China Outbound Investment Guide 2018 — Switzerland

The political climate surrounding the PRC and Switzerland is very positive. The two countries have made reciprocal official state visits less than 12 months apart and jointly opened the World Economic Forum Annual Meeting in Davos in January 2017. Historically, Switzerland has taken a pioneering role with respect to political relationships with the PRC. Switzerland was one of the first Western countries to recognize the PRC in 1950 and to acknowledge the PRC as a market economy in 2007. Additionally, in 2013, Switzerland was the first European country to sign a free trade agreement (FTA) with the PRC and, in 2016, one of the first countries in Europe to join the Asian Infrastructure Investment Bank. Currently, upgrading the FTA and strengthening cooperation in tourism, sports, education and economics are under discussion. During the latest state visit to Switzerland in January 2017, the two nations signed a number of agreements regarding culture, customs and energy. On June 19, 2017, the social security agreement between the two countries entered into force, which provides relief for employers and their employees when they work for a limited period of time in the other country.

(c) What are some notable Chinese investments or M&A that have recently taken place in your jurisdiction?

It is estimated that more than 80 companies in Switzerland have a direct Chinese owner. Recently, Switzerland has seen the following high-profile M&A transactions involving a Chinese buyer:

• 2018: Shandong Ruyi's acquisition of Bally with an estimated value of CHF 700 million.
• 2017: HNA Group's acquisition of 16.79 percent of Dufry (total holdings 20.92 percent) with an estimated value of more than CHF 1 billion.
• 2016: HNA Group Co. Ltd.'s CHF1.4 billion offer for the acquisition of Gategroup Holding AG.
• 2016: China National Chemical Corp.'s $43 billion offer for Syngenta AG. This is the largest foreign investment by a Chinese company so far.
• 2015: HNA Group Co. Ltd.'s $2.8 billion acquisition of Swissport International Ltd.
• 2015: Dalian Wanda Group Co. Ltd.'s $1.2 billion acquisition of Infront Sports & Media AG.

To support the establishment of a Swiss offshore renminbi market, the PRC granted Switzerland an $8 billion investment quota under the qualified foreign institutional investor (QFII) program in January 2015. Following this agreement, China Construction Bank opened a branch in Zurich in January 2016. In June 2018, the Industrial and Commercial Bank of China opened a branch in Zurich.

(d) How would the current trade wars affect COI in your jurisdiction?

The current trade wars themselves are unlikely to directly affect COI. However, as Switzerland currently earns two out of five Swiss Francs abroad, changes in the world economy have an impact on Switzerland. Prolonged trade wars may, among others, slow down the economic growth, lower investments and exports and increase unemployment rates. Last but not least, as the Swiss franc is regarded as a safe haven currency, the exchange rate may increase.

Section 2: Investment Vehicles and Capital

(a) What are the most common legal entities and vehicles used for COI in your jurisdiction? How long do they take to become operational?

The most common Swiss legal forms are the stock corporation (AG) and the limited liability company (GmbH). Generally, apart from an administrative registration in the commercial register, no government approval is required for the formation of a Swiss company. After the submission of the founding documents to the commercial register, a company may become operational within one to three weeks, depending on the canton.

(b) What are the key criteria for establishment and operation of these vehicles that are relevant to COI (e.g., capital requirements, local directors)?

The stock corporation can have one or more shareholders (physical persons, partnerships or legal entities), and must have a minimum share capital of CHF100,000, of which at least CHF50,000 must be paid up. The limited liability company can also have one or more members (physical persons, partnerships or legal entities), and must have a minimum nominal capital of CHF20,000.

Both the stock corporation and limited liability company have to be registered in the commercial register at the place of their domicile. The commercial register of the limited liability company publicly lists the members and their quota in the company. This is not the case for a stock corporation.

There are no citizenship requirements for shareholders, members, or the board or management. However, for both entities, at least one person with residence in Switzerland must have the power to bindingly represent the company.

Section 3: Investment Approval

(a) Explain the process and timing for foreign investment regulatory approval (including any national security review).

Switzerland, as a free investment market, does not hold any foreign investment restrictions and therefore requires no governmental approval. However, independent from foreign investments, certain businesses (e.g., banks) do require approvals or licenses.

Considering real estate, Swiss law restricts the acquisition by a foreign person or a foreign-controlled company of noncommercial real estate in Switzerland. Furthermore, the Swiss constitution stipulates a general limitation insofar that no more than 20 percent of the total stock of residential units and the gross residential floor area in any commune can be used as second home. The acquisition of shares in a company whose statutory or factual business purpose is trading in non-commercial real estate is also subject to approval, except for listed companies.

(b) Briefly explain the investment restrictions for any specially regulated/restricted sectors (e.g., natural resources, financial services, telecom and infrastructure), including whether the government is entitled to any special rights (e.g., golden shares) in those sectors.

Although not exclusively related to foreign investments, restrictions exist in areas where the state has a monopoly. These include certain areas of postal services, domestic long-distance transportation, and certain commodities and the trade thereof (e.g., salt).

Other sectors may have certain domiciliary requirements such as in maritime and air transport, as well as transport of dangerous material, oil/gas pipelines and electricity power plants.

Investments above certain thresholds (typically 10 percent) in banks, insurances and other regulated financial institutions require approval from the Swiss Financial Market Supervisory Authority (FINMA). A special license is required for foreign control of Swiss financial institutions. Depending on the specific circumstances, there may be additional restrictions in the telecommunication industry, the radio and televisions industry, the electricity industry and the gaming and gambling industry.

(c) Which authority oversees competition clearance, when is notification mandatory, and what is the merger control process (including pre- and post-closure)?

The Swiss Competition Commission (ComCo) oversees competition clearance in Switzerland. In special circumstances, FINMA may oversee competition approval for banks.

Planned concentrations of undertakings, mergers, as well as acquisitions of sole or joint control, must be notified to ComCo prior to their implementation if the undertaking concerned achieved, in the last year, a combined turnover of at least CHF2 billion worldwide or, alternatively, a combined turnover of at least CHF500 million in Switzerland; and each of at least two of the undertakings concerned cumulatively achieved a turnover of at least CHF100 million in Switzerland in the previous year.

However, a notification duty exists in any case if a transaction affects a market where a participant has a dominant position as established in a final and binding decision under the Cartel Act.

The clearance process can be distinguished into the following two phases:

• Phase I (preliminary investigation—one-month waiting period): After receipt of the complete notification, ComCo is required to notify the parties within one month whether it intends to initiate an in-depth investigation. If no notification is received from ComCo within the time period, the merger is deemed to be cleared.
• Phase II (in-depth investigation—four months): A subsequent in-depth investigation has to be completed within an additional four months. Phase II may be terminated under the following circumstances: (i) unconditional authorization; (ii) authorization subject to conditions and obligations; (iii) prohibition; and (iv) withdrawal of notification.

(d) Are there any unique processes that could potentially block a foreign investment (e.g., consent from labor unions)?

Apart from what has been mentioned above, there are no unique legal processes that could potentially block a foreign investment.

(e) Are there approval requirements when a foreign investor increases or exits its investments?

There is no limitation on foreign ownership in the financial industry. However, an additional license is required for a Swiss bank or securities dealer under foreign control or in case of changes in the foreign control.

Other than that, there are various notification duties. Of banks, securities dealers and insurance companies, shareholders who increase or decrease their holdings and hit the threshold of 10 percent, 20 percent, 33 percent or 50 percent of the entity's capital or voting rights must notify FINMA, which is similar to an approval requirement. For banks and securities dealers, a notification is also required if the shareholders can otherwise exert a significant influence. In a similar manner, investments in “investment fund managers” must be notified if a threshold of 10 percent is reached. Last but not least, investors must fulfill certain notification duties for the acquisition of shares or capital of a non-listed target as the membership rights are otherwise suspended.

There are further notification duties for companies listed on an exchange in Switzerland. The stock exchange and the target must be notified if a bidder (directly, indirectly or in concert with a third party) acquires or sells shares or equity-linked securities and thereby reaches, exceeds or falls below the thresholds of 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 33 1/3 percent, 50 percent or 66 2/3 percent of all voting rights in the target company. Further notification duties exist in case of a takeover. Lastly, shareholders with more than 5 percent in the corporation's shares must be disclosed in the annual report (to the extent known to the company).

Section 4: Tax and Grants

(a) Are there tax structures and/or favorable intermediary tax jurisdictions that are particularly useful for FDI into the country?

Switzerland, on a federal and cantonal level, has various corporate tax incentives in place. These include:

• Foreign profit exemption: All profits attributed to foreign permanent establishments and foreign real estate are exempted from the Swiss tax base.
• Participation exemption: This is granted on dividend and capital gain income from the sale of shares. For dividend income exemption, an equity investment of at least 10 percent or with a value of at least CHF1 million is required. For a capital gain exemption, an equity investment of at least 10 percent that has been held for more than one year is required.
• Regional holding company regime: If a company qualifies as a holding company, all the income is exempt from regional and communal corporate tax (but not on a federal level). Holding company status is granted if: (1) the main purpose of the company is the holding and management of long-term financial participations in the subsidiaries; (2) at least two- thirds of either the assets or income is composed of or derived from participations; and (3) the company is not engaged in any commercial activity in Switzerland.
• Mixed companies (trading, IP, etc.): This qualification is given if at least 80 percent of the income is derived from abroad and at least 80 percent of the expenses are foreign expenses. In such circumstances, Swiss source income is taxed at standard rates, whereas foreign source income is only partially included in the Swiss tax base.
• State aid: Depending on the size and the function of the newly established business, an exemption of up to 50 percent from regional or communal income taxes and, in specified areas, from federal income taxes for a period of up to 10 years, may be granted. However, these state aids are limited to certain economically undeveloped regions.
• Principal structures: Swiss principal companies of international groups can benefit from a special tax treatment for federal income tax purposes. A principal company has several high-level employees and assumes risks and responsibilities for certain activities, such as purchasing, R&D, manufacturing, distribution, marketing strategy and logistics. Provided that the sales are made exclusively through commission agents or low-risk distributors, the principal company can reach a reduced Swiss tax base that results, in combination with the regional tax regime of the mixed company, in tax rates as low as approximately 5 percent to 7 percent on the setup and location.

Switzerland is expected to abolish the mixed, holding and principal tax regime in the next few years and introduce several other tax measures such as the license box regime. Switzerland does not, however, intend to abolish the participation exemption and foreign permanent establishment regimes.

(b) What are the applicable rates of corporate tax and withholding tax on dividends?

Switzerland levies corporate income taxes on a federal, cantonal and communal level. There are large differences in tax rates between the cantons. The overall corporate income tax rates are between 11.5 percent and 24 percent. In addition, the Swiss cantons levy a wealth tax on the net equity of companies, which ranges from 0.01 percent to 0.5 percent. Switzerland levies a withholding tax at a rate of 35 percent on dividends and certain interest on bonds and bank accounts, but not on loans, which do not qualify as collective financing. Switzerland has tax treaties in place with the PRC and Hong Kong. The tax rates in the treaties are applicable as long as Swiss law does not provide for a lower rate. The tax treaty with the PRC limits withholding taxes on intra-group dividends to 5 percent (15 percent for portfolio dividends) and to 10 percent interests. The tax treaty with Hong Kong provides for 0 percent withholding tax on intra-group dividends (10 percent portfolio dividends) and 0 percent interests.

(c) Other than through taxes, does the government provide any other financial support to investors? If so, please provide an overview.

• Switzerland has historically set favorable conditions for foreign investments, which mostly enjoy a level playing field with local businesses. Other than tax, in rare circumstances, cantons may provide incentives that are open to both local and foreign investors. Such support is, if at all, seen mainly in the high-tech industry with a slight tendency to give priority to foreign investors.
• Depending on the specific canton, incentives may be granted in the form of subsidies, cantonal loans (usually below market interest rates), cantonal guarantees for bank loans and payment of interest rates by the canton. Furthermore, direct monetary contributions may be made for the acquisition of intellectual property rights, industry certificates, development of new production processes, market studies, participation in trade shows and training of employees.

Section 5: FX Controls and Local Operations

(a) What foreign currency or exchange restrictions should investors be aware of?

Switzerland has no foreign currency or exchange restrictions in place.

However, the Swiss National Bank may set a minimum exchange rate with respect to certain currencies from time to time, as it did against the EUR at a rate of CHF1.20 until Jan. 15, 2015.

(b) Are there any legal restrictions on bringing in foreign workers? How difficult is it to secure expatriate visas for shareholder representatives, senior managers and workers in practice?

Switzerland distinguishes between citizens from the EU/ EFTA and those from all other countries.

EU/EFTA citizens are allowed to work in Switzerland for up to three months a year without a work permit, provided the notification duties have been fulfilled. A formal work permit is required if the employment extends beyond three months in a given year. Such permits are issued based on the Free Movement of Persons Agreement with the EU, and are usually granted in two to four weeks.

Employees from other countries require a work permit in any case. These are subject to yearly quotas. Furthermore, non-EU/EFTA citizens can only be employed in Switzerland if no other persons with an equivalent qualification in Switzerland or the EU/EFTA can be found. Generally, managers, specialists and other highly qualified people with a university degree and professional experience have the best chances of obtaining a work permit. There may also be further integration requirements, such as language skills. No work permits are required for business meetings. The process of obtaining a work permit for a non-EU/EFTA citizen can last from three weeks to several months depending on the complexity of the case.

(c) What are the requirements and process for purchasing commercial property?

Contrary to residential real estate, there are no restrictions or authorization requirements for the acquisition of commercial property in Switzerland.

The process for purchasing commercial property is straightforward. Besides identifying an object, a buyer must ensure financing and sign and notarize the contract. The transfer of the real estate must then be registered in the land register, which serves as a proof of ownership.

Acquisitions by foreigners or foreign-controlled entities may be restricted for commercial properties involving reserved land or partly residential users.

 Section 6: Dispute Resolution

(a) Does your jurisdiction have a bilateral investment protection treaty with China or other locations commonly used for investing into the country?

According to the Investment Policy Hub of the United Nations, Switzerland has signed 114 bilateral investment treaties, of which 111 are in force. A revised bilateral investment protection treaty between Switzerland and the PRC has been in force since April 13, 2010, which replaced the 1987 treaty. Since then, the two nations have further strengthened their relationship by a FTA that entered into force on July 1, 2014, and a double tax treaty that has been effective since Oct. 14, 2014.

Additionally, as a member of the World Trade Organization, Switzerland applies the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Investment Measures (TRIMS). It has also acceded to the World Bank Convention concerning the International Centre for Settlement of Investment Disputes (ICSID, 1968) and to the Energy Charter Treaty (ECT, 1998)

An investment protection treaty between Switzerland and Hong Kong has been in force since Oct. 22, 1994. Also in place is a tax treaty effective since Oct. 15, 2012, and an FTA signed with other EFTA states on Oct. 1, 2012.

(b) How efficient are local courts' enforcement and dispute resolution proceedings, and are there any procedural features that foreign investors must be aware of?

Switzerland has a long tradition of solving international disputes in an efficient, neutral and professional manner, catering to the needs of international businesses and governments alike. Switzerland has an impartial state court. Furthermore, unlike those in other jurisdictions, the Swiss commercial courts willingly assist the parties in finding a reasonable solution to their dispute early on in the proceedings and based on prima facie assessment of the strengths and weaknesses of the case by the court itself. Further, the parties need not fear expensive and disruptive document production proceedings that are known from common-law jurisdictions (no discovery).

As for arbitration, Switzerland is one of the leading arbitration venues and the second most popular venue for arbitrations under the auspices of the International Chamber of Commerce, Paris, after France. The same holds true for the popularity of the use of Swiss substantive law to govern international contracts.

A unique feature of Swiss arbitration law is the direct and only recourse to the Swiss Supreme Court for any challenges against an arbitral award. This setting-aside procedure typically takes only about six months, with a mere 7 percent of all awards being vacated. These court proceedings are not public and the judgments, which are published, are anonymized, thereby protecting the confidentiality of arbitration.

(c) Do local courts respect foreign judgments and are international arbitration awards enforceable?

Switzerland liberally enforces and recognizes foreign arbitral awards based on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Under the condition that an applicant can establish prima facie that an arbitral award is enforceable, Swiss courts even issue freezing orders prior to an exequatur.

Foreign judgments are also liberally enforced in Switzerland based on the Lugano Convention and the Swiss Private International Law. Switzerland follows the principle of favor recognitionis and may only deny recognition and enforcement based, among others, on a violation of the ordre public (very narrowly understood as fundamental public policy), the foreign court's lack of jurisdiction, or a violation of the right to be heard.

(d) Are local judgments and arbitration awards from your jurisdiction generally enforceable in other jurisdictions?

Switzerland is well known also for the quality of its awards and the corresponding ease of enforcement abroad. More than two thirds of the parties arbitrating in Switzerland are non-Swiss. Swiss arbitral awards are not only highly respected in other jurisdictions, they are also regularly enforced, mainly based on the New York Convention.

Swiss local judgments, are also regularly enforced in foreign jurisdictions based on the Lugano Convention within Europe or based on the respective local legislation.

Section 7: Environmental Protection

(a) Does your jurisdiction have any environmental protection policy in place that would affect Chinese investors?

There are numerous environmental protection provisions in Swiss laws that affect investors. However, the bilateral investment protection treaty between Switzerland and China follows, among others, the principles of “national treatment” and “most-favored nation treatment.” As a result, all Swiss provisions regarding environmental protection are generally equally applicable to foreign investors including Chinese investors.