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Switzerland Investment Climate 2009

01 February 2010
by Ina Dimireva -- last modified 01 February 2010

Switzerland welcomes foreign investment and accords it national treatment. Foreign investment is not hampered by significant barriers.


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Openness to Foreign Investment

The Swiss Federal Government adopts a relaxed attitude of benevolent noninterference towards foreign investment, allowing the 26 cantons to set major policy, and confining itself to creating and maintaining general conditions favorable to both Swiss and foreign investors. Such factors include economic and political stability, a transparent legal system, reliable and extensive infrastructure, and efficient capital markets. Many U.S. firms including Dow, Philip Morris, General Motors, Kraft, Google, Procter & Gamble, and Baxter base their European or regional headquarters in Switzerland, drawn to the country's low corporate tax rates, exceptional infrastructure, and productive and multilingual work force.

Switzerland was ranked as the world's most competitive economy according to the World Economic Forum's Global Competitiveness Report for the first time in 2006, but fell back to second place behind the US in 2007 and 2008. The high ranking reflects the country’s sound institutional environment, excellent infrastructure, efficient markets and high levels of technological innovation. Switzerland has a developed infrastructure for scientific research; companies spend generously on R&D; intellectual property protection is strong; and the country’s public institutions are transparent and stable.

The Heritage Foundation, a public policy research institute that promotes free enterprise and limited government, said in January 2009 that Switzerland's policies towards trade, business, investment and property rights had created the 9th-freest economy on the globe. Switzerland scored 79.4 out of 100 on the 2009 Index of Economic Freedom, down 0.1 points from the 2008 ranking. The report noted that Switzerland excelled in property rights and freedom from corruption, but that the government was becoming too large.

Many of Switzerland's cantons make significant use of fiscal and other incentives to attract investment to their jurisdictions. Some of the more aggressive cantons have sometimes waived taxes for new firms for up to ten years. Individual income tax rates vary widely across the 26 cantons. Corporate taxes vary depending upon the many different tax incentives. Zurich, which is sometimes used as a reference point for corporate location tax calculations, has a rate of around 25%, which includes municipal, cantonal, and federal tax.

The major laws governing foreign investment in Switzerland are the Swiss Code of Obligations, the Lex Friedrich/Koller, the Securities Law, and the Cartel Law. There is no screening of foreign investment. There are few sectoral or geographic preferences or restrictions. Several exceptions are described below in the section on performance requirements and incentives.

Some former public monopolies retain their historical market dominance, despite privatization. Foreign investors can find it difficult to enter these markets, due to high entry costs and the relatively small size of the Swiss market.

Telecoms:

The 1998 Telecommunications Act brought liberalization and privatization to the Swiss telecommunications sector, opening the market to investment and competition from foreign firms. More than 50 Swiss and foreign companies now offer fixed line services. Three different operators -- Swisscom, Sunrise (TeleDenmark), and Orange (France Telecom -- share the mobile telephone market, with each company reportedly also holding a third-generation mobile telephony license (UMTS). Until September 2005, Southern Bell Corporation’s 9.5% stake in Sunrise’s parent company represented the only significant U.S. investment the Swiss telecommunications market. But in that month, US Liberty Global purchased 100% of the shares of Cablecom, a competitor of Swisscom. Stiff competition between the two operators led to a drop in fixed line rates. The incumbent state monopoly – Swisscom – has used the courts to block the Swiss government’s efforts to open the market to competition. However, in May 2006 the Federal Court successfully forced Swisscom, after years of legal wrangling, to drop its interconnection prices by 30% and pay SFr.35,000 in damages to Verizon. In July 2006, Swisscom also was ordered by the Communication Commission (ComCom) to pay back Sfr1 million to Cablecom for excessive interconnection fees on its fixed line network.

In March 2006, the parliamentamended the Telecom Act in order to force Swisscom to unbundle its local loop. The forced unbundling of Swisscom’s last mile will last four years, a period designed to provide time for other telecom providers to invest in their own local infrastructure. The reform does not extend to other technologies, such as Mobile and WiFi. The bill also requires that broadband access be offered to Swisscom competitors at cost-oriented prices over a period of six years, after which all operators are expected to provide their own broadband investment. Swisscom announced it would reduce fixed and mobile telephony prices by 5-10% in 2009.

In December 2007, ComCom accused Swisscom with levying excessive interconnection charges for the fixed line network between 2004 and 2006. Two competitors - Colt Telecom SA and Verizon Switzerland - complained that Swisscom's charges were 15-20% too high. In October 2008, the Swiss Federal Communications Commission (ComCom) forced Swisscom to provide bitstream access on the last mile for four years following a previous parliamentary recommendation. Swisscom was also forced to reduce its monthly interconnection charge to competitors from SFR23.50 to SFr18. In March, Swisscom had refused to submit a price proposal to its competitors, because in its view it was not dominant in the market. This droveSunrise (a subsidiary of TeleDenmark – TDC) to submit an access application to ComCom, with a view to obtaining a decision in principle on the question of market dominance. ComCom came to the conclusion that Swisscom is market-dominant in relation to wholesale bitstream access. Swisscom has yet to announce whether it will appeal the ruling to the Federal Administrative Court:

Postal Services:

The Postal Act divides the Swiss postal market into two segments: universal services and competitive services. Competitive services, including express delivery, are unrestricted. Universal services are divided into reserved and non-reserved services. Swiss Post is the exclusive provider of reserved services, while it competes with private postal operators for the provision of non-reserved services. The regulatory authority exercises market supervision, ensures the functioning and fair competition in the postal market, and enables the proper implementation of applicable regulations.

The Swiss Government reduced Swiss Post’s monopoly from a 350-gram threshold to 100 grams in 2006, and is planning to reduce it further to 50 grams in July 2009. The government also plans to amend the federal postal law in order to tackle the financing of the universal postal service, transform the Swiss Post into a public limited company, and better define its activities. The market liberalization aspect will be resolved separately by a federal draft decree submitted to a referendum. The government generally supports the idea that further liberalization of letter delivery services will not undermine the large existing mail distribution network. A recent independent study concluded that the SFr. 400 million public costs to keep mail delivery a “public service” have been exaggerated by Swiss Post. The report noted that Swiss Post was bypassing existing business restrictions on night transport and benefiting from favorable tax treatment. As a result, it could afford to keep a large number of post offices and staff across the country to maintain its edge over competitors.

Electricity

The local public monopolies that used to dominate electricity transmission and distribution in Switzerland have been merged substantially into a few private sector utility companies (Romande Energie, FMB, Axpo, Atel, and BKW). Several cantons have attempted to prevent other providers from serving their areas, but those efforts were ruled illegal by the Federal Court under the Cartel Law. Some local communities have tried to bypass the court ruling by cementing their dominant position through cantonal legislative changes or “gentlemen’s agreements” with large customers. On December 15, 2006, the Swiss national grid operator “Swissgrid” started operations as a national transmission system operator, taking full responsibility for running Switzerland’s 6,700 kilometer-long high-voltage grid, which was formerly in the hands of private operators. In addition to the shareholders – Atel, BKW, CKW, EGL, EOS, EWZ, NOK, and RE – the new company’s board of directors also includes two representatives of the cantons and three neutral members.

According to the new Federal Law on Energy Supply approved in 2007 by Parliament, the electricity market will be fully opened in two phases: business-only market liberalization is to start 2009, followed by full consumer access to energy competitors in 2014. Under the provisions of the implementing ordinance, energy prices will be capped by the Electricity Commission (ElCom). In September 2008, the Swiss government expressed concerns that electricity prices could increase by 20% and warned energy providers that further liberalization could be halted. Following pressure from various political parties calling for the government to freeze price hikes if necessary, the government amended on December 5, 2008 the Federal Ordinance on Electricity Supply to reduce price hikes by 45%. Nevertheless, first estimates expect a general price increase of 6-7% in 2009.

Insurance

Foreign insurers attempting to do business in Switzerland are required to establish a subsidiary or a branch in Switzerland and are not allowed to sell their entire product line cross-border or through a representative office. Foreign insurers operating in Switzerland are limited to those types of insurance for which they are licensed in their home countries. The manager of a foreign-owned branch must be resident in Switzerland, and the majority of the board of directors of the Swiss subsidiary must have citizenship in the EU or the European Free Trade Association (Switzerland, Norway, Iceland, and Liechtenstein). Public monopolies exist for fire and natural damage insurance in 19 cantons and for the insurance of workplace accidents in certain industries. Private insurance firms must establish a fund – amounting to between 20 percent and 50 percent of their minimum capital requirement – available at short notice to cover potential losses.

Public Procurement

Switzerland is a signatory to the WTO Agreement on Government Procurement (GPA). On the cantonal and local levels, a 1995 law provides for nondiscriminatory access to government procurement.

According to the July 2002 revised ordinance on public procurement, all private or state-owned companies such as utilities, transportation, communications, defense, and construction that submit tenders for government procurement must make their bids public if the contract exceeds SFr. 250,000. Total public procurement outlays are estimated at approximately SFr. 31 billion, split between the federal government (19%), the cantons (38%) and local administrations (43%). In percentage terms, this represents about 25% of all public expenditures (or 8% of GDP.) Cantonal and communal governments carry out many of the public projects. Their procurement spending is two to three times that of the federal government.

In September 2004, the Swiss government initiated a series of informal consultations to amend the 1994 Swiss Federal Law on Public Procurements. This process, which is intended to simplify the many different cantonal tender procedures, is expected to be completed and enter into force in 2010. Contrary to cantonal and communal practice, federal authorities are not required to inform unsuccessful bidders of the tender accepted or the reasons for the choice. In general, quality and technical criteria are as important as price. Cantons and communes usually prefer local suppliers because they can recover part of their outlays through income taxes. Foreign firms may be required to guarantee technical support and after-sales service if they have no local office or representation. Access to public tenders by foreign bidders may be hampered by lack of transparency in the bidding conditions applied across the cantons.

Under the WTO Agreement on Government Procurement (GPA), Swiss cantons are allowed to implement the agreement independently from the federal government, which sometimes leads to disparities across cantons. Under the current Federal Law on Public Procurement, public tender procedures apply when the size of the contract exceeds SFr248,950, whereas WTO obligations set the tender threshold at SFr383,000.

Notices of Swiss government tenders are published in the Swiss Official Gazette of Commerce (www.shab-online.admin.ch) and on the on-line Swiss Public procurement website SIMAP.CH www.simap.ch (French, German, and Italian versions only). Tender documents can be obtained free from the gazette's website. While there is no requirement to have a local agent to bid, it may be advantageous when equipment tenders include training, service or parts.

Conversion and Transfer Policies

There is freedom of transfer for investment income, royalties, and repatriation of capital. There are no Swiss government policies or laws, which would regulate or limit the inflow or outflow of capital. Foreign exchange markets are free, and access to foreign exchange is uncontrolled. Swiss foreign exchange markets are highly developed and efficient. A parallel system to repatriate capital or profits has not developed.

Expropriation and Compensation

Property rights are assured by the Swiss constitution. Within the framework of their constitutional powers, the federal and cantonal governments can nevertheless, through a legal process, expropriate or restrict property for reasons of public interest. In the event of expropriation or property restriction, full compensation must be made. An independent court, as required by the European Human Rights Convention, settles disputes. As a general rule, recourse to expropriation is taken only in cases involving major public construction projects, such as highways, railroads or airports. The Embassy is unaware of any major expropriations or restrictions in the recent past affecting US. investments.

Dispute Settlement

The Embassy is not aware of any significant investment disputes in recent years. Swiss legal provisions, which include the Code of Commercial Obligations and the 1994 revised bankruptcy law, provide extensive protection of secured interests in property.

Where American citizens are involved in disputes (with private individuals or business enterprises) and the controversy cannot be settled amicably, the normal recourse is to seek remedies provided by the law of the appropriate cantonal jurisdiction. Foreign lawyers may not act as "attorneys at law" unless they are admitted to a Swiss bar. There are, however, no restrictions on practicing as a "legal consultant." A U.S. attorney who is not admitted to a Swiss bar may also join a Swiss law firm as an "of counsel" member. American diplomatic or consular officers may not act as attorney, agent, or representative in a fiduciary capacity in such matters. If legal action is to be undertaken in Switzerland, a local lawyer should be involved (either directly or via an American attorney). There are differences in the legal systems in Switzerland and America, and ignorance of those differences could jeopardize a case. For example, in the United States a lawyer can serve papers on another person directly, but in Switzerland, lawyers must first file a complaint with the court. The court then decides whether to serve or not. The Martindale-Hubbell Law Directory contains an extensive list of lawyers licensed to practice in Switzerland. The Embassy's Consular Section, American Citizens’ Services, also maintains a list of local English-speaking attorneys. The phone number is (41-31) 357-7234 fax number is (41-31) 357-7280. Please specify the canton for which the list is required when calling.

The only methods for a non-Swiss court or lawyer to obtain testimony or to serve process in civil matters in Switzerland are through the Hague Convention on taking of Evidence Abroad in Civil or Commercial Matters, the Hague Convention on the Service Abroad of Judicial and Extra judicial Documents in Civil and Commercial Matters, and through a letter interrogatory. For information on this legal process, contact either the Embassy Bern Consular Section or the Office of Citizens Consular Services in the Department of State (202) 647-5226. Switzerland has been a member of the International Center for the Settlement of Investment Disputes (ICSID) from its inception in 1966.

The effects of bankruptcy on creditors' rights are set out in articles 208 to 220 of the Swiss Federal Debt Prosecution and Bankruptcy Statute. Initiating bankruptcy proceedings results in all obligations of the debtor becoming due, with the exception of those secured by mortgages on real estate. The creditor can claim the amount of the debt and interest up until the date of the opening of bankruptcy proceedings, and the costs of enforcement (article 208 paragraph 1). Claims that do not have as their object a sum of money are converted into a monetary claim of corresponding value (article 211, paragraph 1). The order of distribution to the creditors is prescribed by article 219. Enforcement is handled by the canton with jurisdiction. Under the revised Code of Commercial Obligations now in Parliament, shareholders will have the right to sue board members or managers if they fail to publish adequate information of the financial situation of the company, or for any perceived undue benefits.

Business bankruptcies dropped from 4314 cases in 2007 to 4200 in 2008. However, in October 2008, reported bankruptcies reached 499, up 36% over the same period in 2007, due in part to the weakening economy. The main reasons for bankruptcies were reportedly illiquidity resulting from bad debts (78% of cases) or late payments (67%). Other causes included insufficient capital (57%), difficulties in obtaining a loan (55%), high salary costs (44%), reduced or canceled credit lines (44%), excessive financing costs (41%), and adverse economic developments (30%). The number of new company registrations in 2008 was about 3,000, a roughly 2% increase from 2007.

Bankruptcies of private individuals, which had been rising steadily for a decade, fell slightly from 6140 in 2007 to 6050 in 2008. However, the credit agency Credit Reform expects the rate to increase again in 2009 as a result of the economic slowdown.

All monetary judgments are made in Swiss Francs.

Performance Requirements and Incentives

The Swiss Government offers few large-scale incentives to prospective investors, and those that exist are open to foreign and domestic investors alike.

A federal incentive program designed to attract investment to "economically fragile" regions of Switzerland (generally in the Italian and French linguistic regions) expired in June 1996 and was not renewed. A more decentralized system entered into force in 1998, with federal loan guarantees to economically troubled cantons. Much of the authority to administer these funds and create incentive programs is left to the cantonal governments. Incentives may include loan guarantees, tax breaks and interest subsidies. The cantonal government must match federal government commitments for each project. Interest subsidies are granted for a maximum of five years and cannot exceed one quarter of the usual commercial interest payments. Another federal program encourages entrepreneurship by granting tax breaks and incentives to both venture capital funds and individuals that invest in start-ups.

Some cantons offer investment incentive programs for domestic as well as foreign investment, in particular in rural areas. Indeed, priority is often given to foreign businesses that bring new high technology product lines. The most common incentives are: subsidies or loans by cantons for the development of industrial sites; cantonal guarantees on bank loans; capital loans at below-market interest rates; grants for facilities conducting research and development projects; subsidies to defray certain investment costs and to finance staff training; exemptions from taxes on profits and capital gains for specific periods; and liberal depreciation allowances.

Performance requirements, whether linked to incentives or to other investment-related conditions, are few. There are generally no requirements to source locally, export production, or derive foreign exchange from production. There is no requirement that nationals own equity in foreign investments or that the share of foreign equity be reduced over time, or that technology be transferred on certain terms.

There are no conditions on permission to invest related to geographical area (with the exception of investment incentives noted above), percentage of local content or equity, import substitution, export requirements or targets, employment of nationals, technology transfer, or local financing.

Government financed or subsidized research and development programs are open to foreign companies with operations in Switzerland. U.S. companies have participated in research projects funded by the Swiss government in past years.

Visas and residence and work permits are strictly controlled in Switzerland. As a result of the 2002 Swiss-EU agreement on the free movement of persons, the country changed from a three-tier system for issuing work permits to a two-tier system. Under the old system, citizens of EU countries were in the first tier and enjoyed liberal access to work permits. The second tier was comprised of the U.S., Canada, Australia and New Zealand and citizens of these countries generally received favorable consideration for work permits. The "rest of the world" made up the third tier and these nationalities generally had the most difficulty obtaining work permits except in cases of very highly qualified applicants. Under the current system, the second and third tiers are combined. While on the surface this would appear to be a negative development for U.S. work permit applicants, Swiss officials are adamant that the impact on U.S. work permit applicants is negligible as these applicants are generally among the most highly qualified of all national groups. As of December 12, 2008, Switzerland joined the EU-Schengen area which will require U.S. citizens entering Switzerland to work to apply for a Schengen visa.

In the past, foreigners who did not have a residence permit for Switzerland, or companies based outside of the country, could find it difficult to acquire property for the purpose of establishing a business (or for purchase of a residence) due to the so-called "Lex Friedrich." This situation has eased with the enactment of the "Lex Koller" which means that special permits are generally not required for foreign entities wishing to acquire property for the purpose of operating an economic activity. Following the implementation of the Swiss-EU bilateral agreement on the free movement of persons on June 1, 2002, restrictions on EU and EFTA citizens were removed. Cantons have traditionally had extensive decision-making authority over the purchase of property by foreigners. In June 2008, the parliament refused a government bill aimed at abolishing all foreign ownership restrictions, because of fears it could spur foreign speculation. Nevertheless, foreigners are allowed to buy stocks of Swiss listed real estate companies. Real estate prices for business premises and hotels have increased by 10-25% as a result of foreign investment.

There are no restrictive export and import policies which discriminate against foreign investors. Products must be labeled in all three official languages (German, French, and Italian). All drugs (prescription and over-the-counter) must be approved and registered by Swissmedic, the Swiss Agency for Therapeutic Products.

Right to Private Ownership and Establishment

Foreign and domestic enterprises may engage in various forms of remunerative activities and may freely establish, acquire and dispose of interests in business enterprises. However, the following legal restrictions apply:

Corporate boards - - There are no laws authorizing private firms to limit or prohibit foreign investment or participation. The board of directors of a company registered in Switzerland must consist of a majority of Swiss citizens residing in Switzerland. At least one member of the board of directors authorized to represent the company (i.e., to sign legal documents) must be domiciled in Switzerland. If the board of directors consists of a single person, this person must have Swiss citizenship and be domiciled in Switzerland. Foreign controlled companies usually meet these requirements by nominating Swiss directors who hold shares and perform functions on a fiduciary basis. Mitigating these requirements is the fact that the manager of a company need not be a Swiss citizen and company shares can be controlled by foreigners (except for banks). The establishment of commercial presence by persons or enterprises without legal personality under Swiss law requires an establishment authorization according to cantonal law. The aforementioned requirements do not generally pose a major hardship or impediment for U.S. investors.

Hostile takeovers - - Swiss corporate shares can be issued both as registered shares (in the name of the holder) or bearer shares. Provided the shares are not quoted on the stock exchange, Swiss companies may in their articles of incorporation impose certain restrictions on the transfer of registered shares to prevent unfriendly takeovers by domestic or foreign companies (article 685a of the Code of Obligations). Unwelcome takeovers can also be warded off by public companies, but legislation introduced in 1992 has made this practice more difficult. Public companies must now cite in their statutes significant reasons, relevant for the survival, conduct and purpose of their business, to prevent or hinder a takeover by an outsider. As a further measure, public corporations may limit the number of registered shares that can be held by any one shareholder to a certain percentage of the issued registered stock. In practice, many corporations limit the number of shares to 2-5% of the relevant stock. Under the public takeover provisions of the Stock Exchange and Securities Law (for which the implementing decree entered into effect in 1997), a formal notification is required when an investor purchases more than 5% of a Swiss company's shares. An "opt out" clause is available for firms which do not want to be taken over by a hostile bidder, but such opt outs must be approved by a super-majority of shareholders and well in advance of any takeover attempt (i.e., not to thwart an attempt already launched). In April 2007, a secret takeover maneuver was conducted by the Russian investor Viktor Vekselberg's private equity firm Renova and the Victory group. The group captured a 32% stake of the Swiss engineering firm Sulzer. This strategy was made possible through the purchase by private and corporate accomplices of cash settlement options in order to evade financial controllers. Among these individuals was the director of the Zurich Cantonal Bank, who was dismissed for his role in the affair. The Swiss Federal Banking Commission (EBK) investigated the premises of the Zurich Cantonal Bank, Neue Zürcher Bank, and a subsidiary of the Deutsche Bank. The EBK also started an investigation against Renova and Victory and simultaneously closed the legal loophole on July 1, 2007. The EBK also amended the Takeover Ordinance on August 21 to lower the notification threshold from the current 5% to 3%. This new regulation entered into force on January 1, 2009.

A reform of the corporation tax - approved by voters on February 24, 2008- aims to reduce levies on dividends to investors with a stake of at least 10 per cent. They are no longer be taxed in full, but only at the rate of 50 per cent for commercial investments and 60 per cent for the private sector.

Banking - - The Swiss Federal Banking Commission (EBK), the Federal Office of Private Insurance and the Anti-Money Laundering Control Authority were recently merged to form the Swiss Financial Market Supervisory Authority (FINMA). This new body aims to restore confidence in the financial markets and protect customers, creditors and investors.

Those wishing to establish banking operations in Switzerland must obtain prior approval from FINMA. This is granted if the following conditions are met: reciprocity on the part of the foreign state; the foreign bank's name must not give the impression that the bank is Swiss; the bank must adhere to Swiss monetary and credit policy; a majority of the bank's management must have their permanent residence in Switzerland. Otherwise, foreign banks are subject to the same regulatory requirements as domestic banks. Banks organized under Swiss law have to inform the FINMA before they open up a branch, subsidiary or representation abroad. Foreign or domestic investors have to inform the FINMA before acquiring or disposing of a qualified majority of shares of a bank organized under Swiss law. In case of exceptional temporary capital outflows threatening Swiss monetary policy, banks can be obliged to seek approval from the Swiss national bank to issue foreign bonds or other financial instruments that would cause capital outflow. Beginning January 1, 2009 - government protection of current accounts held in Swiss banks was raised from SFr30,000 to SFr100,000.

Insurance - - A federal ordinance requires the placement of all risks physically situated in Switzerland with companies located in the country. Therefore, it is necessary for foreign insurers wishing to provide liability coverage in Switzerland to establish a subsidiary or branch there.

With the exception of those few sectors in which Swiss-owned enterprises have been granted a legally established monopoly (i.e., railways, fire insurance, and certain utilities), non-discriminatory competition between foreign and domestic commercial entities prevails.

Cartels and Monopolies - - Foreign investments are subject to review by the Federal Competition Commission if the value of the investing firm's sales reaches a certain worldwide or Swiss-market threshold. An investment or joint venture by a foreign firm can be disapproved on the grounds of competition policy, although there is no evidence that regulators have applied these rules in a discriminatory manner.

In 2003, the Swiss parliament adopted a revised competition bill, which took effect in 2004. The most significant change is the authority to prosecute anticompetitive behavior without prior warning, with a maximum fine of 10 percent of a firm’s total combined revenue for the past 3 years. Companies that cooperate with regulators are eligible for a reduced fine.

Protection of Property Rights

Secured interests in property are recognized and enforced, and mortgages are widely used. The legal system protects and facilitates the acquisition and disposition of all property rights. Switzerland is a member of the major international intellectual property rights conventions and was an active supporter of a strong IPR text in the GATT Uruguay round negotiations. Switzerland has one of the best regimes in Europe for the protection of intellectual property and protection is afforded equally to both foreign and domestic rights-holders.

Patent protection is broad, and Swiss law provides rights to inventors that are generally similar to those available in the United States. Switzerland is a member of both the European Patent Convention and the Patent Cooperation Treaty (PCT), making it possible for inventors to file a patent application in the United States (or other Patent Cooperation Treaty country, or any member of the European Patent Convention) followed by an application with either the PCT office or the Swiss patent office to receive harmonized protection in Switzerland. If filed in Switzerland, patent applications must be made in one of the country's three official languages (German, French, Italian), and must be accompanied by detailed specifications and, if necessary, by technical drawings. The duration of a patent is 20 years. Patents are not renewable beyond the original 20-year term, but patent term restoration is possible for products, such as pharmaceuticals, that require an extensive testing period prior to marketing. According to the Swiss Patent Law of 1954, as amended, the following items cannot be covered by patent protection: surgical, therapeutic and diagnostic processes for application on humans and animals; inventions liable to disturb law and order and offend "good morals;" and biological processes for breeding species of plants and animals. In most other areas, coverage is similar to that in the United States. Should an American firm have concerns about possible patent infringement in Switzerland, access to the courts is readily available and there is a well-established and highly regarded patent bar. On June 22, 2007, the parliament adopted a revision of the Swiss patent law that provides for the protection of patents on bio-technologies and is EU compatible. This revision on biotechnical inventions entered into force on October 11, 2007.

While most “parallel imports” of products covered by copyright and trademark protection are subject to ‘international exhaustion’ treatment, patents until 2009 were subject to national protection, with exceptions for parallel imports of generic drugs under specific registration and safety guidelines and fertilizers and tractors from third countries.

In 2008, consumer and retail industry supporters in parliament pushed hard for regional exhaustion on patented products sold in the EU/EEA area, which are often cheaper since they bypass expensive Swiss distribution channels. This proposal met a lukewarm reception from the Federal Council and conservative political parties sympathetic to the Swiss pharmaceutical industry on the grounds regional exhaustion would weaken R&D investments in Switzerland. In December 2008, the parliament adopted the principle of regional exhaustion for patents, with an exception for pharmaceuticals, which are still subject to national exhaustion. Retail prices are expected to drop by 3.5-7.5% as a result of this measure.

The Swiss copyright law explicitly recognizes computer software as literary works and establishes a remuneration scheme for private copying of audio and video works, which distributes proceeds on the basis of national treatment. Owners of television programming enjoy significant protection and are remunerated for rebroadcast and satellite retransmission of their works, while rights holders have exclusive rental rights. Collecting societies are well established. Infringement is considered a criminal offense. The term of protection is life plus 70 years. In order to comply with the WCT and WPPT WIPO treaties Switzerland has already signed, the government proposed new amendments to the existing copyright law, which were adopted by parliament on October 5, 2007 and put into force on January 24, 2008. The audiovisual industry used this opportunity to express strong reservations against the scope of the exception for private copying, but later expressed satisfaction that the revised legislation still prohibits the circumvention of technological protection measures. However, the unauthorized downloading of multimedia content and the provision of that content to family members or friends for personal use is not prohibited. Public libraries and broadcast libraries are also allowed to sell the works they possess, which may contain multimedia content, to their patrons. These libraries have also been exempted from paying a copyright fee to the industry. The United States will continue to monitor the implementation of the legislation. The United States has also raised certain questions regarding potentially broad mandatory licensing provisions governing research tools, in the context of pending Swiss patent law amendments.

Under Swiss law, anyone found guilty of infringing the copyright laws can be fined up to several thousand francs and, in extreme cases, face imprisonment. Making an illegal copy with the aim of selling or sharing it without authorization is against the law. Internet providers or joint patent holders can also be considered as accomplices if they fail to carry out the required measures to prevent such illegal sales, but many experts believe it is not easy to trace offenders. In general, Swiss legislation applies to illegal acts committed within Switzerland’s national boundaries, which means that a Swiss user knowingly purchasing or downloading pirated audiovisual work from a foreign website cannot be prosecuted by the authorities. Downloading or copying a file from the internet for purely private purposes is allowed, and these files may be passed to friends and family members. The industry is particularly concerned that there is little willingness among consumer groups and the government to narrow the scope of personal use to avoid blatant abuse.

The primary concerns of the industry with regard to the changes are: 1) the revision widens the scope for exemptions, thus depriving the copyright owners of their rights; 2) the collection of royalties through the collecting societies is inadequate because it only provides 60% of the royalties to the producers who use these funds to subsidize Swiss artists; and 3) the revision offers little protection to the industry digital encryption programs (DRMs) as a result of the wide Swiss definition of “private copying”. Public broadcasters will also be allowed to keep industry performances in their archives and charge individual users for access, thus bypassing the industry’s online sales.

According to the Business Software Alliance (BSA), software piracy continues to be a significant problem. This appears to be due substantially to illegal copying by individuals and some small and medium-sized establishments. However, software piracy appears to have decreased in recent years, with the rate of software piracy in Switzerland falling from 26% of the market in 2007 to 25% in 2008 (a loss reduction equivalent to an estimated SFr 53 million). However, the industry estimates that CD/DVD piracy across Europe is on average even higher at 35%.

The Swiss audiovisual industry lobby (SAFE) started a campaign in 2005 entitled "stop-piracy" aimed at suing individual users in order to increase the awareness of the legal risks and potential lawsuits associated with piracy. The International Federation of the Phonographic Industry (IFPI) has sued 300 Swiss internet users over the past two years to enforce its rights. After the lawsuit is filed, if the Swiss investigating judge determines there is a copyright violation, a legal assistance request is forwarded to the Special Tasks Unit of the Swiss Federal Department of Justice and Police, which forces the internet access provider to provide the full details of the fraudulent customer. The procedure is costly and was recently criticized by the Federal Data Protection and Information Commissioner (FDPIC), who said that tracking IP addresses was illegal since it violated the principle of "telecommunication secrecy". In June 2008, the FDPIC asked a Swiss company to stop tracking IP addressee because it contravened existing Federal Data Protection Law. When the company refused to do so, the FDPIC appealed the request to the Federal Administrative Court. A final ruling on this matter is still pending.

In May 2008, the European Commission reported that 2% of pirated goods entering the EU were transiting through Switzerland, a marked drop from the 5% reported in 2006. The EU estimates that Switzerland is the primary source of illegal medicines entering the EU (39.2% of the medicine seizures). However, Switzerland is not on the EU list of IPR priority countries.

Trademarks are protected. Switzerland recognizes well-known trademarks and has established simple procedures to register and renew all marks. The initial period of protection is 20 years. Service marks also enjoy protection. Trademark infringement is relatively rare in Switzerland, since there are few street vendors are few and those tend to avoid illegitimate or gray market products.

The government agreed on June 25, 2008 to propose an amendment of the Federal Law on Technical Barriers to Trade to permit implementation of the EU “Cassis-de-Dijon” principle. The proposed revision has not yet been debated in parliament. If adopted, all EU products could be imported into Switzerland without having to go through the burdensome Swiss certifications and Swiss languages requirement. Given that retail prices in Switzerland are 20-30% higher than in the EU, the government believes that domestic prices could drop by 10% through importation of EU products under streamlined Swiss regulations. Possible opt-outs to the Cassis-de-Dijon Principle have already been reduced from 129 to 40 products, but hurdles on the remaining products -- such as the Swiss regulations on the labeling of alcohol contained in Alcopops and the Swiss ban of phosphates in washing machine powders -- still remain.

Switzerland offers significant protection for layout designs of semiconductor integrated circuits, trade secrets, and industrial designs. Protection for integrated circuits and trade secrets is generally similar to that available in the United States, and protection for designs is somewhat broader. Because of the complexities involved in ensuring protection in each of these areas, individuals and corporations seeking protection are advised to engage the services of a lawyer specialized in these fields.

To bring Switzerland into conformity with its TRIPS commitment dating from the WTO Uruguay Round, Swiss authorities have established a 10-year protection period for test data submitted as part of the pharmaceutical approval process.

Protected Designation of Origin - Switzerland and the EU both recognize Protected Designation of Origin (PDO labels) as an "essential element" in the liberalization of agricultural products, and are currently negotiating a bilateral recognition agreement on designations of origin. Currently, labels awarded to wines and spirits are recognized under WTO rules. To date, 21 products already benefit from the PDO label.

Transparency of Regulatory System

Regulations affecting both local and foreign investors are generally transparent and applied in a nondiscriminatory manner.

In the past, cartels were endemic to the Swiss economy. Companies in a number of industrial and service branches organized themselves, through trade and industry associations, into horizontal and vertical cartels. Such arrangements existed in the market for prescribed medicines, sanitary ware, kitchen equipment, optical products, books, beverages, food retailing, dietary products, and many other sectors of the economy.

The Swiss cartel law specifically allows cartels unless the government concludes that they are harmful to society or the economy. On June 12, 2003, the Swiss Parliament adopted a revised competition bill, which subsequently entered into force on April 1, 2004. The most significant improvements in the revised law include the authority to sanction anti-competitive behavior without prior warning, with a maximum fine of ten percent of a firm's total combined revenue for the past three years. Whistle-blowing companies that cooperate with regulators are eligible for a reduced fine (leniency program). The transition period for adapting to the new law ended on April 1, 2005. According to IMF and OECD reports, Switzerland's gross domestic product could grow by an extra 0.5-0.8% a year if all cartels were eliminated.

In general, the Competition Commission considers vertical agreements with less than 20% of market share as insignificant, whereas others potentially face a fine. Cartels with over 50% of market share will be fined. Restrictions on the sale of components or spare parts are generally unlawful.

A number of administrative requirements restrict retail operations in the domestic market. These include planning regulations, local building codes, advertising restrictions, standards for equipment, approval procedures, and opening hours for shops. Although such measures are not intended to be discriminatory, their practical effect can be to limit market access for large discount retailers. Bureaucratic procedures are numerous, but generally transparent and nondiscriminatory.

A recent independent study highlighted the wide discrepancies in efficiency that exist between the country's many cantonal administrations. While Zurich, Basel, Bern, Jura, Valais, and Neuchatel get full marks for their cost-efficient services, including public access to government services on the internet. Other cantons, such as Geneva and Vaud, are criticized for being too bureaucratic, unfriendly and for taking twice as much time and money to deliver the same set of services. The study found that, for example, a work permit cost 200 francs in Lausanne and was delivered on average after 41 days, whereas a permit in Zurich cost 65 francs and was delivered in 12 days.

Switzerland's strong economy shows that good institutions and competent macroeconomic management, coupled with world-class educational attainment and a focus on technology and innovation, are a successful strategy for boosting economic competitiveness. Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system and high levels of transparency and accountability within public institutions. Excellent infrastructure is an additional positive feature of the business environment. The indicators also point to the rapidly growing importance of higher education and training as engines of productivity growth.

Efficient Capital Markets and Portfolio Investment

The efficiency of the Swiss capital market has helped make Switzerland a leading financial center. The Swiss franc denominated foreign bond market is one of the largest markets for foreign borrowers, and Zurich is one of the largest gold trading centers in the world. There are generally no restrictions on the purchase or sale of foreign currencies and equities. Residents and non-residents may conclude foreign exchange contracts, whether of a commercial or financial nature, in all currencies. Foreigners and Swiss nationals can make "forward transactions" at prevailing market rates. Payments for imports from all sources may be made freely, and exporters can freely transfer their proceeds. No legal impediments apply to payments for or receipts from invisibles. The repatriation of invested capital is unrestricted. The Swiss credit market is open to foreign investors on the same terms and conditions as for Swiss investors. A variety of credit instruments are available to the private sector.

To prevent the misuse of Switzerland’s liberal market framework for money-laundering or criminal activity, provisions to regulate certain aspects of portfolio investment are regularly updated. One important firewall established by the Swiss banking industry is the 1997 Due Diligence Convention, under which banks must identify the beneficial owner of the invested funds. The EBK (now FINMA) updates the 1997 Due Diligence Guidelines on average every five years. The latest set of EBK amendments, which entered into force July 1, 2003, ordered Swiss banks to abandon anonymous numbered bank accounts, keep banking records ten years after the closing of an account, and refrain from actively assisting customers to evade taxes.

Nevertheless, widely used investment techniques still permit customers to hedge their investments against tax exposure. The EBK guidelines also increased the banks' awareness of Personally Exposed Persons (PEPs), such as well-known foreign political figures. The guidelines are expected to deter corruption through the application of several risk assessment criteria (customer name, nationality, country of residence, and business activity). The EBK guidelines apply to domestic and foreign banks based in Switzerland and to Swiss banks' subsidiaries abroad. The Swiss penal code explicitly recognizes money laundering as a criminal offense, as is membership in, or support of a criminal organization. The change in the law facilitates confiscation of illicitly acquired assets without having to establish an exact linkage between a given asset and a specific crime. Money laundering regulations extend to non-banking financial institutions and require reporting suspicious transactions. Switzerland has signed and ratified all of the 12 UN anti-terrorism conventions as of September 2003.

Foreign investment is not restricted by "cross-shareholding" or "stable shareholder" arrangements. There is generally little discrimination against foreign investors, the areas of chief complaint being the type of limitations cited under the section "right to private ownership and establishment." Special measures available to Swiss firms to defend against hostile takeovers are covered under the above section as well.

There is not government effort to restrict foreign participation in industry standard- setting. The Swiss private sector generally does not support efforts to restrict foreign investment, participation, or control of domestic enterprises.

Political Violence

Switzerland has long been characterized by political and social stability, and there are no indications that this will change in the foreseeable future.

Corruption

Switzerland has an effective legal and policy framework to combat domestic corruption. Laws are enforced effectively. U.S. firms investing in Switzerland have not complained of corruption to the Embassy in recent years. Corruption is reportedly not pervasive in any area or sector of the Swiss economy. Switzerland maintains effective investigative and enforcement procedures to combat domestic corruption. The giving or accepting of bribes in Switzerland is subject to criminal and civil penalties, including imprisonment up to five years.

Switzerland signed the OECD Anti-Bribery Convention in 1997 and it entered into force in the country on May 1, 2000. In February 2001, Switzerland signed the Council of Europe's Criminal Law Convention on Corruption and in December 2003 it signed the UN Convention against Corruption. In order to implement the Convention, the Parliament amended the Penal Code to make bribery of foreign public officials an offense (Title Nineteen "Bribery", Articles). The amendments entered into force on May 1, 2000. In accordance with the revised 1997 recommendation, Parliament amended the legislation on direct taxes of the Confederation, cantons and townships so as to prohibit the tax deductibility of bribes. The amendment of the Tax Code became effective on January 1, 2001.

In 2003, the Swiss cabinet issued guidelines to combat corruption among government officials. Under the recommendations, gifts should generally be declined, but those worth less than SF 100 may be accepted. Staff members are urged not to accept anything that would "challenge their independence and capacity to act." The guidelines also call for better internal control systems and include recommendations on how to protect whistle-blowers.

Switzerland ratified the Council of Europe's Criminal Law Convention on Corruption on July 1, 2006. Switzerland’s penal code was amended so that foreign diplomatic staff and members of international organizations can be brought to court if they accept bribes.

On September 21, 2007, the Federal Council approved the 2003 UN Convention against Corruption. The lower chamber of parliament approved the draft bill on December 11, 2008 while the upper chamber has yet to approve it. Government experts believe that final approval will not result in significant changes since passive and active corruption of public servants is already considered a crime under the Swiss Criminal Code (Art. 322)

In June 2008, the Group of States against Corruption (GRECO, Council of Europe) welcomed Switzerland's efforts. Switzerland is among the top ten European countries in effectiveness for fighting corruption. For its first evaluation of Switzerland, the GRECO expressed satisfaction at the 2000 and 2006 revisions to the criminal law on corruption. The implementation of the criminal responsibility of the person (2003) was well perceived, as was the prohibition on tax breaks on bribes (2001).

In December 2008, the government announced a proposed change of the Swiss Obligation Code to ensure a better protection for “whistle-blowers” against unfair dismissals by an employer.

In 2007, Transparency International (TI) Switzerland said Switzerland wasthe export nation most effective at preventing bribery in its companies. It ranked Switzerland ranked seventh globally with a score of 9.1 out of ten. TI noted that Switzerland had no transparency laws on political party financing. According to the organization's anti-corruption report, Switzerland still did well when it came to preventing illegal political donations and in the fight against money laundering. But the country did less well when it came to "policy consequences of legal political donations", achieving only an average score. Transparency International reports that the problem lies mainly with minor incidents of corruption, especially in the area of public procurement. While TI believes it is a positive sign that Switzerland had ratified in 2000 the OECD anti-bribery convention and has adapted its legislation, it notes that Swiss courts had convicted only one person since 2000 in connection with bribing a foreign public official. During 2005, Swiss official statistics reported a total of 11 convictions for bribery. There were nine corruption cases in 2006.

A number of federal administrative authorities are involved in combating bribery. The State Secretariat for Economic Affairs deals with issues relating to the OECD Convention, the Federal Office of Justice with those relating to the Council of Europe Convention, and the Department of Foreign Affairs with the UN Convention. The power to prosecute and judge corruption offences is shared between the cantons and the Confederation. For the Confederation, the competent authorities are the Office of the Attorney General, the Federal Criminal Court and the Federal Police (“Fedpol”). In the cantons, the relevant actors are the cantonal judicial authorities and the cantonal police forces.

A third of Swiss workers report that they come across illicit dealings during their working lives. Around 12 per cent of economic crime concerning Swiss companies involves corruption, according to government estimates. One study by financial analysts KPMG into economic crimes in Swiss companies put corruption in second place behind fraud, in the frequency of offenses committed. Former Suva workers have been caught up in a bribery scandal concerning the sale of property for tens of millions of francs below the market price. Seven people have been arrested. Since 2000, criminal stautes concerning corruption have been tightened. For example, bribes paid abroad are no longer tax deductible.

Corruption is generally regarded to have decreased in the public sector over time. Swiss civil servants who accept money or unwarranted benefits risk up to five years' imprisonment. The upper-limit value of presents such as bottles of champagne and watches is a grey area that poses a problem because it varies according to department and canton. Transparency International believes a maximum sum valid at the federal level should be fixed. Some multinationals have assisted with the fight against corruption by setting up internal hotlines to enable staff to report problems anonymously.

After several visa abuses during the past few years in Swiss embassies abroad, a government audit highlighted 33 embassies and consulates with potential problems. The problematic cases identified occurred in Morocco, Turkey, Peru, Russia, Oman, Nigeria, Serbia, Macedonia and the Democratic Republic of Congo. The Swiss Federal Foreign Affairs Department also confirmed around 100 cases of visa fraud at the Swiss Embassy in Pakistan.

Bilateral Investment Agreements

To date, Switzerland has concluded numerous investment protection treaties with developing and emerging market economies. Around 120 remain in force. On August 9, 2008, an investment agreement between Switzerland and the Kingdom of Saudi Arabia entered into force. Treaties have been signed, but not yet ratified, with Syria, Guyana, Columbia, Kenya, Lesotho and Sudan. Switzerland has not signed an investment protection agreement with any western industrialized country, including the US.

OPIC and Other Investment Insurance Programs

OPIC is not active in Switzerland. However, Switzerland is a member of the Multilateral Investment Guarantee Agency.

Labor

The Swiss labor force is highly educated and skilled. Many low-skilled, low-wage jobs are filled by foreign workers, who account for roughly 26% of the estimated labor force of approximately 4.7 million people. Many foreign nationals are long-time Swiss residents who have not applied for or been granted Swiss citizenship. Only 5.1% of the workforce is employed in agriculture, where foreign "seasonal workers" take many low-wage jobs. Many of the remainder are engaged in services or industrial manufacturing, much of which involves high technology.

Swiss workers expect high wages. Because wages in Switzerland are among the highest in the world, the Swiss economy is capital intensive and geared toward high value-added products and services.

The prohibition on strikes by federal public servants was repealed in 2000. The Federal council may only restrict or prohibit the right to strike where it affects the security of the state, external relations, or the supply of vital goods to the country. Civil servants in a few cantons and communes are still denied the right to strike.

Switzerland is in compliance with ILO conventions. Government regulations cover maximum work hours, minimum length of holidays, sick leave and compulsory military service, contract termination, and other requirements. However, there is no minimum wage law. Employees in the retail sector and in restaurants, bars, and the like, in cooperation with other interests, have been successful in slowing reform of the restrictive federal and cantonal laws governing opening hours. Shop hour restrictions are nevertheless loosening gradually in centers such as Zurich, Geneva, and Bern.

Swiss voters narrowly accepted on November 27, 2005, the revision of the Swiss Federal labor law in order to provide for flexible working hours, such as Sunday openings, in major railway stations and airports. Sunday shopping also was previously possible in some railway stations, but only for a limited range of tourism-related products. As a result of the vote, the new regulation entered into force on April 1, 2006. Shopping hours outside of airports and railway stations remain regulated by cantonal laws.

One-fourth of the country's full-time workers are unionized. In general, labor/management relations are good, with a willingness on both sides to settle disputes by negotiations rather than by labor action. About 592 collective agreements exist today in Switzerland (Agriculture is about 5.2% unionized; manufacturing - 10.6%; construction - 77%; services - 26%) and are usually renewed without major problems. However, the mood is changing, and trade unions have complained that too little of the Swiss labor force is covered by collective agreements. Although days lost to strikes in Switzerland are among the lowest in the OECD, Swiss trade unions have encouraged workers to go on strike on several occasions in recent years. Several thousand construction workers went on strike in fall 2007 to complain about the unilateral termination of the industry labor agreement by the Swiss Building Association. Members struck on the grounds that member companies were not satisfied with the current wage agreement, because it did not provide the necessary flexibility for employers to change wage hours and adjust salaries based on performance. Trade unions report that checks of 5,000 companies made between January 2006 and June 2007 revealed that one in four firms was not paying the agreed minimum wage to its employees. In order to break the deadlock, the economic ministry appointed a former public servant who managed to reach a consensus with the trade unions in December. But in January 2008, industry members of the Swiss Building Association rejected the deal, saying it was difficult to implement. The failure to reach a consensus may impact the current political debate over the extension of the Swiss-EU agreement on the free movement of persons to Bulgaria and Romania in 2009. Trade unions have warned they will not support extension unless a deal is found in the construction sector.

At a general level, trade unions expressed satisfaction over the significant salary increases across major Swiss industries. Salaries increased on average by 0.7% in 2007 and by 2.5-3% in 2008.

Because of the global economic slowdown, the Federal Department of Economics announced in December 2008 new measures to enable certain industries (automobiles, steel and watches) to put their workers on leave during January or cut working hours. In December, the Department received 700 requests from companies willing to enroll in this program which is likely to cost SFr. 1 billion. The Swiss unemployment insurance program is committed to pay 80% of the lost working hours to the employees. The unemployment rate in Switzerland rose to 3.0 per cent in December 2008, up from 2.7 per cent in November, the highest level since March 2007. The absolute number of jobless rose by 11,110 to reach 118,762 in December, in part due to seasonal factors but also to the difficult global economic situation, which has cut Swiss exports.

The downturn came after a promising summer when unemployment was at its lowest level since 2002. The unemployment figure is expected to rise to 3.3 per cent in 2009 year and 4.3 per cent in 2010. All border cantons with neighboring EU countries suffer higher unemployment rates than the rest of Switzerland. Geneva reached 5.9%, double the Swiss average. Other cantons located at the heart of Switzerland enjoy a much better situation with rates around 1.1%. So far, workers aged 25-49 have been the hardest hit. By business sector, the metal industry is hardest hit (unemployment up +183.5% over last year), followed by banking (+30%) and construction (+9%).

Foreign-Trade Zones/Free Ports

Swiss international airports have stores offering duty free shopping. Private companies can utilize duty-free warehouses to import goods tax and duty-free into Switzerland as long as the goods are subsequently re-exported to third countries. In each of these examples, foreign-owned companies receive the same treatment as domestic firms.

Source: U.S. Department of State

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