Transcript Switzerland Foreign Direct Investment Risk

Switzerland Foreign
Investment Risk
Assessment
Nicholas Brunner
Background
- Introduction
- Geography
- People and Society
- Government
Introduction
Famous for banking secrecy used for tax evasion by
foreigners
Peaceful Nation
FTA agreements with EU and 35 partners outside of the EU
Low Corporate Taxes
Stable and frequently traded currency
Modern Market Economy, 5th highest per capita GDP in the
world in 2011
Highly developed economy, led by financial services and
production of chemicals and pharmaceuticals
Geography
People and Society
Age Structure of Switzerland
0 - 14
15%
17%
15 - 24
12%
12%
24 - 54
55 - 64
44%
Data Source: CIA Fact Book
65 +
• Ethnic Groups:
German, French,
Italian, Romansch
and others
• Population: 7.9 million
• Population Growth
Rate: 0.85%
• Risk of aging
population
Government
Type: Similar to a
Federal Republic
Capital: Bern
Legal System:
Civil Law System
Judicial review of
Legislative acts
Federal Council elects
Chief of State for a one
year term
Political Risks
- Corporate Taxes
- Free Trade Agreements
- Legislative Protection
Corporate Taxes
Tax levied on federal and
cantonal/communal
levels.
Federal tax rate of 8.5%
on net income with
effective rate of 7.8%
Corporate losses may be
carried forward seven
fiscal years and counted
against any capital gains
or income
Business expenses are
deductible
Unrealized gains and
losses due to conversion
of financial statements
into Swiss Fran are
disregarded
Cantons compete for
foreign investment
through low tax rates.
“Ring Fencing”
Typical effective corporate
tax rate between 12% to
24%
Source: PwC
Source: PwC
Free Trade Agreements
European Free Trade
Association
FTA with the EU of 1972
26 FTA agreements with
35 partners outside of the
EU
Recent FTA with China
Numerous Declarations
on Cooperation
Legislative Protection
Strong protection of property rights
Minimum tolerance for corruption
Judicial System is independent and reliably enforces
contracts
Financial Risks
- Currency Risks
- Inflation Risks
- Economy
- Gross Domestic Product
- Current Account and Balance of Payments
- Government Credit Rating
Currency Risks
Reputation for being a safe haven during financial
uncertainty due to its reliability and stability.
Following fast appreciation of the Swiss Franc against the
Euro the Swiss National Bank abandoned the floating rate
system.
Set a price floor of 1.2000 CHF per Euro
SNB enforces price control through purchases of foreign
currencies
World’s biggest foreign exchange rate manager in 2012.
Foreign Currency reserves of over 461 Billion USD in
March 2013
Plan to return to a free floating exchange rate when
economic conditions improve within the region.
Source: Yahoo! Finance
Inflation Risks
SNB QE to prevent Swiss Franc appreciation to
combat deflation
Inflation, Consumer Prices (Annual Percentage)
3.00
2.43
2.50
2.00
1.54
1.50
1.17
0.99
1.00
1.06
0.80
0.64
0.73
0.64
0.70
0.50
0.23
0.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-0.50
Data Source: World Bank
-1.00
-0.48
2010
2011
CPI Percent Change
0.40%
0.30%
0.30%
0.23%
0.20%
0.20%
0.10%
0.03%
0.00%
0.00%
2012
Q2
Q3
Q4
2013 Q1
Jan
-0.27%
-0.27%
Feb
Mar
Apr
-0.10%
-0.20%
-0.26%
-0.30%
-0.40%
-0.50%
-0.60%
-0.70%
-0.60%
Data Source: World Bank
Economy
Unemployment May 2013 3.0% - Lowest among
OECD nations
5th highest nominal GDP per capita in the world
Largest sectors of the economy are financial services,
and manufacturing of chemicals, metals,
pharmaceuticals, and electronics
GDP Percent Change
5.0000
3.7516
4.0000
3.8457
3.6712
3.0337
3.0000
2.6950
2.4211
2.1643
1.9271
2.0000
1.3961
1.2432
1.0000
0.1854
0.0211
0.0000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-1.0000
-2.0000
-1.9368
Data Source: World Bank
-3.0000
Current Account Balance (BoP, current US$)
$80.00
$70.00
$60.00
Billions
$50.00
$40.00
$30.00
$20.00
$10.00
Data Source: World Bank
$0.00
2005
2006
2007
2008
2009
2010
2011
Swiss Credit Rating
Aaa Rating and a stable outlook by Moody’s
Three Key Drivers:
High financial strength and fiscal discipline.
High economic strength attributed to it’s open, highly
developed and diversified economy.
Resilience during global financial crisis and euro area
sovereign debt crisis.
Summarization
- Leading Factors
- Recommendation
Leading Factors
Peaceful Nation
Low corporate tax rates
Multilingual population
Numerous Free Trade
Agreements and
Declarations on
Cooperation
5th highest GDP per
capita
Protection of Intellectual
Property
Stable currency with
National Bank focused on
preventing appreciation
References
"CHF/EUR." . Yahoo! Finance. Web. 20 Jun 2013. <http://finance.yahoo.com/q?s=CHFEUR=X&ql=0>.
“CIA Fact Book: Switzerland.” CIA, 20 Jun 2013. <https://www.cia.gov/library/publications/the-world-factbook/geos/sz.html>.
Evans-Pritchard, A.. Web. 20 Jun 2013. <http://www.telegraph.co.uk/finance/currency/8745686/Switzerland-abandonsfloating-exchange-rate-in-dramatic-currency-war-twist.html>.
The Heritage Foundation. Web. 21 Jun 2013. <http://www.heritage.org/index/Country/Switzerland>.
The International Monetary Fund. Web. 19 Jun 2013, <http://elibrarydata.imf.org/FindDataReports.aspx?d=33061&e=170784>
KPMG, Web. 22 Jun 2013. <http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-ratestable.asp&xgt;.
"Switzerland: an excellent choice – from a tax and business point of view." . PricewaterhouseCoopers. Web. 23 Jun 2013.
<http://www.pwc.ch/user_content/editor/files/chall_adv/pwc_switzerland-an-excellent-choice_e.pdf>.
"Switzerland Highlights 2013." International Tax. Deloitte, n.d. Web. 23 Jun 2013. <http://www.deloitte.com/assets/Dcom-Global/Local
Assets/Documents/Tax/Taxation and Investment Guides/2013/dttl_tax_highlight_2013_Switzerland.pdf>.
"Switzerland's Investment Treaty Policy." . State Secretariat for Economic Affairs SECO, n.d. Web. 24 Jun 2013.
<http://www.seco.admin.ch/themen/00513/00594/04450/index.html?lang=en>.
"Switzerland: Top Choice for Foreign Investments." T Magazine. Ernst & Young, 20 Dec 2010. Web. 21 Jun 2013.
<http://tmagazine.ey.com/insights/switzerland-top-choice-for-foreign-investments/>.
The World Bank Group. Web. 20 Jun 2013. <http://data.worldbank.org/country/switzerland>.