Switzerland’s Tax Haven: What You Need to Know

Switzerland, although a relatively small country, is known for many things. Its mountainous landscape, beautiful watches and delicious chocolate all spring to mind when thinking of Switzerland, but savvy businesses are utilizing another Swiss benefit – its status as a tax haven.

But what does this term mean? Well, a tax haven or offshore financial center is any country or jurisdiction offering minimal tax liability to foreign individuals and businesses.

To utilize the system, individuals aren’t required to reside in the country, nor do businesses need to operate from the jurisdiction to receive tax benefits, which makes tax havens very appealing for foreigners.

As a result, investors all over the world are enjoying tax reliefs in offshore accounts in low-cost jurisdictions like Switzerland. If you’d like to follow their example, there are a few things you need to know about before you dive into Switzerland’s tax world.

The low-down on Switzerland

Switzerland is the ‘grandfather’ of the world’s tax havens, one of the world’s largest offshore financial centers, and one of the world’s biggest secrecy jurisdictions or tax havens.

According to the Swiss Bankers’ Association, banks in Switzerland hold CHF 6.65 trillion (US$6.5 trillion) in assets under management, of which 48 percent originated from abroad. This made Switzerland the world leader in global cross-border asset management, with a 25 percent share of that market.

The Financial Secrecy Index 2018 report details how Switzerland differentiates itself from other asset managers, investor hubs, banks etc.: “The Swiss will exchange information with rich countries if they have to but will continue offering citizens of poorer countries the opportunity to evade their taxpaying responsibilities.”

A low-cost jurisdiction

Investing in a low-cost jurisdiction like Switzerland allows individuals and corporations from all over the world to legally reduce tax responsibilities. 

Swiss banking is highly regarded around the world, revered for its sophisticated and discreet banking services.

Thought to be one of the oldest tax havens of modern times – dating back to the 1920s – banking in Switzerland offers financial stability and growth opportunities through a trusted system.

The country offers privacy and security perks, but one misrepresentation is that Switzerland is completely tax-free. Yes, wealthy individuals will pay low lump sums on the money they bank, but there is still some tax to pay.

Advantages for you and your company

Companies from across the globe utilize the advantages of doing business through Switzerland. In fact, 30 percent of US Fortune 500 companies have subsidiaries in Switzerland.

Similarly, individuals choosing to live in Switzerland can benefit from lower taxation, as the country taxes households, not individuals.

Swiss facts

The economy is Switzerland has been strong for quite some time, with the Swiss franc one of the strongest currencies for investors hoping to make money through the forex market.

Although the US dollar continues to be the primary and most trusted reserve currency, the Swiss franc is seen as one of the best alternatives.

But what else makes Switzerland special?

• No deficit: Switzerland’s income exceeds its expenses, meaning there is no deficit. Switzerland, therefore, is self-reliant and stabilizes its currency.
• Small debt market: As Switzerland’s debt market is only small, this adds to its economic advantage. For example, if a large economy like Germany or Russia placed its huge reserves in Swiss debt, it could take control of Swiss debt. As the Swiss market is small, and there is no need for foreign funds as Switzerland has no deficit, buy-ins of this nature are impossible. This shields the Swiss economy and helps keep the Swiss franc valuation stable.
• Strong economic system: The small country has an equally small population, taking advantage of its natural resources. There are limited investments required for agriculture and production that support the strong economy.

Socioeconomic factors

Other than lower taxes, there are several other socioeconomic factors that make a particular destination a popular tax haven:

• Political and economic stability: Without it, no amount of tax inducement can bring outside investors. Switzerland is famous for its political and economic stability.
• Banking, professional and support service: Switzerland and Austria – although not strictly tax havens – are nevertheless popular for offshore banking services and a safe destination for assets

Challenges doing business in Switzerland

A series of bilateral agreements govern economic relations and business can be hampered by these or protectionist measures (for instance in agriculture). Although Switzerland offers autonomy in many areas due to its avoidance of EU membership, this can be problematic for some companies.

With these in mind, companies should also move tentatively with the following potential challenges:

• The market is highly regulated
• Domestic rules and regulations may apply
• Switzerland doesn’t always adopt EU standards

The bottom line

Investors looking for a safe haven for their money have turned to the Swiss franc for quite some time. It seems unlikely the Swiss economy will move from its low-debt, low-growth ideology and will continue as a major banking destination.