - Societe en nom collectif - Societa in nome collettivo. A partnership of two or more individuals in which the partners have unlimited liability and are generally bound by the acts of the other partners.

d) Limited partnership : Kommanditgesellschaft - Societe en commandite - Societa in accomandita. A partnership of two or more persons (individuals or corporations). One or more individuals have unlimited liability while other partners have only a limited liability, which must be registered.

e) Joint Venture : Emfache Gesellschaft - Societe simple - Societa semplice (sometimes called an 'unregistered partnership' or 'simple association'). A joint venture of two or more persons (individuals or corporations) mainly for the realisation of a particular project. This type of relationship has characteristics similar to a general partnership but in particular, its name is not protected by law.

f) Co-operative society : Genossenschaft - Societe cooperative - Societa cooperativa. A business entity of at least seven persons, without upper limit. Used mainly by large retail organisations.

g) Branch of foreign corporation.

h) Sole proprietorship.

Foreign enterprise entities

The forms of organisation most commonly used by foreign investors are the corporation and the branch. The private limited company (GmbH or SarI) has for some unknown reason a somewhat bad reputation.

The main reasons it is probably not widely used are:

The need to change the statutes upon a transfer of "partnership shares"
The disclosure requirements of the "partnership share" holders
The maximum legal capital permitted of SFr 2 million.

It should be noted that the legal form of a 'trust' as known in common law does not exist in Swiss (civil) law. However, Swiss courts will generally recognise the validity of a foreign trust if it has been properly constituted under the laws of a foreign jurisdiction and in particular, if there is some connection between the settlor and that foreign jurisdiction.

10. Corporation

10.1 Formation procedures

On formation, a corporation (AG/SA) must have a minimum of three shareholders, which may later be reduced to one. They are required to execute a public deed before a notary. The founders may be represented by a person with a legal power of attorney. The formation deed includes the founders names, the name of the company, its share capital, acceptance of statutes, the composition of the board of directors, the appointed auditors and the domicile of the company. The statutes are an integral part of the formation deed and include at least the following information.

a) Name (to be cleared with the Federal Commercial Registry before incorporation) and domicile of corporation.

b) Purpose and objective of the corporation.

c) Nominal amount of the capital and of each share, stating their classes and if applicable, the number of registered and bearer shares.

d) Rules on convening general meetings and the voting rights of the shareholders.

e) Bodies responsible for management and audit and the manner in which the company is represented.

f) Number of qualification shares to be deposited by the members of the board of directors.

g) Form of the corporation's notices.

Certain other matters must also be included in the statutes for them to be effective. The board of directors is responsible for approving the bylaws, if any.

The corporation must be registered in the Register of Commerce at the place of domicile. The registration application must include a legalised copy of the statutes and the formation deed. The registration entry includes the purpose of the business, number and nominal value of shares, the names, nationality and residence of the board members, managers and officers having power of signature, indicating limitations (if any).

The Register of Commerce is open to inspection by the public. All new registrations and subsequent changes are published in the Swiss Official commercial Gazette (Schweizerisches Handelsamtsblatt (SHAB) - Feuille Officielle Suisse du Commerce (FOSC) - Fogho Ufficiale Svizzero del Commercio (FUSC).

The subscribed capital must be deposited initially with an authorised bank recognised in the corporation's canton of residence.

The formation and registration of a corporation may be completed within a few days once the statutes have been set up and the share capital is deposited with the authorised bank. The costs of forming a corporation include a stamp tax of 3 per cent on the registered capital (see Chapter V - 26.8 'Miscellaneous Taxes'), the registration fee for the Commercial Register, notarial costs, and the fees of tax and legal counsel. The formation cost are likely to range from SFr 5,000 to SFr 10,000, depending on the degree of complexity of each case. There are no publication requirements for financial statements or any other information, except for banks and insurance companies.

10.2 Capital structure

The minimum authorised capital is SFr 50,000 ( from July 1st, 1992 : SFr 100,000) There is no maximum. If there are registered shares, the greater of SFr 20,000 (from July 1st, 1992 : SFr 500,000) in total or 20 %(effective from July 1st, 1992, 'at least' 20 %) of the par value of each share must be paid up. Bearer shares must always be fully paid up.

All authorised shares must be issued. They must have a minimum par value of SFr 100 (effective from July 1st 1992, SFr 10) The liability of shareholders is limited to the par value. Shares of no-par value are 'not' allowed, and it is customary to have shares denominated in round amounts i.e., of Sw Fr 100 (effective from July 1st 1992 : Sw Fr 10).

The shares may be in bearer or registered form or a combination of both. Conversion of fully paid registered shares into bearer shares or vice versa may be provided for in the statutes and is decided by shareholders in general meeting. Various classes of shares (bearer, registered, common, and preferred) may exist side by side. All shares have voting rights that may vary. To obtain non-voting capital, some large Swiss industrial corporations have issued 'units of participation' (Partizipationsscrleine - bons de participation - buoni di partecipazione) that have the same characteristics as a share except that they do not carry the right to vote.

The transfer of bearer shares is effected by simple exchange. Registered shares require endorsement and entry in the share register which, if provided in the statutes, may require approval by the board of directors.

Capital increases may be effected either by the issue of new shares or by an increase in the face value of existing shares. If new shares are issued, the existing shareholders have, unless specifically waived, a right to subscribe in proportion to their shareholding (pre-emption rights). If retained earnings are to be capitalised, the operation is first deemed to be a dividend distribution (subject to withholding tax - see Chapter V - 25) and a subsequent cash payment for the new shares. Payments in excess of the face value (premiums) must be allocated to legal reserve.

Decreases of capital may be in the form of a reduction in the face value of a part or all of the shares or cancellation of some of the shares. In all such instances, a special audit report is required, stating that creditors rights are not impaired by the capital reduction. If the decrease entails repayment of capital (tantamount to partial liquidation), a notice to creditors must be published three times in the Swiss Official Commercial Gazette, giving creditors an opportunity to present their claims and request satisfaction or security. If the capital decrease does not exceed the accumulated deficit to be eliminated, notice to creditors is not required.

Limitations on borrowing powers are neither provided for by law nor are they found in the statutes of Swiss corporations. Normally management decides on short-term financing while long-term borrowing by way of public issue of bonds or debentures is the responsibility of the board.

10.3 Relationship of shareholders, directors and officers

The supreme authority of a corporation is the general meeting of the shareholders. It approves the statutes and any amendments, appoints the directors and elects auditors, adopts the directors' report and the annual financial statements, decides on the disposition of the profit (within the framework of the law), grants exoneration to the directors, and generally deals with all matters reserved to it in the statutes or as submitted by the directors or, in special circumstances, the auditors. 'Exoneration' in this sense means a release of the board members from liability to the shareholders for the proper management of the company. Once the exoneration has been approved by the shareholders' general meeting, basically no claims of responsibility may be raised by a shareholder against the board members.

At least one general meeting must be held each year to deal with the previous year's results. It must be held within six months after the business year-end. If all shareholders are present or duly represented, a meeting can be held at any time and at any place without formal notice having been given in accordance with the statutes.

Dividends can be declared only if the financial statements, as adopted by the general meeting, show a balance of unappropriated retained earnings.

Only natural persons can be appointed as directors. The majority of directors must be citizens of and resident in Switzerland. At least one director resident in (but not necessarily a citizen of) Switzerland must have full power to act for the corporation.

The directors must be shareholders (with effect from July 1st, 1992 no longer necessary) and are required to deposit with the company one or more shares as required by the statutes. These qualification shares may be deposited by the beneficial owners on behalf of nominee directors.

A corporation's directors can be appointed at formation for up to three years and subsequently for up to six years. It is however, customary to make the appointment annually. Outgoing directors are immediately eligible for re-election.

Officers are normally appointed by the board in accordance with the requirements of the business. There are no nationality or residence limitations. The powers of officers are determined on their appointment or, in its absence, by the law.

10.4 Liquidation and receivership

If the annual financial statements show losses equal to one half of the stated capital, the board of directors is required to call a special shareholders' meeting informing the shareholders of this fact. If the losses of a corporation (AG/SA) exceed its stated capital or it cannot meet its obligations because of insolvency, the board of directors is required, without delay, to apply to the court for liquidation proceedings or for a settlement with creditors. Failure to initiate the appropriate proceedings can involve the members of the board of directors in personal unlimited liability.

Liquidation proceedings are initiated by a qualified majority resolution of the shareholders' meeting. Thereafter a notification must be filed with the Registry of Commerce. Where liquidators are not appointed by the statutes or by resolution of a shareholders' meeting, liquidation is carried out by the directors, except in the case of bankruptcy, where the trustee acts as liquidator.

After registration of the liquidation resolution, a notice of dissolution of the corporation must be published. The announcement must contain a request to all creditors to notify the corporation of their claims. All creditors' claims, including those of the Tax authorities, must be settled before any liquidation proceeds can be repaid to the shareholders. After the corporation has been finally wound up, notice of termination has to be given to the Registry of Commerce.

Even though a corporation's losses exceed its stated capital, it is possible under certain circumstances to avoid liquidation proceedings if the main creditors are its shareholders or affiliates and they agree formally to subordinate their claims until such time as losses do not exceed the stated capital.

10.5 Books and records

The requirements of the Code of Obligations and other laws for the maintenance of books and records by a corporation are set out in Chapter III 'Audit requirements and practices.

10.6 Statutory audit

Each corporation must have one or more auditors who may not be directors or employees of the corporation. Other firms or corporations are eligible. The election of the auditor is by the general meeting, initially for one year and subsequently for a maximum of three years. The outgoing auditors are immediately eligible for re-election.

A professional qualification for this appointment, whilst not mandatory, is desirable (with effect from July 1st, 1992 partially specified).

The auditors have to verify that the financial statements are in agreement with the books, that the books have been properly kept and that the presentation of the financial position and results of operations are in accordance with the principles of valuation prescribed by the law and the special requirements, if any, of the statutes. They report to the general meeting, making a recommendation as regards adoption or otherwise of the financial statements and on the directors' proposals for dealing with the available retained earnings.

For all corporations that have a capital of SFr 5 million or more, or that have bonds or debentures outstanding, or that invite the public to deposit money, the directors must appoint independent accountants. They must be independent and qualified. If the statutory auditors meet these requirements, they can also act as independent accountants and are normally appointed in a dual capacity.

The independent accountants report to the board of directors and to any nominated lay auditors on the results of their examination. Their report in such capacity is not generally available to the shareholders. In recent court cases, auditors were held to be jointly and severally liable with the members of the board. It is generally considered that statutory auditors should be residents of Switzerland or have a place of business in Switzerland and be familiar with the relevant Swiss legislation and practice.

11. Private limited company

11.1 Formation procedures

The formation procedures for a private limited company (GmbH, SarI) are basically the same as for a corporation, with the following exceptions.

1. On formation, a private limited company must have a minimum of two "partnership share" holders. This number may later be reduced to one.

2. The statutes must include at least the following information :

a) Name (to be cleared with the Federal Commercial Register before incorporation) and domicile of company ;
b) Purpose and objectives of company ;
c) Nominal amount of capital and amount held by each "partnership share" holder ; and
d) Form of the company's notices.

11.2 Capital structure

The minimum authorised capital is SFr 20,000 and the maximum SFr 2,000,000. At least 50 per cent of the face value of each "partnership share" must be paid up.

The entire authorised capital must be issued. There are no certificates. The "partnership shares", which may vary in amount but must be expressed in multiples of SFr 1,000, are inscribed in the register of "partnership share" holders. Voting rights are determined by the amount of capital held.

Transfer of "partnership shares" is by notarised deed only and requires the consent of three-quarters of the "partnership share" holders holding three-quarters of the capital to become effective and inscribed in the register of "partnership share" holders.

The procedures covering increases or decreases in capital outlined for corporations also apply to private limited companies except that in addition, publication formalities and satisfaction of creditors must also be dealt with if a capital reduction is intended to eliminate a deficit.

Unless otherwise stated in the statutes, the managers have full power to borrow the funds required for the company's business.

11.3 Relationship between "partnership share" holders, directors and officers

At least once each year, a general meeting of the "partnership share" holders is called to adopt the annual financial statements, decide on the distribution of the profit (within the framework of the law), grant exoneration to the managers (see above), appoint managers, elect auditors, and generally deal with matters called for by the law and the statutes or as submitted by the managers.

Unless the statutes or a "partnership share" holders' meeting requires the appointment of managers, all "partnership share" holders act as joint managers. Non-"partnership share" holders may be appointed. There are no nationality requirements, but at least one manager must be resident in Switzerland. The managers have full power to deal with the company's business. If their appointment is for a limited period, they are immediately eligible for re-election.

Officers are normally appointed by the managers in accordance with the requirements of the business. There are no nationality or residence limitations. The competence of officers is determined on their appointment or, by the law.

11.4 Liquidation

In general, the same principles apply to private limited companies as to corporations.

11.5 Books and records

The requirements for the keeping of books and records are set out in Chapter III.

11.6 Statutory audit

Appointment of auditors is required only if required by the statutes and is subject to the same provisions as for corporations. Where special auditors are not appointed, all members who are not managers have the right to inspect the company's books.

12. Partnerships

12.1 General partnership

General partnership is an association of two or more individuals in a business firm, each partner being jointly and severally liable. The association is based on the partnership agreement, which deals with the name, purpose of the business, capital contribution, profits and losses, management (partners' powers), dissolution, etc. The partnership agreement does not have to be registered. The firm must bear the real name of at least one partner with the suffix '& Co.', denoting partnership. The firm must generally be inscribed in the Register of Commerce, giving at least the following details;

Name, residence and nationality of each partner.
Firm name and domicile of partnership.
Date on which business started.
Any provisions restricting a partner's right to represent the partnership.

Changes in these details must be notified to the Register of Commerce for publication. The partnership agreement deals with the relationship between partners. Taxation is assessed on the partners as individuals and not on the partnership as such.

The partnership must keep books and records in sufficient form to satisfy the partners. Consequently, this requirement is dependent on the size and needs of the partnership. No statutory audit is required by law, and there are no publication requirements for partnerships.

12.2 Limited partnership

This is a business association of one or more general partners (only individuals) having unlimited liability, but with one or more limited partners (individuals or corporate bodies) who are liable only up to a specified maximum amount. The firm name must include the real name of at least one general partner with a suffix (e.g., '& Co.') denoting partnership. The inscription in the Register of Commerce is the same as for a general partnership with the additional requirement that the amount of capital of the limited partners must be disclosed. All other matters are the same as for a general partnership.

13. Joint Venture

A joint venture takes the form of an ordinary partnership (Emfache Gesellschaft), which may serve economic and non-economic purposes. Its members are jointly and severally liable in the event of default. Relations between members are usually determined by agreement but written agreement is not necessary, For its formation, at least two partners (individuals or corporations) must express the desire to achieve a common purpose by joint endeavours or means. The joint venture does not need to be entered in the Register of Commerce and does not have a special protected name. Accounting and audit are subject to agreement between the members. There are no disclosure requirements.

14. Co-operative societies

The co-operative society is a corporation with personal character and with an unlimited number of members, although it must start with seven members. It has no fixed capital. Each member normally has one vote. Its bylaws may provide for members' liability, but normally the liability of a co-operative is the amount of its existing capital. The inscription in the Register of Commerce, as well as the appointment of a statutory auditor, is required. A majority of the directors must be Swiss.

15. Branch of a foreign corporation

15.1 Registration requirements

A foreign corporation engaged in trade, manufacture or some other activity on a commercial basis through a Swiss permanent establishment is required to be registered as a branch in the Register of Commerce, provided the annual turnover amounts to at least SFr 100,000. If the annual turnover is less than SFr 100,000, a permanent establishment may be registered as a branch, provided all requirements are met, but is not required to do so.

A registered branch must be relatively independent from the corporation's head office from an economic and business point of view, basically enabling the branch to exist as if it were a separate legal entity in Switzerland. The branch manager need not be a Swiss citizen. The branch management must in the ordinary course of business be independent from the head office. This means the branch must perform business on its own and the activities are not limited only to the initiation, procurement or carrying on of the business of the corporation's head office. Finally, the branch must have its own books of account. They may however, be kept by the head office or a third party.

15.2 Registration procedures

The registration of a Swiss branch requires the following documents.

a) Resolution of the corporation's board of directors that authorises the establishment of a branch office and determines who is to represent the branch office. At least one person authorised to sign with his sole signature or two persons authorised to sign by joint signature for the branch office must be resident in Switzerland. Furthermore, one person who has authority to sign for the main office with his sole signature must also be authorised to sign for the branch office. The resolution must also name the person who will establish the branch office.

b) Declaration that certifies the independence of the branch office. The wording of this declaration is prescribed by the Register of Commerce.

c) Official certificate of the Registrar of Companies declaring that the corporation is duly organised, validly existing and in good standing under the laws of incorporation. If this certificate does not state the amount of the paid-in capital or does not list the names of the directors, a declaration must be added, stating the paid-in capital and listing the directors.

d) Copy of the statutes.

e) Power of attorney duly signed, authorising the person concerned to take all necessary steps to establish a branch office in Switzerland.

All these documents have to be notarised by a notary public and legalised by an apostille (legalisation of the notary's signature) according to The Hague Convention of November 5, 1961 and if necessary translated by a translator recognised by the Register of Commerce into German, French or Italian, depending on the canton where the branch is to be registered.

15.3 Capital structure

There is no formal minimum capital requirement from a commercial law viewpoint. From a tax point of view, however, the thin capitalisation rules may be similarly applied to branches. What constitutes an acceptable level of branch capital for tax purposes is often a matter of reasonable judgement, but for small branch operations it should, as a rule, be at least SFr 50,000.

15.4 Management

Apart from the local branch manager, there is no formal management structure that a branch is required to appoint since it is not a separate legal entity.

15.5 Books and records/statutory audit

Proper books of accounts must be maintained and financial statements must be prepared for tax purposes. There are no legal audit or disclosure requirements except for branches of banks, which are subject to bank law requirements.

Sole proprietorship

Individuals with a residence permit can set themselves up in any business. No specific permission is required. The business must be inscribed in the Register of Commerce only if its annual receipts exceed SFr 100,000. There are no legal audit or disclosure requirements.

III. Audit requirements and practices

16. Statutory requirements

16.1 Books and record

All enterprises required to register with the Register of Commerce must keep proper books and records in a form suited to the type and character of their transactions. Financial statements, expressed in Swiss francs, must be drawn up at the end of each business or financial year. The initial year and any year in which the year-end is changed can be shorter or longer than 12 months.

All books and records of a business enterprise, including its correspondence and vouchers, must be retained for ten years. These documents must be available for submission to the Tax authorities in connection with their periodic audits and to the courts in the event of litigation.

16.2 Audited financial statements

The Code of Obligations requires a statutory audit for corporations, co-operative societies and those private companies that are required by their articles of incorporation to appoint auditors. No statutory audit is required for branches of foreign corporations and partnerships. Standards of statutory audit can vary widely, as the Code of Obligations does not specify qualification requirements for statutory auditors.

Financial statements examined by independent professional auditors are mandatory for corporations with a share capital of SFr 5 million or more, or which have publicly issued shares or bonds. The Code does not further define the meaning of 'professional auditors' but general practice restricts appointment to members of the Swiss professional accounting bodies.

All companies or branches in the banking sector are subject to the supplementary auditing requirements of the Swiss Federal Banking Commission which entails a detailed audit by a firm of specialised bank auditors officially approved and recognised by the Banking Commission.

Banks and other lenders usually ask for financial statements supported by an auditors' report. The Tax authorities require that accounts accompanying tax returns be signed by duly authorised directors, managers or officers but they do not ask for audited financial statements. However in many instances, particularly for raising loans from local banks and dealing with the authorities, it is advisable to have a reputable external auditor. Consolidated financial statements are not a legal requirement although in recent years their preparation has become fairly widespread.

In recent years, auditors have increasingly been held liable by the courts as a consequence of negligence or inadequate audit procedures. Many lawyers nowadays therefore take the view that the statutory auditor should have his domicile in Switzerland. A revision of the legal requirements remains under discussion but is unlikely to be implemented in the next few years.

17. Accounting profession

Independent accountants serve two objectives;

To report on compliance with legal or specified requirements
To provide support to business management in financial matters.

Services available from the local accounting profession include;

reporting on annual financial statements (statutory examinations, group reporting)
special examinations
advisory and co-ordination services.

The principal association of the Swiss accounting profession is the Swiss Chamber of Trustees and Auditors (Schweizerische Treuhand- und Revisionskammer - Chambre Suisse des Sociétés Fiduciaires et Experts-Comptables - Camera Svizzera dei Fiduciari e Periti Contabili). The Chamber formulates and supervises the maintenance of the ethical rules of the profession and requires its members to adhere to minimum auditing standards. It has more than 2,000 individual members of whom about 70 per cent are qualified by examination as certified auditors (Diplomierter Bucherexperte - Expert-Comptable Diplome - Perito Contabile Diplomato). The profession is growing rapidly.

The Swiss Chamber is affiliated to the following international bodies.

UEC - Union Europeienne des Experts-comptables Economiques et Financiers.
FAC - International Federation of Accountants.
IASC - International Accounting Standards Committee.

18. Auditing standards

The standards applicable to the profession are incorporated in the Swiss Handbook of Auditing (Revisionshandbuch der Schweiz - Manuel Suisse de Revision Comptable), which provides practical guidance to the auditor on accounting and auditing questions. The views expressed in the handbook have been approved by the administrative and legal authorities. It is, therefore, to be expected that these views will have an increasingly strong influence on auditing standards in general.

The law requires the auditors' report to propose adoption of the financial statements with or without reservations or qualifications, or to refer them back to the board for amendment and subsequent resubmission, and to confirm that the proposal of the company's board of directors for dealing with the available profits is (or is not) in accordance with the law and the company's statutes.

A typical form of an unqualified report is as follows.

To the General Meeting of
AG/SA/Ltd.
TOWN

As statutory auditors of your company we have examined the financial statements at ....................in accordance with the provisions of the law.

We report that

The balance sheet and the statement of income are in agreement with the books.
The books of account have been properly kept.
The financial position and the results of operations are in accordance with the principles of evaluation prescribed by the law and the requirements of the statutes.
As a result of our examination, we propose that the accompanying financial statements be approved.
We further confirm that the directors' proposal for dealing with the available profits is in accordance with the law and the statutes.

Date ...................... Signature ..........................

IV. Tax system

19. Investor considerations

27 different, non-unified income tax laws!

Income taxes mainly levied on previous years' income rather than on actual income.

Double tax relief given by deduction or exemption. Most treaties give relief by credit or exemption.

Classical system of corporate taxation in which tax is levied on corporate profits and on distribution to shareholders.

In principle no taxation of capital gains on movable assets realised by individuals.

For resident corporations, capital gains included in and taxed as ordinary income.

Capital tax also assessed on net worth.

Variety of assessment periods allows scope for tax planning.

Broad wording of tax laws requires interpretation.

Tax advice mostly performed by specialised accounting firms and fiduciary companies rather than lawyers.

Advance rulings on intercompany transactions generally possible and advisable in most instances.

20. Principal taxes

The principal taxes include the following;

20.1 Taxes on income :

a) Direct Federal Tax ;
b) Cantonal Tax ;
c) Communal Tax ;
d) Church or Parish Tax (in most cantons) ;
e) Withholding Tax ;
f) Real Estate Gains Tax.

20.2 Taxes on Capital/ Net Wealth :

a) Direct Federal Tax (corporations only) ;
b) Cantonal Tax ;
c) Communal Tax ;
d) Church Tax (in most cantons) ;
e) Real Estate Tax (certain cantons only).

20.3 Taxes on transactions :

a) Federal Taxes :
Turnover or Sales Tax ;
Stamp Taxes ;
Customs duties ;

b) Cantonal Taxes :
Inheritance and Gift Taxes ;
Real Estate Transfer Tax ;

20.4 Other taxes - Social security contributions

21. Direct and indirect tax burden

The federal structure of Switzerland has a great impact on the share of taxes levied by the Confederation the cantons and also the communes. The cantons, which are rather autonomous, have a number of obligations that in other countries would be the responsibility of the central government, such as education, road construction and maintenance, health and sanitation, police, administration of justice, etc. Parts of these obligations may historically be the duty of the communes (towns, villages) or may be delegated to them by the cantons. The allocation varies and so does the relative importance of communal taxes.

The relative importance of direct and indirect taxes levied by the Confederation, the cantons and communes in 1986 was as shown in Appendix 1.

It is typical for Switzerland that the majority of direct taxes are levied by the cantons and, in particular, the communes, whereas the Confederation levies almost all indirect taxes.

The percentage revenues of income and capital/net wealth taxes levied by the Confederation, the cantons and the communes in 1986 from individuals and legal entities is shown in Appendix 2.

As a rule of thumb, out of a corporation's total taxes about one-third each is paid to the Confederation, the canton and the commune, respectively.

22. Legislative framework

22.1 Statute law

In Switzerland taxes are governed by federal legislation and 26 different cantonal tax laws. More than 3,000 communes (municipalities) also levy taxes, mostly following cantonal tax laws. In most cantons, church parishes are empowered to levy taxes as well.

The Federal Assembly, the legislative body of the Swiss Confederation, proposes any amendment to the federal Constitution (Bundesverfassung ' Constitution Federale - Costituzione Federale) and enacts federal laws (Bundesgesetz - bi federale - legge federale) and federal decrees (Bundesbeschluss - arrete federale - decreto federale). Whereas amendment to the Federal Constitution must be approved by a majority of the citizens eligible to vote and a majority of the cantons in a compulsory referendum, existing laws or the introduction of new federal laws or generally binding decrees are only subject to a popular referendum if at least 50,000 resident Swiss citizens or 8 cantons request such a referendum. In addition, the "Popular Initiative" enables Swiss citizens to initiate proposals for a total or a partial revision of the Constitution which requires a petition of at least 100,000 voters. The Federal Council, the executive of the Confederation, enacts executive decrees (Bundesratsbeschluss - arrete du Conseil Federal - decreto del Consigho Federale) and ordinances (Verordnung - ordonnance - ordinanza), which basically have the effect of law. As a rule, the federal government may neither introduce new taxes nor increase existing federal taxes without a constitutional amendment which is subject to a compulsory popular referendum.

Each canton has its own legislation, with laws and executive ordinances. In general, amendment of existing laws or the introduction of new laws must be approved by popular vote, whereas the ordinances are generally enacted by the Cantonal Councils.

The communes generally levy their taxes, based on one of the following methods.

a) Commune levies the tax based on a percentage (so-called multiplier) of cantonal taxes.
b) Commune receives a share of the total taxes collected by the canton.
c) Commune levies its own separate taxes.

The method used depends on the cantonal tax laws applicable. In comparison with other countries, Swiss tax laws are kept brief and in general are in broad terms and require much interpretation. Consequently the tax administrators have considerable scope for discretion in interpreting the law. In special circumstances they have the right to disregard the strict wording of the law if a transaction carried out by a taxpayer, although valid under civil law, is an abuse of tax law from an economic point of view and would lead to tax avoidance.

Because tax legislation consists of concise rather than detailed provisions, how the law is applied in practice by the tax administration is an important aspect that has to be taken into consideration. Although not provided by law, it is in general possible and, in many instances advisable to obtain an advance ruling before a specific transaction is performed.

Due to the broad wording of the tax laws, changes in the tax legislation need not be introduced as often as in other countries. Minor changes, which in most instances relate to the taxation of individuals, are introduced on average perhaps every four years. Changes of a fundamental nature need much more time, particularly because they generally have to be approved by a majority of the population entitled to vote.

Changes of tax laws are not introduced retrospectively however, due to the tax system at the federal and most cantonal levels, they may have retrospective effect.

22.2 Case law

As already mentioned, Swiss tax laws require much interpretation, which is done ultimately by independent courts whose decisions are therefore an important source of reference in the daily application of the laws. The competent court for federal tax laws is the Federal Court as Administrative Court ; for cantonal taxes, the cantonal appellate "instances" ; and ultimately, the Federal Court again, as Constitutional Court.

("Instances" in this connection means the various jurisdictional authorities from court of first instance to court of last instance. In the canton of Zurich, for example, the various instances are as follows : (1) Tax commissioner, (2) Tax commission, (3) Tax appellate commission, and (4) Administrative Court).

Intercantonal double taxation, in theory and in practice is constitutionally prohibited. Since there is no intercantonal tax law, the methods for avoiding intercantonal double taxation are based entirely on the extensive case law applied by the Federal Court.

Other sources in interpreting tax legislation include : the communications (Botschaft - message - messaggio) of the Federal Council and the Cantonal Councils to the Federal/Cantonal Parliaments, explaining proposed changes to the tax laws ; the records of discussions in the Parliaments, the circular letters of the Federal and Cantonal Tax Administrations, describing the practice of the tax treatment of particular topics ; the guidelines issued to the tax inspectors for the application of the laws (if published) ; etc.

In Switzerland, tax advice is given almost exclusively by accounting firms and fiduciary companies, rather than lawyers. This is true mainly because tax legislation and administrative practice is less of a technical matter and more business - and above all, accounting-oriented. Because interpretation of the tax laws and the largely unpublished administrative practices are major elements of taxation, it is of great importance to engage a Swiss tax adviser who has several years of full-time experience as a tax consultant, particularly if international transactions are involved.

V Taxation

23. Corporate organisation and Income Taxes

23.1 Taxable entities

The principal forms of business entity in Switzerland are the corporation (Aktiengesellschaft - AG) and the general or unlimited partnership (Kollektivgesellschaft). Other forms include the limited liability company (Gesellschaft mit beschra~nkter Haftung - GmbH), branch (Zweigniederlassung), limited partnership (Kommanditgesellschaft), and partnership limited by shares (Kommanditaktiengesellschaft). Foreigners usually choose the AG form, which is subject to corporate taxes, as are the branch and the partnership limited by shares. The other partnerships are not liable for corporate taxes, the partners' shares being taxed on them individually,

23.2 Taxation of resident entities :

Extent of liability :

Resident companies are taxed on their worldwide income and net worth, excluding income from and the value of a foreign permanent establishment and foreign real estate. Excluded items are however, taken into account in defining tax rates.

Taxes are imposed on three levels : the federal, cantonal, and communal (municipal) levels. Direct federal tax (Direkte Bundessteuer) is a composite tax on income and net worth. The cantons and communes also levy taxes on income (Ertrags-/Gewinnsteuer) and net worth (Kapitalsteuer) and on real estate gains.

Taxation of distributions :

Withholding tax is deducted at source from dividends at the rate of 35%. Only the federal tax authorities levy this tax, which may be reduced by a treaty. Payments such as directors' fees, interest or royalties may be treated as dividends if they are found to be excessive. Resident individuals may generally credit the tax withheld against their income tax liabilities (and recover any excess). Companies are not granted a credit but may apply for a refund from the federal tax authorities. Non-residents are not, as a rule, entitled to relief in the absence of a treaty, and the withholding represents their final liability.

23.3 Corporate tax rates

Basic corporate tax rates :

Federal tax is levied on net income (whether distributed or not) at progressive rates that depend on the earnings of the company ; i.e. the minimum rate is 3.63% of net profit and the maximum 9.8% (when profits represent approximately 23% of net worth). Since taxes are a deductible expense when calculating income, the effective rate is lower. The rate of Federal Tax on net worth is 0.0825%.

Other tax rates :

Taxes by the cantons and communes are imposed at higher rates. They are generally progressive and vary within a range of approximately 6% to 25% according to location. Net worth taxes vary within a range of approximately 0.25% to 0.7%.

23.4 Taxable income

Taxable profits are, in general, determined by reference to normal accounting principles, as adjusted for tax purposes.

Inventory valuation :

Inventories must be stated at the lower of cost and net realisable value. This value may be reduced by a tax-free reserve of one-third.

Dividend income :

Swiss dividends received are taxed on their gross amount, but the withholding tax is refunded upon application. Stock dividends are not regarded as income unless reflected in the books. Dividend income is basically exempt from federal tax when received by a company holding a substantial interest (shares worth at least SFr 2 million or constituting at least 20% of equity) in the payer. Cantons apply similar provisions.

Foreign-source income :

Exemption is given unilaterally for income from and the value of a foreign permanent establishment or foreign real estate where no treaty applies. In the case of foreign dividends, interest and royalties, the income is assessable and credit for foreign taxes is given only if provided by a treaty. However some cantons grant privileged tax treatment to specific entities for foreign-source income in the form of partial or full exemption (see V.23.7).

Exchange differences :

Realised exchange gains are taxable and realised losses deductible. Unrealised losses are deductible, but unrealised gains are only taxable when reflected in the books.

Capital gains :

Capital gains are treated as income for federal and cantonal tax purposes, except that at the cantonal level gains from the disposal of real estate are normally excluded from income and instead, real estate gains tax (see V.26.5) is charged on such gains.

23.5 Deductions

All business expenses incurred in the course of normal business practice are deductible. Capital expenditure is not deductible, except when it qualifies for a depreciation allowance.

Depreciation :

Depreciation is allowed against all assets that decline in value. Normally the declining-balance method is used, but the straight-line method is also acceptable.
Federal rates (under the declining-balance method) include 7% to 8% for industrial buildings, 3% to 4% for commercial and office buildings, 25% for office furniture and equipment, 30% to 40% for manufacturing machinery and 40% for motor vehicles.
Cantonal rates ordinarily do not differ significantly from federal rates.

Interest :

Interest is allowable as a normal business expense. However interest paid to related parties is subject to maximum rates prescribed in federal guidelines. Interest is also subject to thin capitalisation rules (see 23.7).

Directors' remuneration :

Salaries and fringe benefits of directors and managers are normally deductible but excessive fees may be regarded as disguised dividends and treated accordingly.

Taxes :

Direct and indirect taxes may be deducted for federal and most cantonal tax purposes.

Provisions :

Provisions are deductible if they reflect normal commercial practice. A general provision for doubtful debts may be created, usually up to a maximum of 5% of domestic and 10% of foreign receivables. Under federal and most cantonal laws a tax-free job creation reserve may be set up by any enterprise, subject to conditions.

Other :

Dividends paid in any form are not generally deductible. Gifts made in the ordinary course of business are deductible, as are charitable donations to Swiss institutions.

23.6 Tax treatment of losses

Losses (including capital losses) incurred in the normal course of business are deductible. The loss carry forward period for federal tax purposes is a maximum of seven years. The treatment of losses in cantons varies widely, In general, losses may not be carried back.

23.7 Groups of companies

Consolidated returns :

There are no provisions permitting fiscal unification of companies either internally or on an international level.

Exemption of group dividends :

As indicated in 23.4 under 'Dividend Income', companies that hold a substantial interest in other companies may claim exemption from tax on dividends received.

Transfers of Losses between group companies :

There are no provisions permitting the transfer of losses between companies.

Tax-free asset transfers :

In principle, assets may not be transferred between companies free of tax, but there are exceptions in the case of restructurings.

Thin capitalisation rules :

A debt-to-equity ratio of six to one is usually acceptable, but the rules vary according to locality and the type of company involved.

Transfer pricing rules :

The tax authorities are empowered to reconstruct transactions if they do not reflect arm's-length principles. The appropriate tax charges are made on reconstructed transactions. There are no specific rules for international transactions.

23.8 Assessments and payments

Basis of assessment :

Federal tax is charged for two-year assessment periods, meaning any two-year period ending on 31 December in an even-numbered year. An assessment is based on the average results for the two preceding years (the computation period). When a company uses an accounting year that differs from the calendar year to 31 December, the results are deemed to be those for the calendar year in which the accounting year ends.

The rules at the cantonal level can differ significantly and may, for example, involve a yearly assessment based on the preceding or the current year's results.

Returns, assessments, and payments :

Federal tax returns are filed every two years, and cantonal returns are filed annually or every two years, depending on the assessment period of the canton. Annual payments of federal tax are required by 31 March in the year following the assessment period. Cantonal taxes are usually levied annually in instalments. Interest may be levied on late payment of both federal and cantonal taxes. Both the taxpayer and the tax authorities may, within prescribed time limits, object to an assessment and the objection may, if necessary, be referred to the federal court and/or a cantonal court.

23.9 Taxation of non-resident entities

Non-resident companies are taxed in Switzerland on the same basis as the type of Swiss company that they most closely resemble. Branches may be taxed on the income from or the value attached to a Swiss source and on foreign income. The Swiss income and value of a Swiss permanent establishment may be arrived at either by apportioning worldwide figures or by adopting the permanent establishment's accounting figures. The rules for computing taxable profits generally follow those for resident companies and tax rates do not vary between resident and non-resident companies.

23.10 Branch/Subsidiary comparison

Although branches of foreign companies are not separate legal entities, the rules for computing their taxable profits are broadly the same as for resident entities. Appendix 3 offers a comparison of the two forms.

Conversion of a branch into a subsidiary company:

There are no specific provisions governing the conversion of a branch into a subsidiary. The tax consequences are similar to those arising from a merger or reorganisation and therefore, entitlement to tax relief's depends on a number of conditions being fulfilled. It is advisable to reach an agreement on these matters with the tax authorities in advance.

24. Individual Income Taxes

24.1 Individuals liable for Income Tax

Residents are subject to federal tax (Direkte Bundessteuer) and cantonal and communal taxes (Einkommensteuer) on their worldwide income. Income from real estate or a business situated abroad is added to taxable income only for the purpose of calculating tax rates and is not itself taxed. In general, non-residents are subject to Swiss taxes only on income from real estate and businesses in Switzerland and income from other Swiss sources.

Residence rules :

Individuals domiciled in Switzerland under civil law are deemed to be resident. In addition, individuals that stay in their own property in Switzerland for an 'uninterrupted' period of three months or in other accommodation for six months are regarded as resident.

24.2 Marriage and children

The income of spouses who are not separated and that of their minor children is aggregated for federal tax purposes. Cantonal rules tend to treat the family as one unit and grant relief when both spouses earn income.

24.3 Tax rates

Individuals are assessed to income tax at progressive rates. Direct federal tax rates rise to 11.5% on taxable income in excess of SFr 555,200 for a married couple. Cantonal and communal income tax rates vary considerably from place to place with the result that the total charges to income tax can vary by as much as 100%. The overall rate that typically applies to managers is in the region of 20% to 30% of taxable income.

24.4 Taxable income

Income is aggregated for federal tax purposes, regardless of its nature or source. To the extent that lump sums, such as those received under a pension scheme are chargeable, they generally benefit from a special rate and may be viewed as a separate class of income. Cantonal and communal taxes are assessed on principles similar to those on which federal tax is based

Employment income :

Employment income includes all remuneration in cash and in kind. All expenses necessarily incurred in earning it may be deducted, including job-related travel expenses.

Self-Employment income :

All regular and casual income from a profession, as well as income from a commercial or industrial enterprise, agriculture or forestry is chargeable under rules similar to those outlined above for companies.

Foreign-source income :

Credit is granted for taxes withheld from dividends, interest and royalties received by a Swiss resident from countries with which Switzerland has concluded a tax treaty. No credit is given if there is no treaty.

Capital gains:

Capital gains arising from the disposal of real estate situated in Switzerland are not liable for federal tax unless derived from a business activity. Private capital gains from real estate are however generally chargeable in the cantons (see 26.5). Gains on assets other than real estate are generally not taxable at all unless realised in a professional or business capacity by the seller. Capital losses may be offset only against taxable capital gains.

Exempt income :

As well as the income from foreign sources described in 24.1, items exempt from income tax include alimony (cantonal rules vary), capital payments under life insurance contracts and gifts.

24.5 Deductions and relief's

Personal allowances :

Most tax laws grant allowances for each child supported by the taxpayer. Allowances may also be given for marital status and for other persons supported by the taxpayer.

Other deductions :

Alimony payments are not deductible for federal tax purposes but sometimes they are deductible for cantonal purposes. Insurance premiums and medical expenses are often deductible, but up to a ceiling, which varies considerably. Social security contributions payable by employees and businesses are generally deductible, as are payments into an employer's pension fund and within limits, contributions to a self-employed individual's pension fund. Interest paid is normally deductible.

24.6 Assessments and payments

For federal tax purposes and for some cantonal and communal tax purposes, tax is levied for periods comprising two calendar years (ending with an even-numbered year), the calendar year being the year to 31 December. Tax for a two-year period is based on the average taxable income for the preceding two-year period. Special rules apply to taxpayers who are newly resident. A number of cantons use the same basis of assessment as that used for federal tax purposes but many use other bases (for example, some base assessments on the previous year's or the current year's income). The dates for filing returns vary according to the tax chargeable, but extensions are normally available. All individuals are required, as a rule, to submit a return, even if they owe no tax. Families usually file only one return. At the federal level, there is no payroll withholding tax, but the cantons usually operate a system of taxation at source on remuneration paid to temporary residents under which both federal and cantonal taxes are levied. Withholding tax may be deducted from lump sums paid on retirement.

24.7 Special position of expatriate employees

Ordinary tax rules apply to expatriate employees, although some cantons grant expatriates concessions for particular items, such as an exemption for removal expenses or school fees paid by employers. Apart from these concessions and the provisions normally included in double tax treaties, there are no special tax concessions.

24.8 Tax relief for resident foreigners

Resident foreigners who have never been gainfully occupied in Switzerland may apply to be taxed on an income based on their living expenses. Such expenses are deemed to equal at least five times the cost of their Swiss accommodation. There are special rules for Swiss-source income and income affected by a treaty but in effect, foreign-source income in excess of living expenses is tax exempt in Switzerland.

25. Withholding Taxes

25.1 Dividends and interest

The standard withholding tax rate on payments of dividends and interest on bank deposits and bonds to resident and non-resident companies and individuals is 35%. Residents are entitled to a refund if they have fully declared the income. There is no withholding from interest paid on ordinary loans (with some exceptions in cantonal law).

25.2 Rents and royalties

No withholding tax is imposed on payments of rents and royalties.

25.3 Double tax treaties and relief

Most of Switzerland's treaties are based on the O E C D model and grant foreign tax credits. Appendix 4 gives examples of current withholding tax rates. As well as the countries listed in the Appendix, Switzerland has treaties in force with : Antigua, Austria, Barbados, Belize, the British Virgin Islands, China (People's Republic of), Dominica, Egypt, Finland, Gambia, Grenada, Hungary, Iceland, Indonesia, Korea (Republic of), Malawi, Malaysia, Montserrat, New Zealand, Norway, Pakistan, Singapore, South Africa, the former Soviet Union, Sri Lanka, St. Kitts, St. Lucia, St. Vincent, Sweden, Trinidad and Tobago, and Zambia.

26. Other taxes

26.1 Turnover Tax

Basis :

Turnover tax (Eidgenissische Warenumsatzsteuer) is levied at the wholesale level on the delivery of goods within Switzerland to retailers, on ultimate consumers and on imports. Registered wholesalers may purchase goods free of tax, but must account for tax on sales. Services rendered are not usually subject to the tax.

Rates :

The rates of turnover tax are 9.3% for sales to retailers and imports, and 6.2% for sales to ultimate consumers.

Exemptions :

Exports and domestic sales of food, books, periodicals, fuel, power and other essential supplies are exempt from tax.

26.2 Social security contributions

Switzerland requires a number of types of contributions. These are administered partly by the federal government, partly by cantonal governments and partly by private bodies under government supervision.

The main types of contributions are the following :

Contributions of 10.1% of wages and salaries paid, shared equally by employees and employers, for old-age and survivors insurance (Alters und Hinterlassenenversicherung AHV).
Contributions to retirement plans to be organised by employers supplementing the above and providing minimum pension benefits (Bundesgesetz uber die berufliche Alters Hinterlassenen und Invalidenvorsorge.
Contributions tend to vary from 5% to 10% ; the employer must bear at least half.
Contributions to the family allowance plan (Familienzulagegesetz) and federal unemployment insurance (Eidg. Arbeitslosenversicherung) at rates, varying from 1% to 3% of total wages and salaries paid, shared equally by employees and employers.

Foreigners employed or resident in Switzerland are liable for contributions but they may claim relief under a social security treaty. Switzerland has treaties with most European countries and the United States.

26.3 Business Tax

There are no federal business taxes and no cantonal or communal business taxes except a taxe professionelle levied in Geneva and similar levies termed 'minimum taxes' charged in other cantons. The maximum rate in Geneva is 0.6% of total sales, excluding minor supplements.

26.4 Net Worth Taxes

Taxation of the net worth of companies is described at 23.3. No federal net worth tax is levied on individuals but the cantons and communes do levy net worth tax (Vermussgenssteuer). Tax rates are progressive but they generally do not exceed 1 % of the taxable base.

26.5 Capital Gains Tax

The only separate capital gains tax is the tax on real estate gains (Grundstuckgewinnsteuer) levied by cantons.

26.6 Inheritance and Gift Taxes

Inheritance and gift taxes (Erbschafts und Schenkungssteuern) are levied at varying rates only at cantonal level. The canton of Schwyz has no inheritance or gift taxes and the canton of Lucerne has no gift tax. Generally, non-residents are liable for these taxes if the deceased or donor was resident in Switzerland or the property in question is Swiss real estate. A number of double tax treaties are in force.

26.7 Real Estate Taxes

As well as the tax on real estate' gains', some cantons and communes levy real estate tax (Liegenschaftensteuer). Most cantons levy real estate transfer tax (Handanderungssteuer) at rates averaging 1% on the value of the real estate transferred.

26.8 Miscellaneous Taxes

Appendices

1. Direct and Indirect Tax burden 1986

	Confédération	Canton	Communes	Total
	%	%	%	%
Total taxes	43,6	32,3	24,1	100
Direct taxes	26,4	41,1	32,5	100
Indirect taxes	92,1	7,5	0,4	100

Souce: Public Income and Capital/Net Wealth Taxes

2. Revenues from Income and Capital/Net Wealth Taxes

	Confédération	Canton	Communes	Total
	%	%	%	%
Individuals
Income taxes	12,4	34,1	29,4	75,9
Net wealth
Taxes	-	3,0	2,5	5,5
TOTAL	12,4	37,1	31,9	81,4

Legal entities
Income taxes	4,4	6,5	4,0	14,9
Capital taxes	0,7	1,9	1,1	3,7
TOTAL	5,1	8,4	5,1	18,6

TOTAL	17,5	45,5	37,0	100

Source : Public Finance in Switzerland, 1986

3. Branch/Subsidiary comparison

	Branch	Subsidiary Company
Federal, cantonal, and communal income taxes	Same rates as for subsidiary	Same rates as for branch
Withholding tax	Not levied on profits remitted to a foreign head office	Levied on dividends paid to a foreign parent
Interest and royalties	Generally not deductible when paid to a foreign head office	Deductible when paid to a foreign parent

4. Withholding Tax rates for selected countries

Country	Dividends (%)	Interest (%)
Australia	15	Nil
Belgium	10a	Nil
Canada	15	Nil
Denmark	Nil	Nil
France	5b	Nil
Germany	10b	Nil
Greece	5a	Nil
Ireland	10a	Nil
Italy	15	Nil
Japan	10a	Nil
Netherlands	Nila	Nil
Portugal	10a	Nil
Spain	10a	Nil
United Kingdom	5a	Nil
United States	5b	Nil

a. if the payee's interest in the payer is less than 25%, 15%

b. special provisions apply

Doing Business in Switzerland

MGI International Tax and Business GuideSwitzerland

MGI International Tax and Business Guide
Switzerland