July 9, 2016

After Brexit, Switzerland is likely to grow as an European digital hub (www.br-news.ch)

Our contribution on www.br-news.ch:

The exit of the United Kingdom from the EU will make Switzerland an even more attractive European hub for digital multinationals. Indeed, up to now foreign e-commerce players have appreciated the advantage of the UK towards Switzerland in belonging to the EU Customs Union. If the UK leaves the single market – and it will depend upon the negotiations with the EU following “Brexit” – the free movement of people and of goods from and to the Land of Albion will be arguably hindered.

For sure, Switzerland is already a rather competitive business environment for digital players, from both a legal and tax standpoint. Indeed:

  1. Switzerland is already part of a Free Trade Agreement with the EU since 1972 which allows, at specific conditions, the setting aside of tariffs on imports and exports between the two areas. The EU is already Switzerland’s main trading partner, whereas Switzerland is part of the most important EU trading partners (4th; source: EU Trade Department). Switzerland is a very important partner of the EU for trade in services (particularly, for commercial services).
  2. Switzerland has already executed a Free Trade Agreement with China, effective as of July 2014. This is a competitive advantage against all the other European countries, as the EU has not reached yet any agreement with China to remove trade barriers.
  3. Switzerland holds very low Corporate Income Tax burden, albeit rates vary from canton to canton: they currently range from 11.48% to 24.43%. These rates are likely to be lowered even further by virtue of a tax reform in the process of being approved by the Swiss Parliament.
  4. Under the same tax reform, a Patent Box Regime will be introduced to incentivize activities of R&D undertaken by Swiss companies within the digital sector. This part of reform is likely to become effective in 2019.
  5. The main VAT rate on goods and services in Switzerland is among the lowest rates globally.
  6. Switzerland enjoys a withholding tax exemption on intra-European cross-border payments of dividends between same-group companies, when certain conditions are met, under a regime similar to that of the EU-Parent subsidiary.

All these features make the Swiss Confederation extremely suitable for foreign investments in the digital sector and the right place for multinational groups where to locate their headquarters for European activities. It will be interesting to see how Brexit will positively influence the current trend of international digital businesses deciding to invest in Switzerland

Alan Rhode