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Foreign Direct Investment

According to UNCTAD's World Investment Report 2021, FDI inflows to Switzerland stood at USD -47 billion in 2020, compared to USD -79 billion in 2019. FDI flows thus remained negative for the third consecutive year. Although the country has built a strong industrial base in both the services and manufacturing sectors, resulting in a large stock of FDI (USD 1.5 trillion at the end of 2020), the recent negative values mainly reflect the pattern of a significant part of the country's annual flows. The chemicals and plastics category accounted for the bulk of investment in manufacturing due to takeovers of Swiss companies by foreign investors, while the services sectors suffered disinvestment from withdrawals in the case of finance and holding companies. Luxembourg and the Netherlands are by far the largest investors in Switzerland, accounting for more than half of total stock. The sectors holding most of the FDI stock are finance and holding (58.7%), trade, and chemicals and plastic industries. According to the latest data from OECD, in the first half of 2021 FDI flows to Switzerland stood at USD 5.4 billion, compared to disinvestment of USD 48.3 billion recorded in the same period one year earlier.

Switzerland is an attractive destination for foreign investors because of its economic and political stability, transparent and fair legal system, reliable and extensive infrastructure and efficient capital markets. Despite its attractiveness, FDI flows to Switzerland remain highly volatile due to the country's large exposure to international trade dynamics and political stability. Several Swiss cantons have used tax incentives to attract investment into their jurisdictions, including tax exemptions for new companies for up to ten years in some cases.  After criticism from the European Union, this practice was severely restricted: the Federal Act on Tax Reform and Swiss Pension System Financing (TRAF) now obliges cantons to offer the same corporate tax rates to both Swiss and foreign companies. Nevertheless, the law allows cantons to continue setting their own rates and to offer incentives for corporate investment through deductions and preferential tax treatment. The major laws regulating foreign investment in Switzerland are the Code of Obligations, the Lex Friedrich/Koller, and the Cartel Law. There is no screening of foreign investment; however, foreign investment controls do apply to certain industries and sectors (i.e banking, securities and real estate). The country ranks 36th out of 190 in the latest Doing Business report of the World Bank, gaining two spots compared to the previous edition. In the AT Kearney Foreign Direct Investment Confidence Index, Switzerland is ranked 10th in 2021.

 
 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) -68,313-79,077-47,172
FDI Stock (million USD) 1,418,4731,453,8971,536,254
Number of Greenfield Investments* 129115128
Value of Greenfield Investments (million USD) 2,2492,0483,010

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Switzerland OECD United States Germany
Index of Manager’s Responsibility** 5.0 5.3 9.0 5.0
Index of Shareholders’ Power*** 5.0 7.3 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Switzerland

Strong Points

Switzerland is the 36th country in terms of the ease of doing business according to the World Bank's annual report (Doing Business 2019). The main strengths of the Swiss economy include:

  • World-class infrastructure
  • Highly skilled workforce
  • Labour laws are less restrictive than in other European countries
  • Low unemployment rate
  • A legal and regulatory environment that is very attractive for companies and FDI
  • A strategic geographical location and excellent transport infrastructure that allows the country privileged access to European (West and East), African and Middle East markets
  • An excellent market for high-tech products and services and high-end products, making it an ideal pilot country for the introduction of new products
  • A major centre of research and development, offering excellent opportunities for partnerships and alliances (such as biotechnology and nanotechnology)
  • Political and social stability and close relations with the European Union
  • The country's relative political neutrality minimises the risks of tensions and economic sanctions that can slow down economic growth and attraction of FDI.
Weak Points

Disadvantages for FDI in Switzerland:

  • Switzerland has a relatively small economy, very open to international markets and landlocked, making it one of the most competitive markets in the world
  • The Swiss economy is highly dependent on trade, financial services and the presence of multinationals
  • Companies are also confronted with very strict regulations and standards (such as those related to the quality and packaging of products, drugs or cosmetics)
  • Overvaluation of the Swiss franc and bank secrecy (which can serve as an economic refuge) make the country sensitive to global economic affairs, thus attracting from time to time the eyes of the whole world and thus slowing FDI and other economic initiatives
  • Banks’ exposure to real estate (85% of domestic loans), with two institutions accounting for half of domestic assets.
Government Measures to Motivate or Restrict FDI
Switzerland is a country with a legal framework particularly favourable to foreign direct investment. The federal government allows all the 26 cantons (states) to set their own foreign investment attraction policies. Many cantons offer foreign investors tax exemptions and other tax incentives. For example some cantons offer ten years of tax exemption to new firms. Furthermore, there is no surveillance or screening done on foreign investments except in certain sectors like telecommunications where certain levels of performance are required in order to qualify for tax reductions. For companies working in the banking and insurance fields, government authorisation is required in order to invest in the country.
Following criticism from the European Union, a new law was passed in 2019 obliging cantons to offer the same corporate tax rates to both Swiss and foreign companies.

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Investment Opportunities

The Key Sectors of the National Economy
Travel & tourism, medical and security equipment, scientific and educational equipment & instruments, aircraft and automobile spare parts, electricity generation and distribution, information technology & telecommunications, agriculture, luxury, gastronomy, pharmaceuticals, medical technology.
High Potential Sectors
Bio- and nano- technology, IT & telecommunications, High-tech equipment, precision engineering, scientific instruments, blockchain and distributed ledger technologies.
Privatization Programmes
Privatisation programs have been carried on in sectors like railways, post office, telecommunication and energy (although often formerly public companies continue to dominate their markets). At the moment, the main operation of privatization is the one that involves the aerospace and defence company RUAG, which has been split in two at the beginning of 2020, with the part that includes non-armaments aviation and aerospace businesses to be fully privatized.
Tenders, Projects and Public Procurement
Simap, Public procurement
Tenders Info, Tenders in Switzerland
Ted - Tenders Electronic Daily, Business Opportunities in the European Union
DgMarket, Tenders Worldwide
 

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
Some formerly public Swiss monopolies continue to retain market dominance despite partial or full privatization, in markets such as telecommunications, certain types of public transportation, postal services, alcohol and spirits, aerospace and defence, certain types of insurances and banking services. Furthermore, the Swiss agricultural sector remains protected and heavily subsidized.
Sectors in Decline
Agriculture, where direct subsidy payments comprise two-thirds of an average farm’s profits. Moreover, recently negotiated trade agreements signed by Switzerland would open the national market to foreign agricultural products.
 

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