Steps to take when moving to Switzerland - Finance Valley Lake ...

Steps to take when moving to Switzerland
20 September 2011
© Kinetic Partners 2011

A move to Switzerland
1. Why Switzerland
– Introduction
– A competitive market to do business
– International comparison
2. Regulatory and tax considerations
– International regulatory overview
– Tax planning, sample from UK perspective
3. Practical considerations
– What not to forget & location selection
– Project management and how to succeed

About Kinetic Partners
• Global boutique Dedicated to the asset management, investment banking
and broking industry
• Offices London, Dublin, New York, Grand Cayman and Geneva
• Launched May 2005, with over 1,000 clients and 100 staff
• Services Structuring and taxation, audit, regulatory risk and
compliance, operational due diligence, corporate
finance and recovery, forensic and technology
• Expertise Provide ongoing compliance to over 180 hedge fund
managers, service over 30 of top 50 UK managers

Swiss financial market place
• Large amounts invested (country $4.5 trn, funds $684 bn)
• Those involved in asset management
– Banks - commercial & cantonal banks, private banks, foreign banks
– Fund of funds (30% global market share)
– Single manager hedge funds (5% global market share)
– Asset or personal wealth advisors (largest single group)
– Investment managers in other organisations (pensions, family office,
etc. and their advisors)
– Broker Dealers, Private Equity

Swiss Asset Manager Universe
Other; 686
VSV/ASG; 892
FINMA; 1108
OAR-G; 400
ARIF; 404
VSV/ASG
OAR-G
ARIF
OAR Suisse
SFA
FINMA
Other
OAR Suisse; 548
SFA; 86
Total = 4,124, excludes non regulated marketers, traders
N.B. Includes 400 banks and security dealers in the FINMA numbers

Switzerland geography

Swiss Commercial Property Market
Prime rates (CHF/sqm p.a.)
City 2007 2008 2009 2010
Basel 370 370 380 370
Bern 350 360 360 360
Geneva 850 900 880 860
Zurich 800 850 850 850
Source : Schofield & Partners S.A.

Competitiveness definition
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Competitive results
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Problematic factors for business
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Attractiveness – 2010 Mercer survey
Rank
2010
Rank
2009
City Country Index
2010
Index
2009
1 1 VIENNA AUSTRIA 108.6 108.6
2 2 ZURICH SWITZERLAND 108 108
3 3 GENEVA SWITZERLAND 107.9 107.9
4 4 VANCOUVER CANADA 107.4 107.4
5 5 AUCKLAND NEW ZEALAND 107.4 107.4
6 6 DUSSELDORF GERMANY 107.2 107.2
7 7 FRANKFURT GERMANY 107 106.8
8 8 MUNICH GERMANY 107 107
9 9 BERN SWITZERLAND 106.5 106.5
10 10 SYDNEY AUSTRALIA 106.3 106.3
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Quality of the educational system
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Pay and productivity
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Brain drain
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

Purchasing power parity
City
Price levels
Including rent
Net wage levels
Purchasing power : Net wage/cost of
a basket of goods
Zurich 105.5 149.1 110.5
Sydney 89.1 117.9 109.5
Los Angeles 72.7 92.3 104.7
Geneva 106.5 133.8 100.6
New York 100.0 100.0 100.0
London 82.5 84.7 84.9
Copenhagen 89.4 100.4 84.8
Stockholm 88.5 97.2 82.7
Tokyo 94.2 90.6 80.4
Oslo 108.9 104.8 75.4
Moscow 69.4 42.2 55.2
Hong Kong 76.5 44.3 53.8
Buenos Aires 38.5 19.1 36.4
Mexico City 44.3 12.0 20.4
Source: World Economic Forum, The Global Competitiveness Report 2010-2011
www.weforum.org

A move to Switzerland
1. Why Switzerland
– Introduction
– A competitive market to do business
– International comparison
2. Regulatory and tax considerations
– International regulatory overview
– Tax planning, sample from UK perspective
3. Practical considerations
– What not to forget & location selection
– Project management and how to succeed

International regulation
• Swiss Collective Investment Schemes Act revision
• European Union Directive on Alternative Investment Fund
Managers (AIFMD)
• Dodd-Frank (SEC registration)
• Foreign Account Tax Compliance Act (FATCA)
• Swiss tax treaties with Germany and UK
• …

AIFM Directive
• Sets out framework for European funds regulation within the
EU area and rules for distribution to EU investors; manager
focus
• Published in the official journal on 1 July 2011
• Two month ESMA consultation document on implementation
measures published on 13 July 2011
– Depositories (oversight, due diligence)
– AIFM operating requirements (governance, conduct etc.)
– AIF management requirments (valuation, liquidity, leverage)
– Risk management (limits, policies)
– Transparency
• Transposition to national law by 22.07.2013, third country
advice will be finalised by mid-Nov 2011
• „Passports‟ EU - 2013, third country - 2015

Swiss CISA Act partial revision
• Extends FINMA registration and regulation to include:
– Swiss collective investment schemes and those who manage, hold in
custody or distribute them
– People who manager distribute foreign collective investment schemes
in Switzerland or from Switzerland
– Foreign collective investment schems which are distributed in
Switzerland or from Switzerland to non-qualified investors
• Deadlines
– Consultation period to 7 October 2011
– Incorporation into Swiss law by 1 July 2012
– By 31.12.2012 asset managers of foreign collective investment
schemes must announce themselves to FINMA
– By 30.06.2013 Swiss domiciled asset managers of collective investment
schemes must request autorisation with FINMA

Dodd Frank SEC registration
• Registration of non-US managers by 30.03.12
• SEC yet to release final rules
• Preparation of documents, implementation of systems and
controls
• Exemptions from registration
– Foreign private advisors (no registration nor reporting)
• No US business;
• Less than $25m invested by US investors;
• Less than 15 US investors; and
• Does not hold out to the public as US asset manager.
– Exempt reporting advisors (reporting to SEC but not registered)
• Solely private funds and less than $150m in US
• Solely venture capital funds

FATCA
• From 30 June 2013, foreign financial institutions (“FFIs”), such as banks,
funds and nominees, to agree to identify accounts held by U.S. taxpayers,
or by non-financial foreign entities (“NFFEs”) in which U.S. taxpayers hold
a substantial ownership interest, and report to the IRS certain information
about those accounts
• Failure to do so will incur 30% withholding tax on payments of US-source
income from 1 January 2014
• FFIs will also have to deal with “passthru payments” of US-source income
payable to their own account holders
• FFIs include foreign subsidiaries of US financial institutions
• Plus: other reporting obligations for US persons

A move to Switzerland
• Why Switzerland
– Introduction
– A competitive market to do business
– International comparison
• Regulatory and tax considerations
– International regulatory overview
– Tax planning, sample from UK perspective
• Practical considerations
– What not to forget & location selection
– Project management and how to succeed

Tax - UK drivers for migration
• Push factors
– Increase in top personal income tax rate to 50%
– Personal allowance and tax relief on pension contribution clawbacks
– Changes to residency rules and erosion of non-dom privileges
– Handling of investigations into the industry
– Increasing quantity of anti-avoidance legislation (TOAA & DRR)
– IME (investment manager exemption) - transfer pricing & the potential to tax an
offshore fund in the UK
• Pull factors
– Other jurisdictions have infrastructure, investor base, cost/other benefits
– Other jurisdictions have significant tax advantages, e.g. level of income subject to
tax minimal and defined in advance rulings, low tax rates, no on-shore tax
implications for offshore fund product
– Switzerland forming clusters of fund managers in places like Pfäffikon around
Zurich and Geneva

Understanding what to migrate
• Consider existing structure and functions
– What are the commercial drivers
– A good structural fit
– Limit tax consequences across all jurisdictions
• Who does what where
– Investment management who actually trades/makes decisions
– Research, trade execution
– Marketing/investor support
– Risk management
– Other

Understanding where to migrate
• Switzerland
– If substantive operations, negotiated fee split with reference to transfer
pricing principles
– Taxable income negotiable with tax ruling possible
– Other taxes such as social security taxes, VAT, interest, withholding tax and
investment income etc. need to be considered in any comparison
– Personal tax negotiable with ruling, including tax free allowances, etc
– Good tax treaty network

A move to Switzerland
• Why Switzerland
– Introduction
– A competitive market to do business
– International comparison
• Issues
– Structuring considerations
– International regulatory background
– Tax issues, sample from UK perspective
• Practical considerations
– What not to forget & location selection
– Project management and how to succeed

Practical considerations
• Consider the profile of the individuals or families involved
– Schooling, work prospects for spouse
– Business and social network
– Style of life, pastimes and hobbies
• Short list of several locations
– Availability of offices and accommodation
– Tax considerations, international commuting
• Registration of the company in Switzerland
– Form of the company
– One resident member of the BoD
– Lease contract to negotiate (or buy)
– Work permits

A practical way to choose location
• What is important to the client
– What are the criteria
– How important are they – rate them
Criteria score
Weight
a. Staffing 10
b. Commercial property 9
c. Proximity of private banking community 8
d. Infrastructure 7
e. Quality of life 7
f. Corporate Taxation 7
g. Personal taxation 8
h. Costs and benefits 8

A practical way to choose location
• What are you comparing
– Select the comparative locations
– How well do they score – rate them
Criteria scores Geneva Lausanne Zurich Zug Schwyz
a. Staffing 9 9 9 8 8
b. Commercial property 8 8 8 7 9
c. Proximity of private bankers 9 7 8 6 6
d. Infrastructure 9 9 9 9 9
e. Quality of life 9 8 9 8 8
f. Corporate Taxation 7 8 8 10 10
g. Personal taxation 7 7 7 10 10
h. Costs and benefits 7 7 7 8 8

A practical way to choose location
• Weighted average scores
Weighted criteria score by location Geneva Lausanne Zurich Zug Schwyz
a. Staffing 90 90 90 80 80
b. Commercial property 72 72 72 63 81
c. Proximity of private bankers 72 56 64 48 48
d. Infrastructure 63 63 63 63 63
e. Quality of life 63 56 63 56 56
f. Corporate Taxation 49 56 56 70 70
g. Personal taxation 56 56 56 80 80
h. Costs and benefits 56 56 56 64 64
Total evaluation 521 505 520 524 542

Project Planning

How best to succeed
• Project
– Monitor and try and manage risk
– Obtain sponsorship or buy-in if a larger project
– Perform financial and tax planning
– Use professional help where you need it
• People
– Think about the location of the office
– Consult with staff and spouses where relevant
– Check for affordable accommodation and schooling
– Think about the cultural fit especially if a small group is moving