Setting up a foundation in Switzerland – Top Benefits

Setting up a foundation in Switzerland – that will be the topic of today’s article.

Setting up a foundation in Switzerland offers top benefits for those seeking efficient offshore asset management.

If you have any questions or want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.

Introduction

Little is known about Switzerland – everyone can praise Swiss knives, cheeses and chocolate, everyone knows how accurate Swiss watches and banks are, and what else can be said about this country? The standard of living in Switzerland in 2021-2022 is one of the highest in the world.

Switzerland is a materially rich and technologically advanced country, despite the fact that it does not have large amounts of minerals. The country’s economy is in the TOP-10 best economies in the world. Which migrant, who decides to leave his native country with a low standard of living, will dare to refuse Swiss permanent residence?

Nature in Switzerland is perhaps not the reason for global migrations. Of course, there is something to see and where to go on vacation in this country. Only now a rare immigrant leaves his homeland only because he is disgusted with his native nature and really wants to taste the Swiss ecology.

The number of foreigners in the country is approaching ¼ of the total population. The total population has reached the figure of 8 million 623 thousand. Analysts of the Federal Statistics Service calculated the growth rate of 1.2% (98 thousand) per year. At the same time, the lion’s share of the growth was provided by immigrants.

The main flow of migrants comes from Italy, Germany, Portugal, and France. The process has reached such a scale that the authorities were forced to raise the issue of tightening the rules for entering the country.

Switzerland is an ideal jurisdiction for foreign businessmen. Despite high taxation One of the richest countries in the world is chosen for registration of family offices, funds, holding companies. And most importantly, the beneficiaries move to live in Switzerland, where there is a decent quality of life and developed infrastructure.

Why Switzerland is again recognized as the best country in the world?

Switzerland once again topped the global “best country” rankings for the fourth year in a row. The rankings, compiled annually by the American World Report, the marketing company Y&R and the Wharton School of Business at the University of Pennsylvania, place Switzerland at the top for the fourth time in several categories – from doing business to quality of life.

Switzerland has been top of the list every time since the ranking was founded in 2016.

Other countries on the list include Germany (4th), Sweden (8th), Norway (10th), France (12th), Denmark (13th), Italy (17th), Austria (18th) and Spain (19th).

A country’s position at the top of the rankings is linked to universal status, not to any one indicator. Indeed, Switzerland did not come out on top in any of the six major ranking categories – most influential, best for starting a business, quality of life, for women, education and environmental living. In fact, it is only in the top three in one of these six categories (second in the “eco-life” section).

Switzerland scored high on several reputational metrics, especially for its business sector, political and economic stability, infrastructure, transparency and equity. It ranks second in the world for doing business and is considered the second most trusted country.

Rankings for quality of life, infrastructure and the value of Swiss citizenship were high, ranking seventh in the world. It has a low unemployment rate, a skilled workforce and one of the highest gross domestic products per capita in the world (one of the top five). The strong economy of the country is supported by a developed infrastructure, low corporate tax rates, a highly developed service sector, led by financial services and high-tech manufacturing industries.

Quality of life in Switzerland and safety

Switzerland consistently ranks in the top ten of the quality of life index. The country ranks second in terms of safety and security. Feelings of personal security are related to the perceived level of political stability in a country.

Other factors contributing to Switzerland’s excellent position in the Quality of Life Index include the country’s overall climate and environment. Not only are 97% of expat respondents generally satisfied with the quality of their environment, air and water, but 63% find the climate and weather favorable.

In terms of health and well-being, 78% rate the quality of health care in the country as generally good.

One of the safest countries to live and visit. For many years, it has been at the top of the list of the safest places in the world. In 2019, according to the Global Peace Index, it ranked 11th in the world in terms of security.

Historically, Switzerland has maintained a neutral position during wars. Neutrality was voluntary, permanent, designed to promote peace and security. Switzerland’s last war took place in 1847, a civil war called the Sonderbund War, which led to the rise of the country as a federal state. In 1920, it was officially recognized by the League of Nations as a neutral state. Neutrality is the reason for the highly developed infrastructure.

Switzerland as a financial center of the world

The financial sector is one of the central components of the Swiss economy. A strong economy, political neutrality and protection of bank secrecy make the country a relatively safe place to invest. In addition to this status, Switzerland is also a world leader in international asset management, where it holds a 25% share of the global market. The financial industry here is very diversified. Despite such popularity, investors should be aware of and evaluate the possible risks when registering an investment fund in Switzerland.

Among European countries, Switzerland occupies one of the leading positions in the rating of favorable conditions for doing business in asset management. Back in 2019, the World Economic Forum named Switzerland the fifth most competitive economy in the world. This high ranking reflects a healthy institutional environment in the country and a high level of technological and scientific research and development. FINMA is responsible for the regulation of financial services in Switzerland.

Other regulatory bodies are the Financial Market Supervisory Authority and the Fund and Asset Management Association (SFAMA). FINMA is responsible for the authorization and supervision of fund management companies, asset managers and foreign collective investment funds, as well as their retailers and administrators. FINMA will also endorse their products. SFAMA, on the other hand, is an association representing collective investment funds and managers in Switzerland.

Having decided to open an fund in the territory of this country, it should be noted that you are choosing an alternative to such enterprises as, for example, trusts. The purpose of creating an investment fund is not only the safety of assets, but also their increase. After all, Switzerland, as a global financial center, is characterized by high performance in terms of guaranteeing the reliability of deposits, their protection from third parties.

Switzerland is an important financial center, mainly represented by the distribution of Swiss and foreign collective investment schemes. Foreign investors interested in how to set up a fund in Switzerland should be aware that the distribution of foreign funds is divided between the distribution of retail and qualified investors.

Swiss foundations are very active in the areas of healthcare, education, social services, culture, environment and ecology, research, cryptocurrencies and funding projects of general interest.

Switzerland is one of the most popular countries in the world to set up charitable foundations because its laws are very liberal and the legal system is stable. The Swiss Foundation is regulated by just eight short articles of the Swiss Civil Code. The foundation acquires legal personality by making an entry in the Commercial Register, and it is the board of the foundation that is in charge of achieving corporate goals in accordance with the wishes of the founder.

In addition, Switzerland has a large concentration of banks specializing in asset management and a banking system known throughout the world for its stability.

Swiss foundations file their financial statements annually with the funds’ supervisory authority, but details have not been disclosed.

Swiss public interest foundations can benefit from special tax incentives. A tax exemption request must be made to the tax authorities for foundations that pursue charitable purposes and if they meet certain cumulative conditions (the foundation has no commercial purpose, the foundation irrevocably allocates its funds to achieve its goals without the possibility of returning its funds to donors, and the board of the foundation does not receive payment for its work).

A tax-exempt Swiss public foundation is fully exempt from the following taxes:

• Tax on capital and profits,
• Inheritance and gift taxes (not in all cantons),
• Transfer taxes (not in all cantons),
• Tax on income from immovable property when its use directly serves the object of public use (not in all cantons),
• Value Added Tax (VAT).

Swiss Financial Company & Trust SA creates and manages public and other charitable foundations for Swiss and international clients. Our experience with tax relief requests and fund administration, and our network of leading banking partners, allows you to focus on what matters most: growing your philanthropic work.

Creating a foundation in Switzerland

A foundation is a legal concept that has been present on the Swiss market since the 14th century (taking the form of a charitable organization); however, the modern concept of a Swiss fund is spelled out in the Swiss Civil Code. The Swiss foundation is usually used to achieve a specific purpose, which may be related to charity or to achieve a specific social purpose.

According to the Swiss Civil Code, two unincorporated legal entities can be registered in Switzerland:

– associations;

– funds.

Since they are not used exclusively for commercial purposes, they are not required to be registered with the Swiss Companies House, but they must be registered with the Federal Fund Supervisory Authority. Foundations and associations can be created in any Swiss canton.

It should be noted that in Switzerland there is no concept of charity when it comes to establishing a foundation, but the concept of public utility is often used.

The Civil Code is the main source of law that provides for the creation of foundations and associations in Switzerland. Articles 80-89 provide for the establishment of foundations, while Articles 60-79 deal with the establishment of associations. These entities are also subject to the jurisdiction of the Federal Direct Tax Act.

What are the registration requirements for a Swiss foundation?

Any legal entity established in Switzerland must be established on the basis of a statutory instrument. In the case of a Swiss foundation, the main statutory document is a certified deed, which can be signed in the presence of a public notary. When signing the statutory document, it is necessary to determine the goals of the fund, as they must be clearly stated in this document. The following will apply:

• in order to change the objectives of the fund, the founders must request the permission of the Swiss foundation regulator;

• the main supervisory body in this case is the Federal Supervisory Board of Funds;

• As a general rule, a Swiss foundation must have a share capital of at least CHF 50,000;

• some registration requirements are similar to those for commercial organizations – for example, a foundation must be registered with the Commercial Register in order to become a legal entity;

• any Swiss foundation must appoint a foundation board and an audit committee.

What types of funds can be registered in Switzerland?

Swiss foundation law provides that there are several types of foundations that can be registered in this country. Thus, Switzerland recognizes three main categories of foundations, namely: family foundations and private foundations, foundations operating as pension funds or foundations established in the interest of the general public.

How to set up a Swiss foundation?

From a legal point of view, a foundation is an autonomous organization that pools assets for one or more specific purposes, which must be spelled out in its charter. The legal entity will have the status of a legal entity and can be created by individuals or companies from Switzerland or any other country. A minimum contribution of CHF 50,000 is required to set up a fund in Switzerland.

As in Swiss companies, foundations may have boards that deal with issues related to their activities. When created for commercial purposes, they must be registered in the Swiss Trade Register. Even in the absence of legal requirements regarding the minimum number of board members in a foundation, the Civil Code usually provides for the appointment of at least 3 members.

When established for the purpose of operating exclusively in Switzerland, the activities of the funds are supervised by the Supervisory Authority of the funds or the cantonal authorities. When they serve international areas, they come under the control of the Federal Fund Supervisory Authority in Bern.

The main difference between a Swiss foundation and an association is that the latter is made up of members. At least 2 members are required to form an association.

Foundation charter

The first step in setting up a foundation in Switzerland is the development of its charter, which should include:

– purpose and resources used to achieve it;

– organization of the subject;

– appointment of the supervisory body and its powers.

The articles of association must be approved by the founder, followed by the approval of the federal or cantonal authority for the supervision of foundations, depending on where the foundation is located.

Given that in Switzerland foundations enjoy a special tax regime that provides for exemption from income tax, it is advisable to apply for a provisional exemption from tax at the local tax office.

Once these steps are completed, the fund is created through a deed drawn up and certified by a public notary. Then he will be registered with the Companies House and a bank account will be opened for him to deposit the initial capital.

Supervision of Swiss funds

As mentioned earlier, Swiss funds are overseen by the Funds Supervisory Authority, which ensures that:

– the property of the funds is distributed in accordance with their goals;

– funds submit annual activity reports and audit reports;

– the basis of the file of their accounts.

The Authority also approves any change in foundation statutes, as well as the adoption of statutes, mergers or dissolutions.

Regarding the accounting requirements that such entities must comply with, it should be noted that their accounts must be audited by an independent auditor in accordance with Swiss Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Statistics of Swiss foundations?

It is worth knowing that Switzerland is one of the most attractive markets for setting up a fund. As a rule, Swiss foundations work in areas such as leisure and culture, which are the most important activities, followed by social services, health, environment, education and research. There are also several Swiss foundations for religious purposes. Swiss funds are characterized by the following:

• At the level of 2017, there were 13,129 charitable foundations in Switzerland;

• 364 new Swiss funds were registered in 2017;

• Switzerland has one of the highest concentrations of funds globally (15.6 funds per 10,000 people);

• in 2017, a large number of funds were administered by the federal level (out of 4,362), which means that such organizations operated at the national level;

• the total value of assets of funds operating in Switzerland is 97.4 billion Swiss francs (for the last 5 years, up to 2017);

• assets of international funds in 2017 amounted to 40 billion Swiss francs.

What are the benefits of a Swiss foundation?

A Swiss fund is set up to help a certain type of group. It can be set up to help groups of people in need, but it can also be used as a way to provide grants to support the business environment. Since it is registered with the aim of improving the general condition of society, this structure enjoys some tax benefits.

When opening a company in Switzerland, commercial law provides that a business can be registered with 100% foreign participation. The same is available for the Swiss fund. The fund can also qualify for a low-tax system – for example, corporate tax is applied at a rate of 4% in the case of family funds.

There is a full foundation corporate tax exemption, but this only applies if the structure is registered as a public benefit entity or as a non-profit foundation.

Reasons why you should start a charitable foundation

1. Formalization of a charitable strategy

Putting together a formal charitable giving plan is a strategy that individuals, families, and businesses can use to be more targeted in their giving. Not only can this help focus their donations to make a real impact, formalized philanthropic strategies give donors more satisfaction in their philanthropy.

When donors are more strategic in their giving, they find focus in their philanthropy and feel less pressure from fundraisers for other reasons. Instead, they can make meaningful changes to issues that matter to them.

A charitable donation plan can also form part of the donor’s overall financial strategy. Instead of making sporadic donations to causes they enjoy throughout the year, donors can determine how much they can afford to give each year and feel more financially prepared for the year ahead.

A formalized philanthropic strategy is an opportunity for donors to identify issues that are important to them. They may have charities that they traditionally support yearly or monthly. Thinking more strategically about philanthropy allows donors to explore other causes they would like to support that align with their values ​​and address issues they are passionate about.

It is much more effective to focus donations on one cause than to give small amounts to a wide range of organizations. A philanthropic strategy gives donors a purpose and helps them focus on the causes they truly care about.

2. Brand and family recognition

Family foundations are becoming a recognized and attractive means of modern philanthropy. This is a growing trend in Switzerland, where family foundations have traditionally not been as popular as they are in the US. Family foundations offer a way to pool family giving by bringing the whole family’s philanthropic efforts together on one issue, creating a stronger bond between the family and their chosen cause.

Increasingly, people of all ages also expect businesses to give back, consider their social and environmental impacts, and have accountability and purpose as part of their business strategy. The creation of a charitable foundation testifies to the desire to put social goals at the heart of the brand’s corporate strategy.

Charity naturally evokes an emotional response in people. Having a personal connection to a particular cause means that the brand or family associated with that cause will automatically foster a sense of trust that can develop into a lasting emotional relationship.

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