Switzerland

Switzerland officially the Swiss Confederation, is situated in Western and Central Europe, where it is bordered by Germany to the north, France to the west, Italy to the south, and Austria and Liechtenstein to the east.
Total area of the country is 41,284 sq. km. The population is 7,996,026 people (2013). The German form the largest ethnic community (65%), French - 18%, Italian - 10%, other - 7%.
The capital is Bern.
The official languages are German, French, Italian, and Romansch.
The currency is Swiss franc (CHF). 1 USD is equal to 0.91 CHF.
Climate of Switzerland is temperate, but varies with altitude; cold, cloudy, rainy/snowy winters; cool to warm, cloudy, humid summers with occasional showers; avg. maximum temperature is +25°; avg. minimum temperature is -4°.
Time difference with Moscow is -3 hours.
Literacy rate is 99%.
Calling code is +41.

The Swiss Confederation was founded in 1291 as a defensive alliance among three cantons. In succeeding years, other localities joined the original three. The Swiss Confederation secured its independence from the Holy Roman Empire in 1499. A constitution of 1848, subsequently modified in 1874, replaced the confederation with a centralized federal government. Switzerland's sovereignty and neutrality have long been honored by the major European powers, and the country was not involved in either of the two World Wars. The political and economic integration of Europe over the past half century, as well as Switzerland's role in many UN and international organizations, has strengthened Switzerland's ties with its neighbors. However, the country did not officially become a UN member until 2002. Switzerland remains active in many UN and international organizations but retains a strong commitment to neutrality.

Swiss confederation is a federal republic, which consists of 26 cantons.
Head of State is the Federal Council which is also the head of government.
Executive power is exercised by the government and the federal administration and is not concentrated in any one person. It belongs to Federal Council, which consists of President, Vice-President and 5 other members. The Federal Council is elected by the Federal Assembly for a four-year term. The largely ceremonial President and Vice President of the Confederation are elected by the Federal Assembly from among the members of the Federal Council for one-year terms that run concurrently.
Legislative power is formed by the bicameral Federal Assembly which consists of Council of States (46 seats - members serve four-year terms) and the National Council (members are elected by popular vote on a basis of proportional representation to serve four-year terms).
Judiciary branch is represented by Federal Supreme Court, with judges elected for six-year terms by the Federal Assembly. The function of the Federal Supreme Court is to hear appeals of cantonal courts or the administrative rulings of the federal administration.

Switzerland has a stable, prosperous and high-tech economy. In 2011 it was ranked as the wealthiest country in the world in per capita terms. It has the world's fourth largest economy by nominal GDP. Switzerland has the highest European rating in the Index of Economic Freedom 2010, while also providing large coverage through public services.
Switzerland's most important economic sector is manufacturing. Manufacturing consists largely of the production of specialist chemicals, health and pharmaceutical goods, scientific and precision measuring instruments and musical instruments. The largest exported goods are chemicals (34% of exported goods), machines/electronics (20.9%), and precision instruments/watches (16.9%). The services sector – especially banking and insurance, tourism, and international organisations – is another important industry for Switzerland.
Switzerland has an overwhelmingly private sector economy and low tax rates by Western World standards; overall taxation is one of the smallest of developed countries. Switzerland is a relatively easy place to do business, currently ranking 28th of 178 countries in the Ease of Doing Business Index.

The legal system of Switzerland is based on civil law system.
The main source of law is Constitution of 1874.
The Swiss Limited Liability Company is governed by the Swiss Code of Obligations (1912) revised in 2011.

The principal forms of business organization in Switzerland are:

• Sole proprietorship (Einzelfirma);
• Partnership (Kollektivgesellschaft);
• Limited partnership (Kommanditgesellschaft);
• Public limited company (AG);
• Ordinary partnership (Kommanditaktiengesellschaft);
• Private limited liability company (GmbH);
• Cooperative society (Genossenschaft);
• Branch of a foreign entity.

The most common structure is the private limited liability company (GmbH).

When planning to incorporate your company in Switzerland, you can use the Zefix website (www.zefix.admin.ch) to check whether you can use your company name – or any alternative. Zefix is the central company index of Switzerland which belongs to the Commercial Registry.
The company or business name under which a commercial enterprise is operated can be freely chosen, as long as it complies with legal regulations.
Stock corporations (AGs) and limited liability companies (GmbHs) must specify the legal form as part of the company name - GmbH (or its equivalent in French or Italian). However, it is also allowed to register the business name with the suffix “Ltd”, but therefore, business name for both countries have to be registered (e.g.: RealEstate33 GmbH [RealEstate33 Ltd]). The problem is that by registering only the company name with the suffix “Ltd” people would think that the company is incorporated in the UK or another country, where the suffix “Ltd” is obligatory or common.
Certain words such as Switzerland, International, European, Insurance, Reinsurance, Fund Management, Bank, Collective Investment Schemes are sensitive and may have different capital requirements.

The following steps are required to incorporate a GmbH in Switzerland:

1. Preliminary search, registration and approval of the company name – 1 day;
2. Draft the articles of association in the presence of a notary public, who notarizes the personal and corporate signatures on the application form and authenticate the articles of association and the public deed of incorporation - 7 days;
3. Place the paid-up capital in an escrow account with a bank - 1 day;
4. File the deed certifying the articles of association to the local commercial register to obtain a legal entity - 7 days;
5. Pay stamp tax at post office or bank after receiving an assessment by mail - 1 day (1 % capital with the first CHF 1,000,000 exempt);
6. Register for VAT- 1 day, within 30 days after being subject to VAT;
7. Enroll employees in the social insurance system (federal and cantonal authorities) - 1 day.

The formation of a Swiss GmbH takes two to four weeks from the submission of required documents to the date when the company is considered legally established (when it has legal effect with respect to third parties). The time required can be less in simple cases and depending on the location canton.
In general, no approval from the authorities, chambers of commerce or professional associations is required to establish a business. The exercise of certain professions or the establishment of specific businesses may, however, require special licenses or diplomas. All business sectors are open to foreign investment. It is not necessary that Swiss persons hold a certain percentage of the equity.
Since April 15, 2010 the State Secretariat for Economic Affairs has provided an online desk for founding companies in the form of «StartBiz». With this eGovernment solution, the complete foundation of these companies can be carried out via “StartBiz”.

The commercial register includes all commercial enterprises doing business in Switzerland. It specifies each company’s extent of liability and its authorized representatives. Its central focus is its public disclosure role.
All entries in and deletions from the commercial register are published in the Swiss Official Gazette of Commerce (SOGC).

Every business must have an address in Switzerland at which the registered offices can be contacted. This address must contain the following:

• Street
Number
• Postal code;
• City, Town or County Name

A differentiation must be made as to whether the address is the own office of the company or simply a “c/o” address. Own office would be a location which a legal entity owns or leases and where it conducts most of its administrative business where the receipt of any kind of correspondence is possible. As long as these requirements are not met, the address must be considered a c/o address. A PO Box cannot be considered a domicile in the legal sense.
Register of shareholders and directors, minutes of shareholders’ and directors’ meetings, accounting records should be kept at the registered office.

There are no statutory requirements for a Swiss company to have a seal.

The redomiciliation of companies to or from Switzerland is permitted.

The minimum number of directors of a Swiss Limited Liability Company is 1. However, at least 1 director should be a Swiss resident director and in case of more than 1 director, the majority of the board of directors should be Swiss residents. There is no further restriction on the nationality or residency of the directors.
Corporate directors are not allowed.
Since a board of directors is not required, there are no requirements to the meetings of board of directors.
Directos’ information appears on public record.

Swiss companies are not required to appoint a company secretary.

The minimum number of shareholders of a Swiss Limited Liability Company is 1 and the maximum is unlimited. There is no restriction on the nationality or residency of the shareholders. The shareholders of a Swiss Limited Liability Company can be individuals and/or legal persons.
Information on shareholders are not publicly accessible.
An Annual General Meeting of the shareholders must be held within 6 months of the end of the financial year. Generally 20 days notice must be given of an intended meeting unless all appropriate parties are represented directly or by proxy. Meetings may be in or outside of Switzerland.

The details of the beneficial owner are disclosed to the service provider but are not available on public record. Disclosure of beneficiaries is required in connection with the opening of any corporate bank accounts.

The minimum capital requirement for a Swiss Limited Liability Company is CHF 20,000 and the maximum is CHF 2,000,000. The nominal capital must be fully paid-in upon incorporation.
The share capital of a Swiss Limited Liability Company can be denominated in any currence. It must be deposited in a Swiss bank (blocked account for company foundation).
Each shareholder has an interest in the nominal capital in the form of one or more nominal shares having a nominal value of at least CHF 100.

Based on the constitution, all cantons have the full right of taxation except for those taxes that are exclusively reserved for the federal government. As a consequence, Switzerland has two levels of taxation – the federal and the cantonal/communal level.
The law applicable for federal income tax is the so-called Federal Tax Law. The Swiss Confederation has adopted a so-called Tax Harmonization Law which applies directly at cantonal level; in addition, each canton has issued it own cantonal tax law.

Resident individuals are taxed on their worldwide income except for profits from foreign businesses, foreign branches and foreign immovable property, which are tax- exempt. Residents are subject to taxation on federal and cantonal/communal level if they have their permanent or temporary residence in Switzerland.
Nonresidents are taxed on Swiss employment income, business profits and profits attributable to Swiss immovable property.
Individual tax rates are typically progressive, whereas a maximum tax rate of 11.5 % applies on federal level. The cantons may set their own tax rates. The maximum applicable cantonal tax burden varies significantly from canton to canton:

Canton	Maximal tax rate
Zürich (ZH)	13%
Bern / Berne (BE)	6.5%
Luzern (LU)	5.7%
Uri (UR)	7.1%
Schwyz (SZ)	3.65%
Obwalden (OW)	1.8%
Nidwalden (NW)	2.75%
Glarus (GL)	17%
Zug (ZG)	8%
Fribourg (FR)	13.5%
Solothurn (SO)	10.5%
Basel Stadt (BS)	26%
Basel Land (BL)	18.62%
Schaffhausen (SH)	9.9%
Appenzell Ausserrhoden (AR)	2.6%
Appenzell Innerrhoden (AI)	8%
Sankt Gallen (SG)	8.5%
Graubünden (GR)	11%
Aargau (AG)	11.25%
Thurgau (TG)	8%
Ticino (TI)	15.076%
Vaud (VD)	15.5%
Valais / Wallis (VS)	14%
Neuchâtel (NE)	14.5%
Genève (GE)	19%
Jura (JU)	6.432%

Tax year conforms to calendar year. Filing deadlines vary from canton to canton and apply for both federal and cantonal/communal taxes. Penalties apply for late filing or failure to file.

Corporate income tax is levied on all companies with their legal seat (registered office) or place of effective management in Switzerland. Tax basis includes companies' worldwide income with the exception of income attributable to foreign permanent establishments or foreign immovable property, which are tax-exempt. Nonresident companies are taxed on permanent establishment/branch income and/or immovable property located in Switzerland.
Corporate income tax is levied on a company’s net profits, which consist of business/trading income, passive income and capital gains. Foreign-source income is included in taxable income, but relief is granted for dividend income from qualifying participations. Business expenses are deductible in computing taxable income. Unrealized gains and losses from the conversion of financial statements in a functional currency into Swiss Francs are disregarded for tax purposes.
Corporate income tax is imposed at both the federal and cantonal/communal levels. The federal tax rate of 8.5% is levied on net income. Since income and capital taxes are deductible in determining taxable income, the effective tax rate is 7.8%. Taking into account both the federal and cantonal/communal income tax, the combined effective income tax rate is typically between 12% and 24% for companies subject to ordinary taxation, depending on the place of residence.
Cantonal tax rates are as follows:

Canton	Maximal tax rate
Zürich (ZH)	9%
Bern / Berne (BE)	1.55%
Luzern (LU)	1.5%
Uri (UR)	4.2%
Schwyz (SZ)	2.25%
Obwalden (OW)	6%
Nidwalden (NW)	6%
Glarus (GL)	9%
Zug (ZG)	6%
Fribourg (FR)	12.8%
Solothurn (SO)	8.5%
Basel Stadt (BS)	20%
Basel Land (BL)	12%
Schaffhausen (SH)	5%
Appenzell Ausserrhoden (AR)	6%
Appenzell Innerrhoden (AI)	8%
Sankt Gallen (SG)	3.75%
Graubünden (GR)	5.5%
Aargau (AG)	9%
Thurgau (TG)	4%
Ticino (TI)	9%
Vaud (VD)	9.5%
Valais / Wallis (VS)	9.5%
Neuchâtel (NE)	8.66%
Genève (GE)	10%
Jura (JU)	3.6%

Capital gains are included in taxable profits and subject to normal corporate income tax.

Losses may be carried forward for seven fiscal years and may be used against any capital gains or income. Losses may not be carried back.

Dividends generally are taxable for the recipient company, although relief is granted for dividends received from a qualifying participation in a resident or nonresident company. A participation is qualifying if the company owns at least 10% of the capital of the company paying the dividends or the participation has a value of at least CHF 1 million.

Foreign-source income is included in taxable income, but relief is granted for dividend income from qualifying participations. Foreign-source income is taxed net of foreign taxes; no credit is granted for foreign tax paid.

In contrast to the Swiss federal tax law, all cantonal tax laws provide special tax regimes, which may be obtained provided that the conditions according to the tax harmonization law are met. The following tax regimes are typically prevalent in Switzerland:

• Holding company: the holding company tax privilege is granted to companies whose primary statutory purpose is the holding of participations (i.e. when at least 2/3 of the total assets consist of investments in subsidiaries or, alternatively, at least 2/3 of income consists of dividends) and that have no active trade or business in Switzerland. A company that enjoys the holding company privilege is fully exempt from cantonal and communal income taxes. The effective federal income tax rate on non- dividend income is 7.8%.
• Mixed trading company: the mixed trading company tax privilege is granted to companies with predominantly foreign business activities. A business activity is deemed to be performed predominantly outside Switzerland if generally at least 80% of the total gross income is derived from foreign sources and at least 80% of expenses are incurred abroad. Foreign-source income of a mixed company is taxed at a combined effective rate of typically between 9%-11% (including federal tax). Swiss-source income is taxed at ordinary rates for cantonal/communal and federal income tax purposes.

The tax year generally corresponds to the accounting year of a company. In other words, if the closing date of a company is on December 31, the fiscal year runs from January 1 to December 31; on the other hand, if the closing date is on March 31, the fiscal year runs from April 1 to March 31.

Although Switzerland is not an EU member state, its value added tax (VAT) system was structured in accordance with the sixth EU VAT Directive («Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes»). As a result, Swiss VAT applies to the sale of goods and services in Switzerland, and to the import of goods and services into Switzerland at the federal level only. Exports of goods and services are, in principle, zero-rated.
The standard VAT rate is 8% since January 1, 2011. Certain goods and services are subject to a reduced rate of 2.5% (e.g. water supply, food) and others (e.g. most banking services) are exempt. A special 3.8% rate applies to the hotel and lodging industry.

Companies whose annual turnover exceeds CHF 100,000 must register for VAT purposes. If the turnover of a taxpayer is less than CHF 100,000 per year (or less than CHF 150,000 for sports clubs and non-profit institutions), then the entity is exempt from tax liability. However, any such entity may also waive exemption from tax liability.
Upon registration with the Federal Tax Administration, the taxpayer currently receives a VAT number which is essentially based on the company identification number.

VAT returns must be filed quarterly and the relevant VAT amount remitted to the federal tax authorities.

The Federal Tax Administration offers further simplified VAT accounting for small businesses with turnover of below
CHF 5.02 million (incl VAT) and a tax liability of CHF 109,000 or less per year. These small businesses may opt to submit VAT based on balanced tax rate, which is lower than the standard rate of 8 %,
if they, in return, waive the standard procedure for input VAT accounting, which would otherwise be deducted from the VAT levied on turnover (input VAT deduction). This simplified taxation method must be maintained for at least one year, and VAT returns need to be filed twice a year only (in contrast to the normal quarterly calculations).

In Switzerland withholding tax is mainly levied on dividends. Under domestic law, dividends are subject to a 35% withholding tax. Most tax treaties provide for a reduced rate of 15 % for portfolio investors and 0%, 5% or 10% for substantial corporate owners. Under the Switzerland-EU savings agreement, which provides Switzerland access to benefits similar to those in the EU parent- subsidiary directive, withholding tax is reduced to 0% on cross-border payments of dividends between related companies residing in EU member states and Switzerland when the capital participation is 25% or more and certain other criteria are met.
In general, no withholding tax is levied on interest. Exceptions apply to interest derived from deposits with Swiss banks, bonds and bond-like loans, which are subject to a 35% withholding tax at the federal level. The tax can be reduced under a tax treaty to typically 0% or 10% with most investor countries.
Switzerland does not levy withholding tax on royalties and service fees.

Generally, the tax liability arises on special legal transactions such as the issuance of shares or the trading of securities (securities transfer stamp tax). The tax on the issuance and the increase of equity of Swiss corporations is 1% on the fair market value of the amount contributed, with an exemption on the first CHF 1 million of capital paid in.
Issuance stamp tax is further levied in respect of some debt instruments such as bonds and money market papers at a rate of 0.06 % or 0.12 % on the nominal value of such instruments for each year or part thereof up to maturity of such instrument.
Reorganizations, such as mergers, spin-offs of corporate assets, or transfers of a company’s domicile from abroad to Switzerland are typically exempt from stamp duty.

There is no government fee for companies in Switzerland.

Transfer pricing: According to Swiss tax law, transactions between group companies must be at arm’s length. Switzerland does not have separate transfer pricing legislation and does not plan to enact such legislation in the near future. Instead, the Swiss tax authorities follow the transfer pricing guidelines of the OECD to determine if a transaction between related parties is at arm’s length. Under the Swiss tax code, taxpayers must provide evidence about their transfer prices within set deadlines, upon request by the tax administration.
Thin capitalization: The Swiss thin capitalization rules are not defined in the tax law per se. Instead, a circular letter of the FTA sets forth safe harbor rules that apply to related party debt. An asset-based test is used to determine whether a company is adequately financed. The rules require that each asset class is underpinned by a certain amount of equity.
Controlled foreign companies: Switzerland does not have a CFC regime.
Disclosure requirements: no

Switzerland participates in various international tax mechanisms, including:

• 106 DTS: Albania, Algeria, Antigua and Barbuda, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, Chile, China, Chinese Taipei, Colombia, Croatia, Czech Republic, Côte d'Ivoire, Denmark, Dominica, Ecuador, Egypt, Estonia, Faroe Islands, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Ghana, Greece, Grenada, Guernsey, Hong Kong (China), Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Montenegro, Montserrat, Morocco, Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet nam, Virgin Islands (British).
• 10 TIEA: Andorra, Belize, Brazil, Grenada, Guernsey, Isle of Man, Jersey, San Marino, Seychelles.

There are no foreign exchange controls in Switzerland.

A Swiss private limited company should maintain accounting records. The accounting records should be maintained in CHF and be in Switzerland.

A Swiss Limited Liability Company needs to prepare annual financial statements. Financial statements should include profit and loss account and a balance sheet. All these should be drawn up according to any internationally accepted standards (such as US-GAAP, IFRS, Swiss GAAP or FER) and be complete, clear and easily understood.
The accounts are not publicly accessible.

Swiss Law requires the annual accounts of a Swiss Limited Liability Company to be audited. The auditing obligation depends on the size of the limited liability company (GmbH). Regular audits apply to companies that are required to prepare consolidated financial statements and also to companies listed on the stock exchange, or if two of the three measures below are reached in two successive fiscal years:

• Total assets of CHF 10 million
• Annual sales of CHF 20 million
• An average headcount over the year of 50 employees or more

If these conditions are not met, then the annual financial statements are only subject to a limited audit (questioning of management, appropriate detailed checks, analytical audit procedures, etc.). The audit may also be dispensed with entirely, subject to the approval of the shareholders, if the company has no more than an average of ten full-time positions over the year.

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:

• Incorporation information (registration date, registered address);
• Information about directors and their resignation;
• Information about secretaries and their resignation;
• Information about registered capital, nominal value of shares and amount of issued shares;
• Information about shareholders and share transfer.

Swiss companies are not obliged to prepare and file Annual Return.

Every company needs to file an annual tax return. The tax return must be filed in principle within six months from the closing date. The yearly tax assessment is then issued by the cantonal tax administration. The deadline for the submission of tax returns depends on the canton in which a company is registered. There is combined tax return filing for both federal and cantonal income tax purposes. As a principle, Swiss companies are required to pay installments during the fiscal year.
Penalties apply for late filing or failure to file.

The anglo-saxon trust law has not been adopted into the Swiss legislation. There is no Swiss substantial law on trusts and no such thing as a Swiss domestic trust. Therefore, a trust can only be established according to foreign law, whereby the settlor may choose the governing law. However, despite the lack of substantial trust provisions, Swiss courts have been dealing with trusts for many years.
Switzerland being one of the largest trust administration centers in the world recognized eventually the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1st of July 1985 with effect as of 1st of July 2007 (the "Hague Convention"), resulting in the recognition of trusts as a legal structure sui generis and in the enforcement of foreign trusts.
Since 2007 it is possible to hold Swiss property in trust. In such a case, generally the trustee is the owner of the real property and is to be registered in the land register. While EU/EFTA nationals residing in Switzerland can acquire real estates without prior authorization, third-country nationals are still submitted to a preliminary administrative authorization. If the trustee or the beneficiaries qualify as a person abroad, in principle the transfer is subject to authorization.
According to the Circular No. 30 the trust assets and the trust income will either be taxed by the settlor or the beneficiaries. Hence, a Swiss trustee is never subject to tax for the trust assets and the trust income. The trustee is regarded as the formal owner but not the beneficial owner of the trust assets.
Swiss law differs between revocable, irrevocable fixed-interest trusts and irrevocable discretionary trusts.

If a trust is qualified as a revocable trust, then the settling of the trust does not cause any change from a fiscal perspective. The settlor remains taxable and distributions to beneficiaries are treated as gifts from the settlor.
In the event of the settlor's demise, the trust becomes (for tax purposes) an irrevocable trust. Some tax authorities conclude that with the settlor's demise the settlor made a donation to the trust or the trustee and there is, therefore, an inheritance. The taxation is differs from canton to canton. Some cantons apply the highest inheritance tax rate and others take the relationship between the settlor and the beneficiaries into account and only then determine the tax rate. In most cantons the tax rate is zero if the heirs are direct descendants of the settlor. Other cantons do not follow the inheritance road but focus on whether the beneficiaries have substantial influence over the trust assets. If so, then the trust will still be treated transparently, meaning the trust assets and trust income will be taxed by the beneficiaries.

Under Circular No 30 the creation of a fixed interest trust is treated as a donation from the settlor to the beneficiaries. The tax rate applicable depends on the degree of cognation. An assessment of gift tax on the entire trust funds can violate the principle of economic capacity, in particular, if the beneficiary is only entitled to a certain amount of the trust income. Therefore, the tax would have to be limited to the capitalized amount of the income.
In the event that the Swiss resident beneficiary has an entitlement to distributions of either capital or income he is taxed in analogy to an usufructuary. The amount of his entitlement to distribution will be capitalized and the capital value of his entitlement is subject to wealth tax. Any amount distributed to the beneficiary is subject to income tax unless made out of tax free capital gains or capital.

The settlor irrevocably transferred the trust assets to the trustee and has given up any economic interest in the trust funds. The trustee cannot be taxed as he is not the beneficial owner of the trust assets.
Beneficiaries of an irrevocable discretionary trust have in general no legal entitlement to receive distributions from the trust. They have a mere expectation of benefitting from the trust. Under Swiss tax law an expectation is not taxable. However, under the Circular No. 30 a Swiss resident beneficiary of an irrevocable discretionary trust may be subject to tax if he is qualified as the beneficial owner of the trust assets.
If the beneficiary does not qualify as a beneficial owner, then the Swiss resident settlor remains tax liable for the trust fund and the trust income just as if he had set up a revocable trust. Therefore, the trust fund and trust income are still attributed to the settlor and distributions to beneficiaries are treated as gifts.
The Circular No. 30 provides for an exception of this principle in the event that the settlor was resident abroad when the trust was set up. In that case the Circular No. 30 accepts that neither the trust fund nor the trust income can be attributed to the currently in Switzerland residing settlor or the beneficiaries. Only distributions received by a Swiss resident beneficiary will be taxed as income. In practice, some tax authorities, however, do not grant the tax exemption if the settlor set up the trust shortly before he immigrated to Switzerland and declare such a pre-immigration structuring as a tax evasion.
The distribution of capital gains is not tax-free because the trust assets are not attributed to the beneficiaries for tax purposes. Distributed capital gains qualify as income.

Since the trust is not a legal entity, it cannot claim a refund of Swiss withholding tax. Swiss withholding tax paid on income arising on trust assets (mainly interest and dividends) will generally only be refundable to Swiss resident persons whom such assets are being attributed to (settlor or beneficiary).

In Switzerland no duty exists for professional trustees to register with a supervisory authority. The private industry, including many of Switzerland's largest trust companies, however founded the Swiss Association of Trust Companies (SATC), mainly to develop the activities of trustees in Switzerland and to promote the adherence to certain professional and ethical standards. SATC issued minimum standards of professional credentials and a code of ethics. In 2012 SATC published a so-called "White Paper" with various proposals on the regulation of trustees in Switzerland, namely the requirement to obtain a license to carry out trustee activities in Switzerland.

The Swiss Federal Act regarding the Fight Against Money Laundering in the Financial Sector (AMLA) is also applicable to trustees who qualify as financial intermediaries. According to the practice of the Swiss Financial Market Supervisory Authority (FINMA)20 trustees are deemed financial intermediaries as they own the trust assets separately from their personal assets. This means that trustees have among others the duty to verify the contracting party's identity, to establish the beneficial owner's identity, to clarify the economic background and the purpose of unusual transactions. In addition the AMLA provides for reporting duties on the trustee in case of any suspicious transactions. Whether protectors fall under the AMLA depends on their powers under the trust.

The foundation according to Swiss law is a legally independent purpose fund or special fund. Depending of the purpose of a foundation, it can be distinguished between the common foundation and 3 legal special forms, namely the family foundation, the ecclesiastic foundation and the personnel welfare foundation.

According to Swiss law, family foundations are characterized in such a way that property is available for a family to pay the costs of education, facilities or support of family members or for similar purposes. The family foundation is different from the common foundation in that, according to the intention of the founder, the circle of beneficiaries is limited to members of a single, specific family.
According to constant legal practice of the Federal Supreme Court, the list of purposes for which family foundation may be set up is an exclusive list. These purposes have in common that family members who belong to the circle of beneficiaries should be supported in certain circumstances.
Family foundations do not need to be registered in the commercial registry in order to obtain legal personality. They are not subject to a regulatory authority, under reservation of public law. Finally, family foundations are exempted from the obligation to mandate an auditor.

Ecclesiastic foundations are mentioned several times in the Swiss Civil Code, however, the law does not provide a legal definition of the ecclesiastic foundation.
According to legal doctrine and jurisprudence, two conditions have to be met: on the one hand, a religious purpose is required, on the other hand, there must be a specific organizational connection to a religious community. Only foundations that serve the faith in God, are ecclesiastic.

A personnel welfare foundation is often chosen as a vehicle for pension funds that serve as a continuation of living standards after retirement.

The concept of an enterprise foundation is unknown in Swiss legislation. Enterprise foundations have emerged in practice. An enterprise foundation is characterized by an economic activity and pursues a specific property investment policy. It differs from traditional foundations in its organizational structure.
There are many purposes behind establishing an enterprise foundation. The topic of estate planning in the broad sense is at the forefront.
Enterprise foundations have two main forms. Either there is a foundation that conducts a commercial, manufacturing or other business in the pursuit of an economic or non-economic purpose, and which is therefore directly the responsible body of the enterprise itself. Or there is a foundation that is a substantial shareholder of an enterprise.

Switzerland is well known for its large number of international governmental and non-governmental organizations. With all these organizations active in Switzerland, it is natural that the Swiss Charitable Foundation is a frequently used entity. The combination of a favorable tax regime and a regulated environment is an advantageous one. In addition, the Federal Circulars of December 1990 and July 1994 provide a clear description of the relevant requirements. These factors combined make the Swiss Charitable Foundation an effective estate planning vehicle, that is suitable for charitable, international and philanthropist activities.

The deeds of a Foundation need to be executed by a public notary, the Foundation is then registered at the Registry of Commerce to acquire legal personality. In general a minimum initial capital of CHF 50’000 is requested.
A foundation is incorporated either by a public deed or by a testamentary disposition (last will and testament or inheritance agreement). The foundation is entered into the commercial registry based on the Foundation Charter and indicating the members of the Foundation Council.

The Foundation Charter must indicate the organs of the foundation and the nature of its administration. For the most part, the foundation is free to determine its own organization. The way the foundation is organized can be set down in more or less detail, depending on the needs of foundation. However, it is important that the organization fosters the most efficient use of the foundation’s funds.
The superior organ within a foundation is the Foundation Council, which is responsible for the supervision of the foundation’s business. The Foundation Council assumes all competences which are not expressly delegated to another body either in the Foundation Charter or in the respective regulations. The Foundation Council performs the following unalienable tasks:

• regulation of the powers to represent the foundation or to sign on its behalf;
• election of the Foundation Council and the auditors;
• approval of the annual financial statements.

It is a common practice that a Foundation Council consists of at least three natural persons or legal entities.

Foundations are subject to supervision by the community (federal, cantonal and municipal) to which they belong according to their designation. Foundations with an international scope are usually supervised by the Federal Authorities. In order to perform the legally required controls, foundations are required to file an annual report on their activities, annual financial statements, consisting of the balance sheet, the profit and loss statement and attachments, the auditors’ report, the approval of the reporting by the Foundation Council as well as an up-to-date list of the members of the Foundation Council.

When the Foundation is exclusively in the public interest, it can obtain a tax exemption (federal and cantonal), and as such gifts made and/or received by the foundation are tax-exempt. Being dedicated to public interest means, amongst others, that the Foundation should have activities in charitable, humanitarian, educational, cultural, health or scientific areas. In addition it cannot have any lucrative business involvement and the range of beneficiaries cannot be limited. The attribution of resources is irrevocable.

The competent federal or cantonal authority may dissolve the foundation upon application or on its own initiative, if the purpose has become unattainable and the foundation cannot be maintained by an amendment to the foundation deed, or if the purpose has become illegal or immoral. Any person who has an interest is entitled to apply for the dissolution of the foundation.

The Swiss Foundation law does not recognize any possibility of reassignment, which would allow the founders after a certain period to claim back the amount contributed into the foundation or parts thereof.
The implementation of a Swiss Foundation is more complex than to set up a Foundation in the Principality of Liechtenstein. Another alternative could be the set up of an Association which could have the same purpose like a Foundation.

Establishment of a Swiss foundation is much more complex than a Lichtenstein foundation. Another option is to create an Association with the same purpose as a foundation.