Disclaimer: 

This General overview has been obtained from Government Sources so: Is not our responsibility if any part of Local Legislation or Rules has been changed by Authorities without advice us.-

This overview is only for information and if wish to obtain more, please, consult directly to each Local Authority and/or Experts.-

The Swiss banking sector is regulated by the Federal Banking Commission (FBC) under the Banking Law of 1934, as amended most recently in 1999. Banking is defined to include all deposit-taking activity, in whatever corporate format, but does not include the issuance of bonds or securities trading.

The offices, branches, agencies and permanent representatives of foreign banks are covered by the law.

Banks are licensed by the FBC. The main conditions for the granting of a license are as follows:

If the banking activity is to be on any significant scale, the management and supervisory functions of the bank must be separated;

The bank must conform with currently applicable minimum capital requirements, as set by the Federal Council;

Officers must have good antecedents;

Persons having 10% or more of the bank's capital (a 'qualified participation') must guarantee that they will not influence the bank in any negative way;

The bank (and the persons concerned) must notify the FBC of any change in a qualified participation;

Corporate documents (statutes etc) must be lodged with the FBC, and any changes notified;

Establishment of a foreign subsidiary or branch must be notified.

Banks with a controlling foreign shareholding must conform additionally to the following requirements:

The home country of the controlling shareholder must guarantee reciprocity;

The name of the bank must not indicate Swiss control;

If the foreign owner is a group, it is likely that the FBC will require consolidated supervision;

The foreign owner must keep the FBC fully informed about its activities; in particular, changes in 'qualified participations' may lead to a demand for a new license.

The FBC applies world-standard equity, capital and liquidity rules to banks that it supervises. There are compulsory reserve requirements for banks which solicit deposits from the public, but these do not apply to private banks which avoid public solicitation of clients.

Banks licensed by the FBC must report both to the FBC and to the Swiss National Bank, and the latter has considerable reserve powers under the Banking Law. Reports submitted are however to be kept secret.

The Banking Law imposes strict secrecy on Swiss banks, but the Money Laundering Law 1998 (MLL) responded to increasing international concern by clarifying the circumstances under which banks should breach secrecy.

Under the MLL financial intermediaries were placed under a legal duty to report suspicious transactions and to retain clients' funds for a period of 5 days so as to give the authorities time to seize the assets should circumstances warrant such a response. Banks can be fined up to US$7m for non compliance with the money-laundering regulations. Other regulations include the requirement that customers be identified by way of adequate documentation, that staff be trained in money laundering detection techniques and that internal money laundering units be set up within institutions. Within 6 months of the law being passed US$124m of assets were seized.

In April 2002 the Federal Banking Commission announced that it wanted to introduce provisions to make information exchange with foreign securities regulators easier in order to prevent the misuse of the Swiss banking sector.

The banking watchdog made the announcement at a press conference in Bern, explaining to reporters that the recommendations had come about partly as the result of international pressure from the OECD, the EU, and the International Commission of Securities Commissions.

Director of the Banking Commission, Daniel Zuberbuhler, explained that although banking secrecy is an integral part of the country's financial sector, certain provisions can be overly restrictive when dealing with international securities regulators:

'Our legal provisions are too narrow and make it very complicated and recently as we've seen in the case of the Federal Supreme Court impossible even to grant information to the United States Securities and Exchanges Commission, which is clearly not what the legislator had intended.'

Although in various ways the Swiss authorities have attempted to fall into line with the international campaign against money-laundering, they have not seriously dented the principle of banking secrecy. For instance, they refused to sign the OECD's declaration concerning 'Unfair Tax Competition' in late 1999, and in 2000, while they signed the OECD's 'Information Exchange' declaration, they stated that they considered they already conformed to its standards.

In mid-2001 the Swiss parliament decided to form a new central authority to combat financial crime in the country. The decision arose from concerns raised over just how efficient the system is regarding money laundering controls.

In the three years since Switzerland implemented its anti-money laundering legislation, not one single case headed by the federal authorities had been successfully prosecuted. However, cantonal prosecutors acting on their own authority had secured 213 convictions.

The Money Laundering Control Authority (MLCA) had been dogged by controversy with its director, Niklaus Huber handing in his resignation after bemoaning a lack of support from the Swiss finance ministry. His departure did not help to quash rumours, rife at the time, that the MLCA was under-staffed and under-funded.

Ultimately, the inconsistency of the system across the cantons is unhelpful to implementation of the law; so parliament has decided to try a different tack by removing the responsibility for prosecuting cases from the cantons and giving it instead to the new central authority which will also be responsible for notifying and investigating cases.

The new authority, to be located in Bern, is currently training its staff in Lucerne and it is expected to employ around 450 staff in total.

This will allow experts with specialist know-how to be more efficient in their investigations,' she said.

In December, 2002, the Swiss Bankers Association issued new guidelines designed to separate research and banking activities in the country's financial institutions. The SBA said:

The Board of Directors of the Swiss Bankers Association (SBA) has passed binding guidelines concerning the independence of financial analysis with a view to further strengthening the good reputation of Switzerland as a banking and financial centre.

In particular, the SBA wants to ensure that financial analysis in Switzerland continues to remain independent and credible

Due to the federal structure of Switzerland there is no centralized tax system, with some taxes being levied exclusively by federal authorities whereas other taxes are concurrently levied at cantonal, communal and federal levels. Although the rate of tax levied at a federal level is consistent, that levied at a cantonal level varies from canton to canton. (There is currently legislation in the pipeline that aims to terminate this variation, and to reorganise the division of responsibilities and of revenues between the federal and cantonal administrations, but the timescale of change in not yet settled). Because significant differences presently exist in the rates of taxes levied at cantonal level the choice of canton is an important element in all tax planning.

By international and OECD standards Swiss tax rates are relatively low.

For corporate income tax purposes a company is deemed resident in Switzerland if it is either incorporated in Switzerland or effectively managed from there. Thus a UK registered company whose effective seat of management is in Switzerland is a Swiss resident company for corporate income tax purposes.

The General Assessment Rule is that resident companies are assessed on their worldwide income except for profits generated by enterprises, permanent establishments and real estate situated abroad, whereas non-resident companies are only assessed on profit generated by enterprises, real estate and permanent establishments situated in Switzerland as well as interest on loans secured on Swiss real estate.

Corporate income tax is levied at a federal, cantonal and communal level. The level of corporate income tax payable varies amongst the cantons but at present Zug and Fribourg are considered the best cantons in which to locate trading and holding companies respectively.

Corporate income tax payable to the federal authorities may be tax deductible for the purposes of an assessment to cantonal corporate income tax and vice versa.

Advance tax rulings on the level of corporate income tax payable are available and are advised as a matter of prudence.

The Swiss branch of a foreign company pays the same rates of corporate income tax on profits, income and capital gains as would be paid by a Swiss-resident corporate entity. Profits remitted abroad by the branch are not subject to any tax in Switzerland.

Corporate income tax is levied at federal, cantonal and municipal levels.

The basic federal tax rate is 3.63% of taxable profits with an additional percentage based on a formula which relates trading profits to net worth (i.e. capital and reserves). The maximum rate of 9.8% is arrived at if profits exceed 23.15% of net worth.

Cantonal tax rates vary between 17% and 35% and like the federal tax are progressive, using a scale based on the relationship of profits to net worth.

Municipal tax on corporate income is calculated as a small proportion of cantonal tax.

Switzerland is the world's largest private banking center. It is home to over 500 major banking institutions and is estimated to hold up to 35% of the world's private wealth.

In recent years a combination of legislative measures and market forces have re-orientated the Swiss banking services market so that banks cater less and less to the traditional small-to-medium-sized private accounts and more and more to large professional clients for whom sophisticated services are being offered at competitive prices.

One of the driving forces behind these changes has been Switzerland's desire to be seen internationally to be playing a meaningful part in the war against organized crime and money laundering.

The Swiss banking sector is regulated by the Federal Banking Commission (FBC) under the Banking Law of 1934, as amended most recently in 1999. Banking is defined to include all deposit-taking activity, but does not include the issuance of bonds or securities trading.

The offices, branches, agencies and permanent representatives of foreign banks are covered by the law.

Banks are licensed by the FBC.

The Banking Law contains stringent provisions to ensure secrecy, which are echoed in the FBC's regulations, and are an important component of Swiss banks' appeal to investors and depositors. The secrecy provisions are subject to limited exceptions contained in the domestic and international legislation that Switzerland has adopted as part of its campaign against money-laundering.

The key pieces of legislation in this respect are the Money Laundering Act 1998 and the Federal Act on International Mutual Assistance in Criminal Matters 1983. The Money Laundering Act in particular has been very effective: it allows penalties of up to US$7m for non-compliance, and in the six months after it came into force assets totalling $124m were seized.

In 2001 the European Union began negotiations with Switzerland to attempt to gain agreement to the information-sharing required as part of the EU's withholding tax directive and without which it will not be effective.

Switzerland has been politely helpful, offering to extend its 35% withholding tax on resident savings income to non-resident account holders, and to distribute much of the tax collected among EU member states, but the government is adamant that it will not shift on the issue of banking secrecy. The Finance Minister, Kaspar Villiger confirms this, commenting frequently that: 'Banking secrecy is not negotiable'.

Intricate negotiations finally reached an outcome in January, 2003, when the EU adopted a package which offered a choice to its members and outside countries such as Switzerland between information-sharing and the imposition of a withholding tax.

Although Switzerland has accepted the package in principle, its eventual implementation is dependent on acceptance by the US and some of the more important offshore jurisdictions. As of May, 2003, it was in any case being held up by Italy, of all countries, over a squabble about milk quotas.

Tax-privileged operations may take place within the following forms.-

Holding Company

Domiciliary Company

Auxiliary Company

Service Company

Mixed Company

For federal tax purposes a company is defined as a holding company if it holds either a minimum of 20% of the share capital of another corporate entity or if the value of its shareholding in the other corporate entity has a market value of at least 2m Swiss Francs (known as a "participating shareholding").

Although the definition of a holding company varies among cantons a corporate entity is a holding company for cantonal corporate income tax purposes so long as it either

derives at least 51%-66% of its income from dividends remitted by the subsidiary; or

holds at least 51%-66% of the subsidiary's shares.

Generally speaking foreign dividends remitted to a Swiss company and any capital gains realized by a Swiss company on the sale of shares in a foreign entity in which it holds a stake are taxable in Switzerland unless they are remitted to a company which by Swiss fiscal law is defined as a Swiss "holding" company.

Swiss holding companies enjoy the following relief from corporate income tax:

At federal level a holding company pays a reduced level of corporate income tax on any dividend income received from the subsidiary or the company in which it holds a "participating shareholding". The reduction in the level of corporate income tax payable depends on the ratio of earnings from "participating shareholding" to total profit generated.

At cantonal or municipal level no corporate income tax is payable on income represented by dividends so long the corporate entity meets the cantonal definition of a holding company.

Furthermore holding companies which hold a minimum of 20% of the share capital of a subsidiary pay reduced corporation tax on any capital gains made on the sale of that shareholding so long as

the shareholding was held for at least one year and was purchased after 1st January 1998; or

the shareholding was purchased before 1st January 1997 and will be disposed of after 1st January 2007.

Fribourg is currently considered the best canton in which to locate a holding company for corporate income tax purposes.

Domiciliary companies are companies that

are both foreign-controlled and managed from abroad;

have a registered office in Switzerland (i.e. at a lawyer's premises);

have neither a physical presence nor staff in Switzerland;

carry out most if not all of their business abroad;

receive only foreign source income.

At a federal level there are no tax advantages in terms of corporate income tax payable on income and gains;

At a cantonal and municipal level the corporate income tax rate may be substantially reduced or even reduced to zero; taxes levied by the cantons are calculated according to a formula which relates the company's paid up share capital and reserves to profit.

Mixed companies are companies which have the characteristics of both domiciliary companies and holding companies but which do not qualify as either. A mixed company gets the following relief from corporate income tax

At federal level no relief is granted;

At a cantonal and municipal level a mixed company may pay reduced tax or be totally exempt if it meets the following conditions:

It is foreign controlled;

a minimum of 80% of its total income comes from foreign sources;

the company has close relationships to foreign entities.

The various tax-privileged forms described above are all subject to limitations on their activities or structures as set out. 

Holding Companies must derive most of their income from subsidiaries;

Domiciliary Companies must have only the smallest toe-hold in Switzerland;

Auxiliary Companies (in 7 cantons only) may have some local activity;

Service Companies must be active only within their own groups; and

Mixed Companies combine Domiciliary and Service Company restrictions.