Why Switzerland Is the Perfect Location for Your Business

Switzerland is a highly developed, landlocked country in Central Europe which is renowned for its political stability, strong economy, high standard of living, and business-friendly environment. Furthermore, it boasts an impressive financial sector, excellent infrastructure, and a highly skilled workforce, making it an attractive jurisdiction for entrepreneurs looking to set up a company abroad. In this article, we will explore the advantages of establishing a business in Switzerland, and compare the two most popular legal company forms available.

Why is Switzerland an attractive jurisdiction to set up a company?

Switzerland is one of the most popular locations in the world to set up a company. There are numerous reasons why so many entrepreneurs are attracted to Swiss “shores”. Political stability, friendly corporate legislation, fast and easy incorporation, financial privacy, low taxes, lack of corruption, reputability, and a highly developed economy and infrastructure, are but a few of the benefits that Switzerland offers as a landscape for incorporating a company. It is no wonder why more wealthy foreign investors and ambitious entrepreneurs are choosing Switzerland as their financial and corporate “home base”.

Let’s explore in more detail the advantages of setting up a company in Switzerland, as well as look at the potential downsides of doing so.

Advantages of setting up a company in Switzerland

Favourable tax system

Switzerland has low corporate and personal income taxes compared to other European nations. Switzerland uses a mixed tax system. Individuals pay taxes on their global income, while companies are primarily taxed on income from Swiss sources, with rules to prevent double taxation. There are also special regulations for foreign income, which can vary. Additionally, Switzerland has numerous double taxation agreements to ensure fair international taxation.

Business-friendly environment

Switzerland is renowned for its low levels of bureaucracy and efficient government services. The country offers a transparent and predictable legal system, making it easier for businesses to operate and make long-term plans.

Strong economy and infrastructure

Switzerland has one of the most modern infrastructures and strongest economies in the world, which has consistently performed well even during global economic downturns. This makes it a smooth and profitable place to do business across almost all sectors.

Highly developed financial system

Switzerland is known as an international financial centre due to its high-quality banking and financial services sector which also offers a range of established funding options. As a business owner in Switzerland, it is easy to access venture capital, bank loans, or government grants to help support your business growth.

Political stability and neutrality

Switzerland is world-renowned for its long history of political neutrality. This provides a stable and secure business environment.

Access to international markets

Switzerland’s central location in Europe provides easy access to both EU and non-EU markets. It has a well-developed transportation and logistics infrastructure, making it an ideal hub for international trade.

Financial privacy

Switzerland is known for its strict data protection laws and respect for financial privacy. This is also seen in its popularity as a jurisdiction for offshore bank accounts, where account holders can enjoy a certain degree of confidentiality. This level of privacy can be particularly advantageous for businesses in sectors such as finance, healthcare, and technology, where data protection is crucial.

Fast and efficient incorporation process

It is fast and simple to set up a company in Switzerland, even as a foreigner, and the entire process can be completed online.

Strong global reputation

Switzerland has an excellent reputation worldwide, both in terms of the quality of products they produce, and in terms of financial credibility. Having Switzerland as the home base for your company can significantly improve its reputation. You can more easily access funding and credit, attract higher net-worth investors, avoid undue scrutiny, and gain greater trust in the quality of your products and services from customers.

High standard of living and quality of life

Switzerland has one of the highest standards of living in the world. If you physically need to relocate there to run your company, you won’t be disappointed with the type of life you can lead. High living standards also translates to higher consumption habits which means a more profitable business environment.

Strong and stable currency

The Swiss franc (CHF) is one of the strongest and safest currencies on the world stage today. It has been in a steady uptrend against the US dollar over the last two decades and, at the time of writing, is worth US$1.11.

Skilled workforce

Switzerland has a highly skilled and educated workforce. The country’s excellent education system produces a continuous flow of qualified professionals across various industries.

Intellectual property protection

Switzerland has strong intellectual property laws and regulations. Your company’s innovations and trademarks are well-protected by Swiss IP law, providing a secure environment for research and development activities.

Disadvantages of setting up a company in Switzerland

While Switzerland offers numerous advantages for setting up a company, there are also some potential downsides to consider:

High cost of living

While the high standard of living in Switzerland is an advantage for businesses, the associated high cost of living can present a challenge. Firstly, living in Switzerland is more expensive, which means that the profits you take home won’t go as far. Secondly, a high cost of living can translate to higher wages and operating costs for businesses. It is essential to factor in these expenses when planning your budget.

Complex legal and regulatory framework

Switzerland’s legal and regulatory framework can be complex, especially for foreign nationals looking to set up a company. It is important to seek professional assistance to navigate the legal requirements and ensure compliance with regulations.

Difficult to incorporate a company as a non-EU/EFTA national

The requirements to set up a company in Switzerland as a non-EU/EFTA national (aka “third-country” national) are much more arduous. You will require specific permits and must obtain the right authorisations, which are often refused if the applicant is not highly qualified or can provide compelling evidence as to the positive impact that the company will have on the Swiss labour market.

Limited workforce mobility

Switzerland has strict immigration policies and quotas for non-EU/EFTA nationals. Hiring foreign employees can be a complex process, for which companies must demonstrate that the positions cannot be filled by Swiss or EU/EFTA citizens. This can limit workforce mobility and potentially affect recruitment efforts.

The verdict

Despite the challenges, the numerous advantages of setting up a company in Switzerland usually outweigh the few disadvantages. The stable economy, overall business-friendly environment, and favourable tax system make Switzerland an attractive destination for entrepreneurs. However, careful planning and professional assistance are crucial to navigate the legal and regulatory landscape and manage the associated costs and difficulties which may arise.

Choosing the right legal form: GmbH vs AG

When setting up a company in Switzerland, you will have to decide on a legal form for your business. The two most common choices are a limited liability company (GmbH) and a joint-stock corporation (AG). Each legal form has its own advantages and disadvantages, and the choice depends on various factors such as the size of the business, capital requirements, liability considerations, and governance structure. Let us consider each in turn:

Incorporating a GmbH

A GmbH is a limited liability company suitable for small to medium-sized businesses. It is a separate legal entity and therefore offers protection to the owners’ personal assets. Here are some advantages and disadvantages of incorporating a GmbH:

Advantages of a GmbH

• Low initial share capital required: the minimum share capital required is CHF 20,000, of which 100% must be paid up in full.

• Limited Liability: The shareholders’ liability is limited to their capital contribution, providing personal asset protection.
• Ownership: only one member is required who can be any natural or legal person of any nationality.

• Simple and affordable setup process: Setting up a GmbH involves relatively fewer formalities and is more affordable compared to an AG, making it more accessible for small businesses and individuals.

• Flexibility: GmbHs offer flexibility in terms of organisational structure and decision-making processes, allowing members to adapt the company’s operations to their specific needs.

Disadvantages of a GmbH

• Difficulty raising capital: GmbHs may face challenges in attracting significant investments or raising capital through the sale of shares since the ownership is not easily transferable, and shares are not publicly tradable.

• Less prestigious: GmbHs may be perceived as less prestigious than AGs, which could potentially impact business relationships and partnerships.

• Owners forsake unemployment benefits: The managing directors of a GmbH have no right to unemployment benefits in Switzerland as long as they officially hold their role in the company. They will only become eligible if the company is liquidated or they give up their post.

• Decreased privacy: There is less privacy compared to an AG, and the names of the owners are publicly identifiable along with the company.

Incorporating an AG

An AG is a corporation suitable for larger companies with more substantial capital requirements and broader growth ambitions. Like a GmbH, it is a separate legal entity and therefore offers protection to the owners’ personal assets. Here are some advantages and disadvantages of incorporating an AG:

Advantages of an AG

• Easier to raise capital: AGs are often more attractive to investors and shareholders due to the ability to issue freely transferable and publicly traded shares, which makes it easier to raise capital. AGs are also perceived as being more creditworthy, and so it is easier to raise capital in the form of loans and other types of funding, often at a more favourable rate of interest.

• Reputation: AGs generally have a higher perceived reputation, which can be beneficial when establishing business relationships, applying for credit, and attracting clients.

• Greater Flexibility in Share Structure: AGs offer more flexibility in structuring different classes of shares, allowing for different voting rights and profit-sharing arrangements.

• Greater privacy: An AG provides much greater levels of privacy as it is possible to own shares anonymously.

• Preserves social security insurance: Shareholders who act as employees of the company are socially insured like ordinary employees and can therefore also claim social insurance benefits while still holding their position as shareholders.

Disadvantages of an AG

• Higher Capital Requirements: Incorporating an AG requires a much higher minimum capital compared to a GmbH, of at least CHF 100,000 (of which minimum 50% must be paid up). This may pose a financial barrier to smaller businesses.

• Complex Governance: AGs have more complex governance structures and must comply with more stringent reporting and disclosure requirements, including holding regular shareholder meetings and preparing detailed financial statements.

• Stricter regulatory requirements: There are strict regulations regarding the formation of legal reserves, measures in the event of over-indebtedness, etc.

• The managing directors and all persons who exercise a considerable influence on the decisions of the company are not entitled to unemployment benefits in the case of an AG in Switzerland as long as they officially hold their position in the company. They are only entitled if the company is liquidated or they give up their position.

Can a foreigner set up a company in Switzerland?

Foreigners can indeed incorporate a company in Switzerland; however, it is important to understand the different regulations and requirements for European Union (EU)/European Free Trade Association (EFTA) citizens and so-called “third-country” nationals (individuals from non-EU/EFTA countries).

EU/EFTA citizens benefit from the Agreement on the Free Movement of Persons, which allows them to establish a company in Switzerland under almost the same conditions as Swiss citizens. They are not subject to any additional restrictions and have the freedom to work and reside in the country.

In contrast, it is more difficult to set up a company in Switzerland as a non-EU/EFTA citizen (as a so-called “third-country national”). Citizens from third countries do not automatically have the right to live, work, or set up a business in Switzerland, so they need to obtain a permanent settlement permit (C permit) or otherwise apply for special authorisation.

When establishing a legal entity in Switzerland (GmbH AG), at least one managing director or board member must be resident in Switzerland (i.e. he must have a valid residence and work permit). The other members may be non-residents. In the event that no managing director of your company is resident in Switzerland, Nexova offers a complete director service and will be happy to provide you with a managing director.

More information on setting up a company in Switzerland as a foreigner can be found here.