The Private Wealth & Private Client Review: Switzerland
Switzerland continues to maintain its place at the top of the leader board as the largest global cross-border financial centre.2 Even with the new regulatory framework for portfolio managers and trustees and the move to automatic exchange of information in tax matters, there has and continues to be strong interest in Switzerland as a jurisdiction for relocation – whether that be for wealth or business owners, or family offices seeking a stable jurisdiction from which wealth can be managed – and for private wealth management. Switzerland's status as a safe haven for wealth remains strong.
i General taxation principles
Switzerland levies taxes on three levels, namely at the federal, cantonal and municipal level. The cantonal tax varies considerably between the cantons. The municipal tax is levied according to a percentage of the cantonal tax. Each canton has a set of tax deductions that reduce the tax base and hence the marginal tax rate. The tax rates are progressive and thus take into account the economic capacity of a taxpayer.
Due to the possibility to discuss a particular tax situation in advance with the tax authorities and to agree on the tax consequences in a binding tax ruling, there are tax planning opportunities and certainty with regard to the future tax situation.
ii Tax residency
Individuals are liable to pay tax in Switzerland if they have their tax residency in Switzerland or if their stay in Switzerland exceeds a certain period of time. If a double taxation agreement is applicable, however, it may overrule Swiss tax residency. Swiss tax residents are subject to unlimited taxation on their worldwide income and worldwide assets with the exception of foreign real estate and foreign business. These foreign assets are only relevant to calculate the marginal tax rate. Equally, employment or other income for which the benefits of a double taxation agreement can be claimed are excluded from taxation in Switzerland.
iii Income tax
Swiss sourced employment income is fully taxable in Switzerland unless a double taxation agreement provides otherwise.
The same tax rate for employment income applies also to interest and dividend income. Swiss sourced interest payments and dividends are subject to Swiss withholding tax at a rate of 35 per cent. Swiss tax residents are entitled to a full refund provided the investment income is declared in their annual tax return. Foreign withholding taxes on dividend and interest income may be partially refunded if a double taxation agreement provides so. Switzerland grants a tax credit for any non-refundable foreign withholding tax.
Dividend income from majority shareholdings
A majority shareholding consists of a participation of at least 10 per cent in the equity or voting rights of a corporation, regardless of whether it is Swiss or foreign. Dividend payments from a majority shareholding are taxed to the extent of 70 per cent at the federal level and to the extent of 50 to 80 per cent at the cantonal level, depending on the cantonal tax provisions.
Capital gains tax
In principle, there is no capital gains tax on the disposal of movable assets such as shares and collectibles (art, jewellery, classic cars, wine and the like). In cases of excessive trading, hedging and debt-financing, the tax administration may conclude that the individual is a professional securities trader subject to income tax on his or her gains. However, as long as the safe haven rules set out by the tax administration are observed, such qualification can be avoided.
Equally, there have been cases in which, due to the disposal of large collections going beyond an ordinary personal collection, it was assumed that the individual was a professional trader and hence, the capital gain was subjected to income tax and social charges.
Real estate income and real estate capital gains tax
Rental income is taxable at income tax rates. Effectively incurred maintenance costs or alternatively, a flat deduction, can be offset from the rental income. A Swiss peculiarity is the owner-occupied rental value. If a property is self-occupied instead of rented, a rental value is taxable. The rental value is usually lower than a fair market rent.
Unlike gains from movable property, gains on immovable property are taxable. The tax burden depends on the amount of profit as well as the length of ownership. In addition, a real estate transfer tax is due in many cantons on the change of ownership of real property.
If the real estate is located abroad, neither income nor capital gains are taxed in Switzerland. The fair market value is furthermore not subject to Swiss wealth tax. Income and fair market value are, however, taken into consideration for the marginal Swiss income and wealth tax.
Real estate capital gains tax is also due if a majority shareholding in a real estate company is sold.
Unless a double taxation agreement provides for the right of taxation in the source country, income from pensions is taxable in Switzerland.
iv Wealth tax
All cantons (and all municipalities) levy a wealth tax on global net wealth. There is no wealth tax at the federal level. Net wealth includes all movable, immovable and business assets, works of art, jewellery and other collectibles. Assets for private use (jewellery, furniture, etc.) are exempt from wealth tax.
v Gift and inheritance tax
Spouses are exempt from gift and inheritance tax in all cantons, and lineal descendants in most cantons. If descendants are taxed, the tax rates are rather low. The right to tax rights of gifts and donations is in the canton where the donor or testator is or was domiciled. In the canton of Schwyz there is no gift and inheritance tax at all, while in the canton of Lucerne there is only an inheritance tax with a clawback on donations if the donor dies within five years of the donation. The tax rate is determined by the amount of the gift or inheritance and the degree of kinship. Inheritance tax is tied to residence, therefore gifts and inheritances from a foreign donor or testator are not subject to Swiss inheritance tax.
vi Exchange of information regarding financial accounts
Switzerland has been a signatory to the Common Reporting Standard (an international framework for the automatic exchange of information regarding financial accounts) since 2017, and has entered into various exchange of information programmes with a number of participating jurisdictions. Information on a client's Swiss bank accounts (e.g., balances and other relevant information) will therefore be exchanged with the tax authorities of their home country if that country is a participating jurisdiction.
vii Lump-sum taxation
Most cantons in Switzerland offer the option to pay taxes under the lump-sum taxation regime. Instead of paying taxes on actual income and assets, the basis of taxation is calculated according to living expenses.
The following requirements must be met to benefit from the lump-sum taxation regime:
- no Swiss citizenship (if married or in a registered partnership, both spouses or partners must meet the requirements);
- it is a person's first residence in Switzerland or residence after an absence of at least 10 years (if the applicant has been taxed under a lump-sum taxation regime before, a shorter absence may be acceptable); and
- no gainful activity is being carried out in Switzerland. This includes any employment or other commercial activity. The management of one's private wealth is not considered as a gainful activity. A gainful activity outside of Switzerland is accepted.
As a result of the last requirement, individuals coming to Switzerland under the lump-sum regime are generally of retirement age or business owners who work outside of Switzerland.
The basis for taxation is the living expenses of the taxpayer and his or her family (spouse as well as dependent children), or at least seven times the annual rent paid or seven times the deemed rental value if the taxpayer owns his or her own property. For federal tax purposes, the minimal tax basis is 400,000 Swiss francs per annum; however, many cantons have a higher minimal tax basis.
The basis for wealth tax (only payable on a cantonal and municipal level) is fixed at 20 times the income tax basis in most cantons.
The concrete terms of any lump-sum arrangement are subject to negotiations with the tax administration in the relevant canton. These negotiations are usually handled by legal or tax advisers of the individual taxpayer, or notaries.
The tax basis for the lump-sum taxation is subject to an annual control declaration.
The control calculation is an ordinary tax return that includes income from Swiss movable and immovable property as well as foreign income for which a relief based on a double taxation treaty is claimed. Other income does not need to be reported.
If the taxable basis resulting from the control calculation is higher than the agreed taxable basis, the latter is relevant.
i Vesting of the estate
Upon the death of the deceased, the estate in its entirety vests by operation of law in the heirs. Subject to statutory exceptions, the deceased's claims, rights of ownership, limited rights in rem and rights of possession automatically pass to the heirs and the debts of the deceased become the personal debts of the heirs.3
Heirs become joint owners of the deceased's property and are also jointly and severally liable for his or her debts on all their property: they form the heirship. The heirs are one and can only act jointly. They may sell a property of the heirship by acting under a mutual agreement. As long as they have not divided the property, the joint heirs are in principle bound only by acts decided unanimously.
ii Forced heirship laws
The testator is not entitled to dispose of all his or her assets freely by testamentary disposition: the law stipulates who the heirs are, the order in which they succeed and the shares they are to receive.
The legal heirs are the surviving spouse or registered partner, the children, including adopted and recognised children, or their descendants and, in the absence of children, the parents of the deceased or their descendants.
Swiss law provides forced heirship laws protecting the statutory heirs. The descendants, spouse or registered partner and parents are entitled to a compulsory portion of the estate.4
The statutory entitlement represents a part of the heir statutory succession right and is three-quarters for the descendants, half for the spouse or the registered partner and half for the parents.
Swiss law does not allow the disinheritance of a statutory heir on the grounds of dispute or animosity. The testator may deprive an heir of his or her statutory entitlement for serious reasons, such as a crime against the testator or his or her relatives.5
iii Testamentary freedom
The testator may freely dispose of the portion of his or her property that exceeds the statutory entitlement of the survivor or survivors by drafting testamentary dispositions as wills or inheritance contracts.6
The heirs may contest a testamentary disposition before a court on grounds of lack of testamentary capacity, lack of free will, unlawfulness, or immorality or formal defect.7
Heirs who believe that the deceased has not respected their statutory entitlement may take legal action to have the testamentary disposition abated to the permitted amount within one year after the date on which the heirs learned of the infringement of their rights.8
The advances against a person's share of an inheritance and freely revocable gifts or donations made in the five years prior to his or her death, with the exception of customary occasional gifts, are subject to abatement in the same manner as testamentary dispositions.9
By concluding an inheritance renunciation contract with the testator, an heir may renounce in advance his or her statutory succession right.10
iv Marital property law
The Swiss marital property regime defines the ownership of property during marriage and how to divide the spouses' assets and debts in the event of divorce or death. Swiss law provides for three matrimonial property regimes: participation in acquired property, community of property and separation of property.
The choice of regime of the spouses has an effect on their estate and can be useful to favour either the surviving spouse or other heirs. Spouse here refers to opposite-sex married couples.
The ordinary property regime, which applies unless the spouses have agreed otherwise, is the participation in acquired property. The default regime for those in a registered partnership (same-sex couples) is separation of property.
Each spouse is entitled to dispose of his or her property freely during the marriage.
Participation in the acquired property regime includes property acquired during the marriage (e.g., incomes and other benefits) that is, in principle, shared between the spouses in the case of division of the regime, and individual property (e.g., assets belonging to one spouse at the beginning of the marital property, personal effects used exclusively by that spouse or inherited property), which remains the spouse's property.
Unless proven otherwise, all assets of spouses are deemed to be acquired property.11 The spouses may requalify their acquired property and individual property by marital agreement to limit or extend the assets to be shared between spouses.12
In the event of a spouse's death, divorce, annulment of the marriage or separation of property by court, the marital property regime is dissolved. The survivor's spouse will be entitled to half of the benefit of the deceased spouse (his or her acquired property after the deduction of debts). The other half of the acquired property and the individual property of the deceased will constitute his or her estate.
Spouses may choose to submit their marriage to another regime. They can opt either for the community of property regime or for the separation of property regime by marital agreement drafted in authentic form before a notary before or after their wedding.
Under the community of property regime only some assets are considered as individual property of each spouse. The rest falls into the category of common property. Common property consists of the property and income of the spouses, with the exception of property deemed their own by law (personal effects) or by the marital agreement. Common property belongs to both spouses jointly, is managed by both spouses and is divided between the spouses when the marital regime ends.
Depending on the type of debts, each spouse assumes either the liabilities of his or her individual property and half of the common property, or the liabilities of his or her individual property and the entire common property. Especially in the case of debts contracted to cover the needs of everyday life, spouses are liable for the liabilities of all the common property and their individual property. Opting for this regime is an interesting planning mechanism to favour the surviving spouse, who will receive the half of the deceased's common property at the regime's dissolution as well as part of the other half of the common property and a portion of the deceased's individual property by estate.
The separation of property regime does not provide for joint property or joint debts. Each spouse remains the owner of his or her property and manages it alone. Accordingly, there is no dissolution when the marriage ends unless the spouses agree otherwise. Opting for this regime is an interesting planning mechanism to favour the descendants as it maximises the spouses' assets at death. Indeed, there is in principle no sharing of spouses' assets at the end of the regime.
v Key legislative changes
Swiss succession law has remained practically unchanged for over a century.
The Swiss succession law system has recently been revised. The revision is due to come into force on 1 January 2023 and aims to adapt the law to the evolution of society without, however, changing its fundamental structure. In particular, the revision will allow testators to dispose of their assets more freely and is expected to have a significant impact on estate planning.
The revision reforms the actual compulsory legal system by reducing the statutory entitlement of the descendants from three-quarters to half their right of succession and abolishing the statutory entitlement of the parents. The statutory entitlement of the surviving spouse and registered partner will remain unchanged at half of their succession right and will be equal to the statutory entitlement of the descendants.
The revision increases the testamentary freedom of testators to dispose of their assets in favour of heirs or third parties, such as their life partner (for unmarried couples), and changes to the calculation of the estate.
The revision will also grant greater flexibility in the transfer of family businesses.
vi Case law changes
Recent relevant case law in succession matters includes the following rulings made by the Swiss Federal Court:
- Choice of law governing the estate in a will: the validity of such choice does not depend on the validity of the will itself. The sole fact that the will is void or voidable in application of the law chosen by the testator does not mean that the choice of law is null.
- Legal heirs within the meaning of Swiss law in the devolution of an estate are exempt from the authorisation regime provided by the law on acquisition of real estate by persons abroad. However, a foreign testamentary foundation, instituted as sole heir, does not benefit from the exemption; nor does a legatee domiciled abroad, even if he or she is a legal heir, if he or she receives a property located in Switzerland not provided for in the will.
- Refusal of a tax exemption for a foundation created by will pursuing on paper a charitable purpose but where half of the foundation's assets were allocated via loans to two members of the foundation's council.
Relevant cross-border developments
The number of cross-border succession cases is constantly increasing in Switzerland due to the mobility of people and Switzerland's economic attractiveness. Heirs are more and more often not residing in the same country as their parents at the time of their death. In addition, people tend to invest in assets abroad, namely by buying a property outside Switzerland.
As a result, death gives rise to complex cross-border questions especially on the jurisdiction of the authorities to deal with the estate and the applicable law.
vii International rules
International succession law often leads to conflicts of jurisdiction with other states and to contradictory rulings. For this reason, the EU has set out uniform rules in Regulation No. 650/212 of 4 July 2012 (EU Regulation) specifying which state has jurisdiction and which law applies in cross-border succession cases.
Switzerland is not bound by the EU Regulation. This Regulation is therefore not directly applicable under Swiss law. However, the EU Regulation has an impact on Swiss nationals residing in an EU Member State. They are now entitled to choose Swiss law to rule their estate.
Switzerland has entered into bilateral international treaties that contain provisions on international succession, in particular with Italy, the UK and the US. However, those conventions do not deal with all aspects relating to a succession (and important administrative matters).
Unless the estate is subject to a treaty, the rules of Swiss Private International Law apply to cross-border estates.
According to those rules, the Swiss authorities are entitled to deal with a movable and immovable property in Switzerland belonging to a Swiss resident. Swiss law governs the estate of a person who had his or her last residence in Switzerland. Foreign citizens may submit their estate by will or agreement to the law of one of their states of citizenship.
Settling the estate of Swiss residents who have assets or heirs, or both, abroad may lead to considerable complications. Drawing up testamentary provisions and appointing an executor, whose task will be to carry out the deceased's last wishes on death, facilitate the settlement of cross-border estates. Moreover, the designation of an executor will be all the more crucial in the event of a risk of disagreement between the heirs or when they have insufficient skills for dealing with an estate.
Opting for a matrimonial property regime by agreement as well as incorporating foundations or trusts are also useful planning tools, which will help the testator dealing with international assets.
viii Cross-border inheritance tax law
Swiss inheritance tax is collected by the canton where the deceased was resident, and the place where the deceased was domiciled and where the property is located. Switzerland has signed conventions to avoid double taxation in case of cross-border inheritance tax (e.g., with Germany, Austria, the UK and the US).
ix Marital agreements
Marital agreements are not prohibited under Swiss law. Swiss law does not set any specific rule that prevents a spouse from contractually agreeing, before or after the marriage, to allocate a certain contribution to the maintenance of the other spouse in the case of divorce. Based on Swiss case law, such agreements are binding on the parties, subject to subsequent approval by Swiss courts pronouncing the divorce. Swiss courts may use such an agreement as a useful tool to set the maintenance allowance between spouses, unless the situation of the spouses has changed significantly since the drawing up of the agreement.
The advanced settlement of the amounts of contribution for the maintenance of children in the event of divorce is not binding on the Swiss courts.
x Same-sex marriages
Under Swiss law, two persons of the same sex may register their partnership as a registered partnership,13 Under Swiss inheritance law, the registered partner is treated as the spouse of the deceased and is entitled to a compulsory share in the estate as set out above in subsection ii.
In contrast to married couples, separation of property is the legal regime for registered partners. Partners may by authentic act choose another regime, in particular the participation in acquired property regime.
A registered partnership does not carry the same rights as marriage. The Swiss Parliament approved on 18 December 2020 a draft law allowing marriage for same-sex couples.
Other differences exist also in terms of naturalisation and joint adoption, which is currently not allowed for registered partners. The draft law provides for facilitated naturalisation of the spouse and joint adoption.
The draft law will come into force if the Swiss people accept it in the vote on 'marriage for all', which is expected to take place in the autumn of 2021.
Wealth structuring and regulation
i Commonly used vehicles for wealth structuring
International trusts, family foundations, life insurance wrappers, lifetime gifts and personal holding structures are the most commonly used tools for wealth and estate planning purposes.
In particular, foundations (Swiss or foreign, charitable or not) are commonly used planning vehicles. Foreign law trusts are also used for Swiss residents (in specific cases) or more commonly for non-residents with assets located in Switzerland.
There is no Swiss domestic trust law. However, the Swiss Parliament is reviewing the possible introduction of a Swiss trust law.
Switzerland is a contracting state party to the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition (Hague Trust Convention), which became applicable in Switzerland on 1 July 2007. The Hague Trust Convention:
- designates the law applicable to a trust;
- requires contracting state parties to recognise the effects of trusts validly settled provided that the trust meets the minimum standards prescribed by the Hague Trust Convention; and
- accepts that certain effects of a trust may conflict with applicable mandatory provisions protecting creditors, spouse, heirs, bona fide third parties, etc., under Swiss law.
Note also that Switzerland is a contracting state party to the 2007 Lugano Convention on the Enforcement of Judgments in Civil and Commercial Matters, which sets out rules of jurisdiction in proceedings against Swiss domiciled trustees. The Hague Trust Convention sets out the jurisdiction of Swiss courts in matters falling outside the 2007 Lugano Convention.
A Swiss private trust company (PTC) as trustee of a foreign law trust can be used for planning purposes. The advantages of Swiss PTCs include the following:
- Swiss PTCs are deployed in cases in which clients prefer to be associated with onshore centres;
- as many clients often have assets in Switzerland, dealing with a Swiss-based trustee can simplify administration and reduce time-related costs;
- Switzerland is a centre for financial and investment opportunities. Dealing with a Swiss company can therefore simplify due diligence processes; and
- Switzerland has a strong tradition of excelling in providing a wide range of services to wealthy families from around the world in association with a high level of confidentiality (e.g., the ownership of the PTC would not be publicly available).
From 1 January 2020, the Swiss Financial Institutions Act (FinIA) and the Swiss Financial Services Act introduced a regulatory regime for trustees operating in Switzerland, obliging trustees to obtain an authorisation to carry out their activities. Note that there are exemptions (e.g., certain PTCs).
Swiss law provides for specific legal provisions regarding foundations, including private foundations known as family foundations. A family foundation is characterised as a foundation established for the benefit of beneficiaries who are members of the founder's family. According to Article 335 of the Swiss Civil Code, as considered by the Swiss Supreme Court, there is an exhaustive list of purposes for which a family foundation may be set up: education, welfare and health. Foundations granting a beneficial interest – for example, to allow a beneficiary a higher standard of living – are considered null and void.
Swiss foundations are commonly used for charitable purposes (see below).
Private foundations governed by the laws of another jurisdiction are frequently used in Switzerland and recognised provided that they satisfy the publicity or registration provisions of the law of establishment or, in the absence thereof, that they have been established in accordance with the laws of that state, regardless of the fact that they might support, even entirely, the living costs of their beneficiaries.
Swiss charitable foundations
In Switzerland, foundations are commonly used for wealth charitable planning.14 Their supervision by the competent regulatory and tax authorities, linked to the fact that their purposes can only be modified under strict conditions, make it a tool particularly appreciated by individuals willing to engage, both in Switzerland and abroad, in charitable activities.
Under certain conditions, Swiss charitable foundations can also be fully tax exempted.
ii Legal and tax treatments of commonly used vehicles
Mainly due to tax reasons, special vehicles such as trusts and foundations are not widely used by Swiss tax residents for wealth planning purposes. Private holding companies offer the possibility to structure one's wealth effectively. However, they often pose problems as to where their effective place of management is located, that is, at the seat of the company or at the domicile of the shareholder, especially if the company is domiciled offshore or even in another canton within Switzerland. In some cases, the company may be disregarded altogether. In the case of substantial investments in real estate or in an enterprise, an indirect investment through a corporation may be beneficial. Individuals moving to Switzerland, on the other hand, may already use a trust or foundation to protect and manage their assets.
The tax treatment of trusts is based on a circular letter published in 2008 by the Swiss tax conference, a body consisting of the heads of the cantonal tax authorities.
Based on the circular letter, the trust itself is not taxable in Switzerland. The taxation of the beneficiaries and settlors of trusts depends on how a trust is organised. Swiss tax law distinguishes between revocable (transparent) and irrevocable trusts. If the trust qualifies as revocable trust, its assets and income derived thereon are attributed to the settlor for tax purposes. Neither the trust deed nor the letter of wishes alone are decisive for the qualification of a trust. The qualification for tax purposes is always based on the entire facts and circumstances. The key criterion is whether the settlor has irrevocably given up his or her rights over the trust assets.
The trust is disregarded for Swiss tax purposes as long as the settlor has control over the trust assets (e.g., if he or she is in a position to control the trustees, or if he or she can instruct and replace them; or if he or she remains a beneficiary). In such case, the trust assets as well as any income thereon is taxable to the settlor. Consequently, distributions from a revocable trust to the settlor are regarded as asset restructuring and, hence, are not taxable. Further, distributions from a revocable trust to a beneficiary are regarded as a donation from the settlor to the beneficiary and as such are subject to gift tax depending on the degree of kinship between the settlor and the beneficiary. Generally, a trust established by a Swiss resident settlor qualifies as a revocable trust for Swiss tax purposes.
Swiss tax law further distinguishes between irrevocable and fully discretionary and fixed interest trusts. Distributions from an irrevocable and fully discretionary trust are generally subject to income tax at the level of the beneficiary. The beneficiaries of a fixed interest trust are taxed in proportion to their share on the trust assets and the respective income.
The qualification of trusts for Swiss tax purposes may not necessarily correspond with the qualification of the trust in the jurisdiction where it has been established. Therefore, and before taking up residency in Switzerland, it is advisable to discuss the tax treatment of the trust and future distributions with the tax authorities and to confirm the outcome in a binding tax ruling. There are cantonal differences in the interpretation of the above-mentioned circular letter.
As described above, Swiss foundations are separate legal entities and, hence, are tax subjects in Switzerland. In principle, distributions are taxed as income at the level of the beneficiary. This makes Swiss foundations less interesting for estate planning purposes since lineal descendants and spouses are exempt from inheritance tax.
However, Switzerland is home to many charitable foundations. If a foundation pursues a charitable purpose, it may be fully exempt from taxes. Pursuant to Swiss tax law, a charitable purpose is defined as being directed towards the benefit of the public or the welfare of third parties such as charity, humanitarian, cultural or environmental or religious goals. The activity must meet the needs of a large part of the Swiss population and may not be limited to a specific group of person defined by kinship, profession or similar, hence excluding self-help foundations. The foundation must not be profit-seeking and the members of the foundation board may not be salaried for their engagement. If these conditions are met, the foundation may be granted a tax exemptions. As a result, donations can be deducted from income taxes and distributions are not taxable to the beneficiary.
In accordance with the incorporation theory prevailing in Switzerland, a foreign foundation is recognised as a legal entity in Switzerland. A recognition is only refused if the foundation is obviously used to evade taxes or any other grounds for a pass-through (e.g., if the founder has not irrevocably ceased control over the assets of the foundation). In this case, its assets may be attributed to the founder for income and wealth tax purposes. If, however, the foundation is effectively managed and controlled in Switzerland, it may become liable to Swiss taxes. The taxation of distributions from a foreign foundation is based on the same criteria as those for the distributions from a trust.
iii Anti-money laundering and other key regulations
The Anti-Money Laundering Act (AMLA) and the provision sanctioning money laundering in the Criminal Code (Article 305 bis) are the cornerstones of the anti-money laundering regime in Switzerland. The AMLA applies to all financial intermediaries, which notably includes asset managers and trustees that are subject to the Financial Institutions Act (FinIA) (see below). Subjection to the AMLA triggers the duty to identify the contracting party and the beneficial owner of the assets remitted (and to renew such identification process in the case of doubts about their identity). In addition, financial intermediaries have a duty to clarify the economic background and the purpose of a transaction or of a business relationship if the transaction or the business relationship appears unusual, unless its legality is clear, or if it carries a higher risk (which is always deemed to be the case for business relationships with politically exposed persons and their family members). Financial intermediaries must furthermore keep records of transactions carried out and of clarifications required under the AMLA. They also have a duty to file a report with the Money Laundering Reporting Office Switzerland in the event of a suspicion of money laundering.
A revision of the AMLA was finalised by the Swiss Parliament in March 2021. The revised AMLA should come into force by mid-2022. The parliament finally decided not to include new obligations for lawyers and fiduciaries who provide services to (domiciliary) companies or trusts, although this is a long-standing recommendation of the Financial Action Task Force. Critics say that the revised AMLA is actually only a transposition in the legislation of standards that are already applied by financial intermediaries in practice with the sole proper improvement being that associations that collect or distribute funds abroad for charitable, religious, cultural or social purposes will be required to be more transparent.
A major change in the landscape of regulation of financial service providers in Switzerland occured in 2020. Indeed, since 1 January 2020, asset managers, trustees, collective asset managers, fund management companies and securities firms are subject to the FinIA and its Ordinance, FinIO. Persons who manage solely the assets of persons with whom they have business or family ties are not subject to the FinIA. This legislation sets new standards and requires the persons and entities to whom it applies to obtain an authorisation from the Swiss Financial Market Supervisory Authority (FINMA) to operate. One of the requirements to obtain the authorisation is an affiliation with one of the supervisory organisations (SOs), which are non-governmental agencies licensed and supervised by FINMA. From a timing perspective, financial institutions that started their commercial activity before 1 January 2020 must apply for a licence from FINMA by the end of 2022. Those who started a commercial activity as a trustee in 2020 had to be affiliated to a SO by 6 July 2021 and submit a licence application to FINMA.
Outlook and conclusions
While Switzerland is certainly not a tax-neutral jurisdiction it still offers significant advantages in this area, in particular very low or zero inheritance tax, the lump sum taxation regime and the exemption on private capital gains tax on movable assets.
More generally, Switzerland remains a leading jurisdiction for the custody and management of private wealth and home to a number of ultra-high-net-worth individuals families thanks to its very high standards and expertise.
Furthermore, the resilience of the Swiss financial industry (and more generally the Swiss economy) when facing issues such as the end of banking secrecy, the strength of the Swiss franc or the increasing pressure from the OECD, combined with the reforms undertaken by the government to strengthen the position and reputation of its financial centre (anti-money laundering, OECD standards, trustee and asset managers regulations, etc.), are all reasons to believe that Switzerland will remain, for a long time to come, a jurisdiction of choice for private clients. The liberalisation of its succession law, the likely introduction of Swiss domestic trust law and new rules to facilitate the transfer of business to the next generation are further reasons to believe so, especially given the country's political stability and the reputation of its judicial system.
In the future, Switzerland will continue and increase its efforts to comply with the highest standards in terms of transparency and cooperation in the area of exchange of information in an effort to attract more businesses and individuals willing to come to Switzerland or have their wealth managed in this jurisdiction for the right reasons.
1 Grégoire Uldry is a partner, Annika Fünfschilling and Christophe Levet are senior associates and Aurélie Buet is an associate at Charles Russell Speechlys SA.
2 Global Wealth Report 2021; Boston Consulting Group.
3 Article 560 al.1 and 2 Swiss Civil Code.
4 Article 471 Seq Swiss Civil Code.
5 Article 477 Swiss Civil Code.
6 Article 470 Swiss Civil Code.
7 Article 519 and 520 Swiss Civil Code.
8 Article 522 Swiss Civil Code.
9 Article 527 Swiss Civil Code.
10 Article 495 Swiss Civil Code.
11 Article 200 Paragraph 3 Swiss Civil Code.
12 Article 199 Swiss Civil Code.
13 Article 2 Same-Sex Partnership Act.
14 There are more than 13,000 charitable foundations in Switzerland with assets totaling almost 100 billion Swiss francs.