Foreign direct investment (FDI) in Switzerland

FDI in Figures

According to UNCTAD's World Investment Report 2022, FDI inflows to Switzerland returned positive after three years in 2021 (at USD 1 billion), compared to a negative inflow of USD -162.7 billion one year earlier. In the same year, the total stock of FDIs stood at USD 1.36 trillion, around 168.6% of the country’s GDP. Of this total, 93% was equity capital and 7% was intragroup loans. In 2021, income from direct investment in Switzerland increased year-on-year by CHF 13 billion to CHF 86 billion (+18%) but remained below its pre-pandemic level (Swiss Central Bank). Broken down by country of immediate investor, a large proportion of domestic capital stocks was held by EU-domiciled entities: CHF 699 billion, or 66% of total foreign capital stocks in Switzerland. Of this total, CHF 544 billion was attributable to investors from the three largest European holding company locations – the Netherlands, Luxembourg and Ireland. The sectors holding most of the FDI stock are finance and holding (41.4%), wholesale and retail trade (19%), professional, scientific and technical activities (18.9%), and manufacturing (13.1% - OECD). According to the latest data from OECD, in the first half of 2022, FDI flows to Switzerland stood at USD 9.5 billion, compared to investments worth USD 19.4 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, FDI controls do apply to certain industries and sectors (i.e banking, securities and real estate). Furthermore, in 2022, the Swiss Federal Council initiated the consultation procedure on new legislation to screen foreign direct investment in Switzerland. The country ranks 3rd out of 82 in the Economist Business Environment ranking. In the AT Kearney Foreign Direct Investment Confidence Index, Switzerland is ranked 9th in 2022.

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 2020). 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.

Bilateral investment conventions signed by Switzerland

To see the list of investment treaties signed by Switzerland, consult UNCTAD's International Investment Agreements Navigator.