Investment Funds 2022 - Switzerland: Law & Practice Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner Pestalozzi Attorneys at Law Ltd.
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Definitive global law guides offering comparative analysis from top-ranked lawyers Investment Funds 2022 Switzerland: Law & Practice Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner Pestalozzi Attorneys at Law Ltd. practiceguides.chambers.com
SWITZERLAND
Law and Practice
Germany
France
Bern
Contributed by: Switzerland
Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner
Pestalozzi Attorneys at Law Ltd. see p.21
Italy
CONTENTS
1. Market Overview p.3
1.1 State of the Market p.3
2. Alternative Investment Funds p.4
2.1 Fund Formation p.4
2.2 Fund Investment p.8
2.3 Regulatory Environment p.8
2.4 Operational Requirements p.12
2.5 Fund Finance p.12
2.6 Tax Regime p.13
3. Retail Funds p.16
3.1 Fund Formation p.16
3.2 Fund Investment p.17
3.3 Regulatory Environment p.17
3.4 Operational Requirements p.18
3.5 Fund Finance p.18
3.6 Tax Regime p.19
4. Legal, Regulatory or Tax Changes p.19
4.1 Recent Developments and Proposals for
Reform p.19
2
SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
1. MARKET OVERVIEW largest share, accounting for nearly 46.17%,
followed by bond funds at around 29.91% and
1.1 State of the Market multi-asset funds at approximately 10.83%.
Switzerland as an Asset Management Hub
Switzerland has a high level of political stability The uptrend in the number of Swiss funds con-
combined with a reasonable legal and regulatory tinued in the third quarter of 2021. A total of
framework, moderate corporate tax rates and 1,858 funds incorporated under Swiss law were
a highly skilled labour force. Among European registered with FINMA, which is 93 more than
asset management hubs, Switzerland takes a at the end of September 2020. Of these prod-
leading position with respect to offering favoura- ucts, 22 were limited partnerships for collec-
ble conditions for the asset management indus- tive investments. As a result, the total number
try. Fund structures domiciled in Switzerland that of investment vehicles under Swiss law rose by
are available for alternative investments, how- 5.3%. This number includes both retail funds
ever, are often not a suitable alternative to well- and funds open to qualified investors only. In
established non-Swiss alternative investment contrast, more than 8,300 foreign funds were
fund (AIF) offshore locations such as Jersey, registered with FINMA for marketing in Switzer-
Guernsey or the Cayman Islands, or onshore land, predominantly undertakings for collective
locations such as Luxembourg and Ireland. investment in transferable securities (UCITS,
euro-compatible) and Swiss securities funds
With a long banking and finance tradition, Swit- equivalents.
zerland is also a leading light in the international
asset management industry. Within Switzerland, It is intended to further enhance the Swiss asset
the industry constitutes one of the main pillars management hub by introducing a new fund
of the country’s financial centre. One survey vehicle in 2023, the Limited Qualified Investor
of asset managers conducted in 2020 found Fund (L-QIF). The Federal Assembly passed the
that asset managers domiciled in Switzerland bill in the final votes on 17 December 2021, and
no longer see regulation as the most pressing the revised law is expected to enter into force
challenge. Specialisation and sustainable invest- in the 2nd quarter of 2023. The L-QIF is neither
ments are still evaluated as the most promising subject to approval nor supervised by FINMA.
opportunities. However, it is only open to qualified investors
and must be managed by an institution that is
Swiss Funds Market in 2021 approved and supervised by FINMA, typically a
The Swiss funds market had a total volume fund management company (administration and
of around CHF1,476.88 billion at the end of portfolio management). Hence, there will only be
September 2021, representing an increase of indirect supervision by FINMA.
CHF227.67 billion or 18.23% since the end of
September 2020. These figures are based on
Swiss fund market statistics and the approv-
als list of funds of the Swiss Financial Market
Supervisory Authority (FINMA), and include
funds incorporated under Swiss law as well as
foreign funds approved for marketing in Switzer-
land, including institutional unit classes. Broken
down by asset class, equity funds still have the
3
Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
2 . A LT E R N AT I V E domiciled AIFs are typically structured as fund of
INVESTMENT FUNDS funds in the form of open-ended funds, as either:
2.1 Fund Formation • contractual investment funds (FCPs) with no
legal personality; or
2.1.1 Fund Structures • corporate funds in the form of an investment
Legal Framework company with variable capital (SICAV) in the
The key statutes and implementing ordinances category of “other funds for alternative invest-
governing the establishment and operation of ments”.
AIFs and their managers are as follows:
“Other funds for alternative investments” include
• the Swiss Collective Investment Schemes Act open-ended collective investment schemes
(CISA); whose investments, structure, investment tech-
• the Swiss Collective Investment Schemes niques (short selling, borrowing of funds, etc)
Ordinance (CISO); and investment restrictions exhibit a risk pro-
• the Swiss Collective Investment Schemes file that is typical for alternative investments.
Ordinance of the Swiss Financial Market Both FCPs and SICAVs are subject to the same
Supervisory Authority (CISO-FINMA); and investment rules.
• the Swiss Ordinance of FINMA on Bankruptcy
of Collective Investment Schemes (CISBO- Reference to the special risks involved in AIFs
FINMA). must be made in the fund name, and in the pro-
spectus and marketing material. The prospec-
In addition, the following legislation sets out the tus must be offered free of charge to interested
legal framework for financial institutions acting persons prior to an agreement being concluded
as fund management companies and investment or prior to subscription. FINMA may allow trans-
managers of AIFs and their assets: action-related settlement services of a directly
investing other fund for alternative investments
• the Swiss Financial Institutions Act (FinIA); to be provided by a regulated institution spe-
• the Swiss Financial Institutions Ordinance cialising in such transactions (prime broker). It
(FinIO); and may specify which monitoring functions must be
• the Swiss Financial Institution Ordinance undertaken by the fund management company
FINMA (FinIO-FINMA). and the SICAV.
Finally, sales of financial instruments including Swiss investment fund regulation does not pro-
AIFs to clients in Switzerland are governed by: vide for additional vehicles specifically designed
for AIFs. In practice, however, the Swiss fund
• the Swiss Financial Services Act (FinSA); and structures available for alternative investments
• the Swiss Financial Services Ordinance are often no suitable alternative to well-estab-
(FinSO). lished non-Swiss AIF offshore locations such
as Jersey, Guernsey or the Cayman Islands,
Open-Ended Funds which provide for more flexibility as to the pos-
There are two forms of regulated Swiss open- sible investments, leveraging and customisation.
ended collective investment schemes. Swiss- Popular European onshore locations for AIFs
include Luxembourg and Ireland.
4SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
It is expected that open-ended collective invest- ber being the general partner and therefore sub-
ment schemes can be set up in the form of ject to unlimited liability for the commitments of
L-QIFs in accordance with the CISA, as of 1 Jan- the Swiss LP. This general partner must be a
uary 2023. Such L-QIF (as either FCP or SICAV) Swiss company limited by shares and can be
would only be available to qualified investors, appointed as a general partner of one Swiss LP
and would be subject to indirect supervision. only. The minimum share capital requirement for
the general partner is CHF100,000. However, no
Closed-Ended Funds capital requirements apply to the Swiss LP. The
As provided by CISA, Swiss-domiciled AIFs can investors in the Swiss LP are the limited part-
also be structured as a limited partnership for ners, and are only liable for a specific amount.
collective investment schemes (Swiss LP) or a Only qualified investors as defined in CISA are
company with fixed capital (SICAF). eligible to invest in the Swiss LP. The Swiss LP
is a structure regulated by FINMA, so Swiss LPs
SICAF must obtain a FINMA licence and are subject to
A regulated SICAF is a Swiss company limited ongoing prudential supervision by FINMA. There
by shares whose corporate purpose is limited are currently approximately 20 Swiss LPs regis-
to the investment and management of its own tered with FINMA.
assets, with no entrepreneurial activity. However,
as the regulatory framework provided by CISA It is expected that closed-ended collective
is rather limited, the SICAF is substantially gov- investment schemes can be set up in the form
erned by the Swiss Code of Obligations. SICAFs of L-QIFs in accordance with the CISA, in the
have no practical relevance in Switzerland as second quarter of 2023. Such L-QIF (only in
Swiss limited companies are not subject to CISA the form of Swiss LP) would only be available
and are therefore not regulated by FINMA if their to qualified investors and would be subject to
shares are listed on a stock exchange or if their indirect supervision.
shareholders are exclusively qualified investors
as defined by CISA and only registered shares Unregulated Investment Companies
are issued. Unregulated investment companies are very
popular as they are suitable for investments
Investment companies benefit from this safe in alternative asset classes. Specifically, these
harbour (see Unregulated Investment Compa- companies are subject to the Swiss Code of
nies below). As a result, no SICAF is currently Obligations only and are not within the scope of
registered with FINMA and subject to prudential CISA if the shares of the investment company
supervision by it. are listed on a Swiss stock exchange, or if only
registered shares are issued and the investment
Swiss LP is restricted to qualified investors.
The Swiss LP has been introduced not only for
alternative investments but also for private equity If these conditions are not met, the investment
investments, real estate, construction and infra- company falls within the scope of the (regulated)
structure projects. The sole purpose of a Swiss SICAF, as described above. Unregulated invest-
LP is collective investment, and it conducts ment companies domiciled in Switzerland are
investments in risk capital under rather flexible popular for investments in private equity, hedge
investment guidelines. A Swiss LP requires a funds, venture capital and real estate vehicles.
partnership agreement, with at least one mem-
5Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
2.1.2 Common Process for Setting Up pany law rules under the Swiss Code of Obliga-
Investment Funds tions. The only exception relates to corporation
Licensing Requirements formation rules pertaining to contributions in
All Swiss AIFs require a licence from FINMA, kind, acquisitions in kind and particular advan-
regardless of their organisational structure or the tages, as CISA governs those situations specifi-
type of investors. Subject to limited de minimis cally. To establish a SICAV, an act of incorpora-
exemptions provided in FinIA for asset managers tion in the form of a public deed is required. The
of collective investment schemes, asset manag- deed must include the articles of incorporation
ers of AIFs must obtain a FINMA licence as the and the investment guidelines. In addition, the
manager of collective assets prior to engaging in officers of the SICAV must be appointed upon
asset management activities for AIFs. The length the incorporation of the SICAV. SICAVs may del-
of the FINMA authorisation and approval pro- egate management to a third party, which must
cess largely depends on the complexity of the be a fund management company subject to pru-
fund, including its investment policy, investment dential supervision by FINMA.
techniques, etc, as well as the current workload
of FINMA. As a rule of thumb, FINMA seeks to Closed-Ended Funds
approve AIFs that are open to all investors within Both the Swiss LP and the SICAF require FIN-
two months and AIFs that are only open to quali- MA authorisation, and their limited partnership
fied investors within one month from the date agreement (for LPs) and the articles of incorpo-
it receives a complete filing. However, it is not ration and investment regulations (for SICAFs)
unusual for FINMA approval processes to take require FINMA approval.
up to six months in practice.
SICAF
Open-Ended Funds The rules of the Swiss Code of Obligations
FCPs apply for the establishment of a SICAF, which
FCPs are established by a tri-party fund con- itself must obtain a FINMA licence confirming
tract between the investors, the fund manage- that its international organisation is appropriate
ment company and the custodian bank. The according to CISA. Also, the articles of incorpo-
fund management company and the custodian ration and the investment guidelines are subject
bank must be authorised by FINMA, and the to review regarding their compliance with the
fund contract – with the consent of the custodian applicable law and must be approved by FINMA.
bank – requires FINMA approval. Under the fund Currently, there are no SICAFs registered with
contract, the fund management company under- FINMA.
takes to manage the assets of the fund indepen-
dently and in its own name, in accordance with Swiss LP
the fund contract. It is further obliged to ensure The establishment of a Swiss LP, for the most
that the investors participate in the investments part, takes place according to the company law
proportionally to their assets. rules on ordinary limited partnerships as provid-
ed in the Swiss Code of Obligations. The gen-
SICAVs eral partner must be a Swiss corporation and
FINMA must authorise all SICAVs and approve can only act in such capacity for one Swiss LP,
their articles of incorporation and investment unless it holds a FINMA licence as a manager
regulations. The establishment of a SICAV, for of collective assets. Only qualified investors are
the most part, takes place according to com- eligible to invest in a Swiss LP.
6SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
Unregulated Investment Companies Any fund that may be offered to retail inves-
CISA provides that an investment company tors requires a key information document (KID)
organised as a company limited by shares is not for investors. The minimum information to be
within the scope of CISA, provided that it has included is set out in FinSO.
qualified investors and registered shares only,
or that its shares are listed on a Swiss stock Closed-ended funds
exchange. To establish an unregulated invest- Swiss LPs must issue a prospectus including
ment company, the ordinary process to form the partnership agreement, which is subject to
and register a corporation pursuant to the rules FINMA approval. The SICAF must issue a pro-
of the Swiss Code of Obligations is followed. spectus as well, including the articles of incorpo-
The articles of incorporation must provide that ration and the fund regulations. Currently, there
only qualified investors can become sharehold- are no SICAFs registered with FINMA.
ers. No regulatory licensing process or approval
will be required in connection with setting up an Foreign funds
unregulated investment company. Foreign AIFs not approved by FINMA for mar-
keting to retail investors can only be marketed
2.1.3 Limited Liability to qualified investors in Switzerland. For further
Liability Limitations details, please see 2.3.5 Rules Concerning
Investors are only liable for their investment in Marketing of Alternative Funds.
a Swiss open-ended AIF. Funds and SICAVs
may be structured as umbrella funds with vari- Reporting Requirements
ous sub-funds. In such cases, investors are only Open-ended collective investment schemes and
entitled to the income and assets of the sub- Swiss LPs must maintain accounts and publish
fund in which they are invested, and each sub- an annual and semi-annual report. The annual
fund is only liable for its own liabilities. report must be published within four months
after the end of the financial year and must
With respect to a closed-ended Swiss LP, the include the following:
general partner’s liability is not limited, while the
limited partners are only liable for their invest- • financial statements;
ment. With respect to a SICAF, the shares are • information on the number of shares/units
those of a typical corporation. Hence, investors issued and redeemed during the financial
are only liable for full payment of their invest- year as well as the total number of shares/
ment. units outstanding;
• an inventory of the fund’s assets at market
2.1.4 Disclosure Requirements value;
Prospectus Requirements • valuation principles;
Open-ended funds • a breakdown of buy and sell transactions;
Open-ended AIFs including FCPs and SICAVs, and
respectively, must issue a prospectus with infor- • the performance of the open-ended collective
mation on the investment policy, the investment investment scheme (possibly benchmarked
techniques including leverage and short sell- against comparable investments).
ing, and information on the maximum level of
management fees. Furthermore, the prospectus The report should also include information on
must include the fund regulations. matters of particular economic or legal impor-
7Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
tance, such as amendments to regulations, 2.2.2 Legal Structures Used by Fund
change of manager, custodian bank, directors Managers
or officers, and legal disputes. Please see 2.1.1 Fund Structures for Swiss-
domiciled fund structures.
The semi-annual report must be published with-
in two months after the end of the first half of 2.2.3 Restrictions on Investors
the financial year. Among other things, it must There are no restrictions per se on local investors
include unaudited financial statements, informa- investing in Swiss AIFs. However, certain finan-
tion on shares/units issued and redeemed dur- cial institutions and other qualified investors,
ing that period and the number of shares/units such as pension funds and insurance compa-
outstanding, the inventory of the fund’s asset at nies, are only allowed to invest a certain amount
market value and a breakdown of buy and sell of their net assets in AIFs. In particular, pension
transactions. funds can invest directly in AIFs if they are spe-
cifically mentioned by the investment regulations
Upon request, open-ended AIFs or their manag- and if they comply with the general principles for
ers must provide information regarding the basis safe and diversified asset management.
of the calculation of the net asset value per unit.
Investors may also require further information on 2.3 Regulatory Environment
a specific transaction, including the exercise of
voting rights, creditors’ rights or risk manage- 2.3.1 Regulatory Regime
ment. Among open-ended collective investment
schemes, open-ended AIFs offer the broadest
Investment companies not subject to CISA must range of investments and strategies. In particu-
observe the general rules on financial reporting. lar, they are specifically designed to carry out
investments that have only limited marketability,
Foreign AIFs have no specific reporting obliga- are subject to strong price fluctuations, exhibit
tions in Switzerland as they do not need to be limited risk diversifications or may be difficult to
approved by FINMA for marketing in Switzer- value. They may engage in short selling and bor-
land. This is different for foreign retail funds. row funds.
2.2 Fund Investment Specifically, open-ended AIFs may invest in the
following:
2.2.1 Types of Investors in Alternative Funds
Due to the high number of sophisticated inves- • securities;
tors, there is significant appetite for AIFs in • units in collective investment schemes;
Switzerland. The market consists mainly of • money market instruments;
institutional investors, including private and • sight and time deposits with a maturity of up
public pension funds, insurance companies, to 12 months;
family offices and financial intermediaries, which • precious metals;
invest on behalf of their clients in Switzerland • derivative financial instruments whose under-
and abroad. There is also a significant number lying assets are securities, collective invest-
of high net worth individuals who invest into AIFs ment schemes, money market instruments,
directly, or through their family office. derivative financial instruments, indices,
interest rates, exchange rates, loans, curren-
8SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
cies, precious metals, commodities or similar 2.3.2 Requirements for Non-local Service
instruments; and Providers
• structured products. The fund management company, SICAV, Swiss
LP, SICAF and investment manager of a fund
FINMA can also authorise other investments, domiciled in Switzerland must be subject to
including commodities and commodity certifi- prudential supervision by FINMA and hold the
cates, if mentioned by the investment regula- pertinent licence. Only a Swiss-domiciled bank
tions. AIFs are subject to lower restrictions than subject to prudential supervision by FINMA can
funds for traditional investments, which means act as the custodian bank of a Swiss-domiciled
that: fund.
• loans can be raised for an amount up to 50% While Switzerland needs to be the effective place
of the fund’s net assets; of management for Swiss funds, certain func-
• up to 100% of the fund’s net assets can serve tions can be delegated to third parties, both in
as collateral; Switzerland and abroad, if they have the required
• overall exposure can be up to 600% of the capability, knowledge, experience and licences.
fund’s net assets; and
• they can engage in short selling. 2.3.3 Local Regulatory Requirements for Non-
local Managers
Swiss LPs can invest in risk capital, including Non-Swiss domiciled managers cannot man-
private equity, debt and hybrid forms. They can age funds domiciled in Switzerland because the
also engage in construction, real estate and effective place of management needs to be in
infrastructure projects, as well as alternative Switzerland (please see 2.3.2 Requirements for
investments in general. They can take control Non-local Service Providers).
of companies and have a board seat with these
companies to safeguard the interests of the lim- 2.3.4 Regulatory Approval Process
ited partners. Please see 2.1.2 Common Process for Setting
Up Investment Funds.
Swiss AIFs must comply with the general invest-
ment restrictions as set out for the pertinent 2.3.5 Rules Concerning Marketing of
type of collective investment scheme. They can Alternative Funds
enter into derivative transactions if the econom- New Regulatory Regime – Duties under FinSA
ic effects of using derivatives do not result in a FinSA and its implementing ordinance FinSO
breach of the investment objectives as outlined entered into force on 1 January 2020. Under
in the fund regulations and the prospectus. FinSA, regulatory duties in connection with
the marketing of AIFs to clients in Switzerland
Restrictions to certain assets including residen- include the following:
tial real estate in Switzerland, banks, financial
institutions and other industries may apply but • a duty to register the individuals who actually
are not driven by fund regulation. perform financial services on behalf of the
(foreign) financial service provider in a new
register of client advisers (client advisers of
foreign financial service providers, however,
are exempt from the duty to register under
9Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
the condition that the foreign financial service any other action that specifically targets the pur-
provider is subject to prudential supervi- chase or sale of a financial instrument.
sion and limits its financial services to per
se professional and/or institutional clients in To be characterised as a financial service, con-
Switzerland); tact with an “end investor” is a prerequisite. The
• all financial service providers active in Swit- provision of information on financial instruments
zerland, including those marketing funds, to supervised financial intermediaries is gener-
must join an ombudsman office, unless they ally not regarded as a financial service under the
are targeting per se professional and/or insti- new law.
tutional clients only in Switzerland;
• a duty to categorise clients into private Whether roadshows are considered as a finan-
clients, professional clients and institutional cial service depends on the specific circum-
clients (see 2.3.7 Investor Protection Rules stances. Given that an activity is only deemed
for the investor categories); to constitute a financial service if potential end
• a duty to comply with expanded conduct investors are addressed directly (ie, specifically
rules; and targeting the acquisition or disposal of a spe-
• a duty to comply with certain organisational cific financial instrument by a client), roadshows
requirements, including by disclosing or will – in many cases – not be characterised as
passing on fees, commissions and other a financial service in the sense of FinSA and its
remuneration or financial benefits received by implementing ordinance FinSO. In certain cases,
financial service providers from third parties however, it cannot be excluded that roadshows
in connection with the provision of financial will constitute an offer or at least an advertise-
services, except where waived. ment in the sense of FinSA/FinSO.
Furthermore, the entry into force of the FinSA and Consequences
the revised CISA necessitated changes to the If the offer of units in a collective investment
self-regulation material published by the Asset scheme is made to per se professional and/or
Management Association Switzerland (AMAS). institutional clients only, the foreign collective
For example, AMAS updated the code of con- investment scheme no longer needs to appoint a
duct, the guidelines for real estate funds and the Swiss representative and paying agent. Howev-
model distribution agreement. The changes or er, this exemption does not cover high net worth
revisions entered into force on 1 January 2022. retail clients and private investment structures
created for them that have declared that they
Fund Distribution as a Financial Service wish to be treated as professional clients in the
From a fund perspective, many circumstances sense of FinSA, as clients that opt out do not
of a former fund distribution under CISA are qualify as qualified investors per se. If they are
deemed to be a “financial service” pursuant to being approached as part of the offering, it is still
FinSA. The terms “purchase” and “sale” of finan- necessary to appoint a Swiss representative and
cial instruments pursuant to FinSA go beyond paying agent.
circumstances in which there is an effective
purchase or sale of a financial instrument. The Offer versus Financial Service
new regulatory concept has a broad definition Pursuant to FinSA, an offer is “any invitation
and also includes any related activity, such as to acquire a financial instrument that contains
sufficient information on the terms of the offer
10SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
and the financial instrument itself.” According Closed-ended Swiss LPs and unregulated
to FinSO, it must be “customarily intended to investment companies can only be marketed to
draw attention to a certain financial instrument qualified investors, regardless of their investment
and to sell it.” strategy. However, the shares of an investment
company that are listed on a Swiss exchange
Certain scenarios do not constitute an offer in can be made available to non-qualified investors
the sense of FinSA. Besides the clarification with without triggering a licence obligation.
respect to making factual information available
and the mention by name of certain financial For further details, see 2.3.5 Rules Concerning
instruments, the most important clarification Marketing of Alternative Funds.
is the new specification in FinSO that making
information available at the specific request or 2.3.7 Investor Protection Rules
initiative of the client without prior advertisement In order to protect unsophisticated investors,
does not constitute an offer. many Swiss and foreign funds are limited to
qualified investors. Pursuant to CISA, qualified
Unlike the term “financial service”, which triggers investors include professional and institutional
the point-of-sale-related duties including con- clients pursuant to FinSA. Qualified investors in
duct and organisational rules and the require- the sense of CISA also include retail clients for
ment for registration in the register for advisers, whom a financial intermediary in accordance
the characterisation as an offer is mainly relevant with FinSA or a foreign financial intermediary
for the requirement to publish a prospectus and that is subject to equivalent prudential supervi-
a KID, and with respect to fund-specific duties. sion provides portfolio management or invest-
Most importantly, a foreign collective investment ment advice in accordance with FinSA within the
scheme only needs approval if it is offered to scope of a permanent portfolio management or
non-qualified investors in the meaning of CISA. investment advisory relationship, provided they
The same applies essentially with respect to have not declared that they do not wish to be
the requirement for a representative and paying treated as such (together, QI CISA).
agent when a financial product is to be offered
to investors other than per se qualified investors. Specifically, QI CISA include the following:
Transitional Period • financial intermediaries as defined in the
With the transitional provisions of FinSO, the Banking Act, FinIA and CISA;
effective date of practically all new FinSA require- • insurance companies as defined in the Insur-
ments was postponed until 1 January 2022. ance Act;
• foreign clients subject to prudential supervi-
As a result, the new regulatory regime regarding sion as per the two preceding points;
the distribution or offering of collective invest- • central banks;
ment schemes has applied since 1 January • public entities with professional treasury
2022. operations;
• occupational pension schemes with profes-
2.3.6 Marketing of Alternative Funds sional treasury operations and other occupa-
Open-ended Swiss AIFs can generally be mar- tional pension institutions providing profes-
keted to all types of investors but it is permitted sional treasury operations;
to restrict them to qualified investors only.
11Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
• companies with professional treasury opera- The protection of assets is addressed separately
tions; by the requirement to appoint a custodian bank,
• private investment structures with profes- which must be a licensed Swiss bank for open-
sional treasury operations created for high net ended AIFs and SICAFs. In addition to the bank-
worth retail clients; ing licence, the organisation must be adapted to
• national and supranational public entities with the purpose of acting as a custodian bank. Its
professional treasury operations; role is not limited to the custody of assets: it is
• large companies exceeding two of the follow- also responsible for the payment flows as well as
ing parameters: the issuance and redemption of fund interests,
(a) a balance sheet total of CHF20 million; and it is further entrusted with control functions
(b) a turnover of CHF40 million; or pertaining to the compliance of the fund man-
(c) equity of CHF2 million; agement company with its legal obligations.
• high net worth retail clients and private
investment structures created for them that 2.5 Fund Finance
have declared that they wish to be treated In contrast to other jurisdictions such as the USA
as professional clients in the sense of FinSA or the UK, the Swiss fund finance market is still
(opting out); and immature and in its infancy. However, borrow-
• Swiss and foreign collective investment ings by AIFs from non-bank lenders and bank
schemes and their management companies lenders are permissible, and demand for fund
that are not already deemed to be institutional financing is on the rise in Switzerland. Subject
clients within the meaning of Art. 4 para. 3 lit. to certain regulatory restrictions, regulated AIFs
a or c FinSA in conjunction with Art. 4 para. 4 may take out loans under different types of credit
FinSA that have declared that they wish to be facilities agreements (be it a subscription line
treated as institutional clients. facility, an asset-backed fund finance facility or
a hybrid facility form) to finance their investment
QI CISA under the first four categories above purposes or strategy.
and national and supranational public entities
with professional treasury operations qualify as Limits on Financing Transactions
“institutional clients” in the sense of FinSA. (Regulated) AIFs must observe the regulatory
limitation on leverage set by the Federal Council,
2.3.8 Approach of the Regulator particularly when negotiating and entering into
Collaboration with FINMA is considered to be facility agreements as well as financing-related
positive and helpful, also in connection with new security and pledge agreements. The law only
technologies. The authority is generally willing permits leverage up to a certain percentage ratio
to discuss regulatory questions and projects on of the fund’s net assets. Currently, the limits for
an informal basis as well. In addition, licensing financing transactions related to the main types
proceedings now take less time than in the past. of regulated investment funds with an alternative
investment strategy include the following:
2.4 Operational Requirements
The restrictions on AIFs mostly concern the eli- • “alternative investment funds as such” may
gible investor type, as well as the investments take out loans for an amount not exceed-
and investment technique limitations provided ing 50% of the fund’s net assets; they may
for each of the categories. For more information, pledge or transfer as collateral up to a maxi-
please see 2.3.1 Regulatory Regime. mum of 100% of the fund’s net assets and
12SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
may commit to an overall exposure of up to fund documentation allows for subscription line
600% of the fund’s net assets; facilities, the security package may also include
• “alternative investment funds specialising in a pledge over the claims and rights against
real estate investments” may take out loans; the investors related to their unfunded capital
however, to secure their liabilities, they must commitments as well as the pledge over the
maintain an adequate proportion of the fund’s respective bank account. Nevertheless, the lat-
assets in short-term fixed-interest securi- ter seems to be not as common as in other juris-
ties or in funds available at short notice. For dictions, since there seem to be more regulatory
example, funds available at short notice are hurdles in Switzerland that need to be assessed
cash positions or bank account deposits at and addressed on a case-by-case basis if a
sight and on demand with maturities of up regulated alternative investment fund intends to
to 12 months, as well as guaranteed credit enter into a financing transaction.
facilities with a bank for up to 10% of the
fund’s net assets. The credit facilities must 2.6 Tax Regime
be included in the maximum level of encum- Cross-Border Offering of Financial Services
brance permitted by law – ie, the encum- into Switzerland
brance may not exceed on average one-third As long as they do not involve maintaining a
of the market value of all real estate assets of physical presence in Switzerland, the activities
the investment fund; and performed by a non-resident service provider
• “other funds for traditional investments” may from abroad should not create liability for Swiss
take out loans for an amount not exceeding income tax on the part of the service provider.
25% of the fund’s net assets. They may only The same holds true for Swiss securities trans-
pledge or transfer as collateral up to 60% fer tax and Swiss VAT, provided, in the case of
of the fund’s net assets and commit to an the latter, that the service does not qualify as
overall exposure of up to 225% of the fund’s a (taxable) “electronic service” to a customer
net assets. in Switzerland who does not hold a Swiss VAT
number. Should employees of the service pro-
FINMA may regulate any details, allow the trans- vider constantly travel to Switzerland for busi-
action-related services to be provided by a regu- ness (eg, meetings with prospects or customers)
lated institution specialising in such transactions or should the service provider have employees
(prime broker) and/or grant exemptions on a living in Switzerland, a Swiss tax (and regulatory)
case-by-case basis in relation to the restrictions exposure may result.
(but also the permitted investments, the invest-
ment techniques and the risk diversification). Fund Taxation: General
Swiss tax law does not distinguish between
Structure of Securities alternative versus retail or non-retail funds but
The structuring of the security package depends looks at whether the fund is closed-ended or
on the type of financing transactions in which an open-ended and what the legal form of the fund
AIF is involved. For example, there have been is. Special tax rules apply to funds that directly
transactions in which the fund management hold real estate investments.
pledged its compensation claims vis-à-vis the
fund in favour of the lender, the compensation
of which had to be paid into a bank account
opened with the lending bank. Provided that the
13Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
Application of Swiss Fund Tax Rules to is treated as being either transparent or opaque
Foreign Investment Funds for Swiss corporate income tax purposes. If the
The Swiss tax treatment of foreign collective collective investment scheme is transparent for
investment schemes follows the tax treatment Swiss tax purposes, then it cannot constitute a
(as described below) of the Swiss scheme with taxable entity for Swiss corporate income tax.
the closest resemblance in terms of legal form
and supervision. For an investment vehicle to be Swiss FCPs, SICAVs and LPs are fiscally trans-
recognised as a “collective investment fund” for parent, and their income is directly attributed to
Swiss tax purposes, one of the following tests the investors, so the fund is not taxed on the
must be met: income. By way of exception, funds that directly
hold real estate are liable to income tax for the
• FINMA has granted a licence for the distribu- income from such real estate, while under Swiss
tion of units of the fund in Switzerland; tax law that income is exempt from tax in the
• the investment fund is under the supervision hands of the fund investor.
of a recognised financial regulator; or
• the investment fund’s purpose of offering SICAFs are always fiscally opaque entities (ie,
opportunities for collective investment (see subject to corporate income tax like corpora-
below) holds true. tions), and income distributed to the fund inves-
tor is taxable in the hands of the fund investor
If an investment vehicle’s purpose is to offer (if the fund investor is liable to taxation in Swit-
opportunities for collective investment, the zerland).
Swiss tax authorities examine the following in
particular: Swiss Income Taxation of Investors
Swiss tax law distinguishes between private
• whether the investment vehicle has been cre- assets and business assets.
ated for a limited period of time;
• if there is “third-party management” in place For individual investors liable to income taxa-
– ie, the investor has no or very limited rights tion in Switzerland and holding the fund units as
to exercise power over the entity’s investment private assets, the income earned by transpar-
management; ent funds, whether distributed or not, is gener-
• whether an offering memorandum exists; ally subject to ordinary income tax at the level
• if reporting is carried out in a way similar to of the investors. To the extent the fund income
reporting for regulated collective investment is derived from qualifying capital gains, it is
schemes; and tax-exempt if disclosed separately in the fund
• whether the investment vehicle has/uses bod- accounts or distributed by a separate coupon.
ies typical for collective investment schemes, The profits from direct (Swiss or foreign) real
such as an investment manager, a custodian estate investments by the funds are also tax-
bank, etc. exempt in the hands of the investor. Qualifying
capital gains realised upon the sale of units in a
Swiss Income Taxation of Funds collective investment scheme are tax-exempt.
Depending on the type of collective investment
scheme (eg, whether the fund is open-ended Individuals holding the fund units as business
or closed-ended, and depending on its legal assets and legal entities, if liable to income taxa-
form), a (foreign) collective investment scheme tion in Switzerland, are subject to income tax
14SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
for any income realised by a transparent fund, poses, the net income (except qualifying capital
excluding direct (Swiss or foreign) real estate gains and income from directly held real estate)
income. earned by a transparent Swiss fund is gener-
ally subject to Swiss withholding tax at 35%,
Distributions from a SICAF to investors liable whether distributed or retained. In the case of
for income taxation in Switzerland are subject a SICAF, only actual distributions are subject to
to income taxes in the same way as for divi- withholding tax.
dends paid by any corporation. For qualifying
participations, income tax relief may apply for In order for a foreign (ie, “non-Swiss”) invest-
individual investors, or participation relief for cor- ment fund not to become subject to Swiss tax
porate investors. withholding obligations, the following three cri-
teria must be met:
Swiss Fund Reporting for Investor Income
Taxation • the majority of the board members must be
In order for an investor to be able to benefit from resident outside of Switzerland, whereby the
the Swiss income tax exemptions for qualify- board in its entirety actually assumes a true
ing fund income items, it must be possible for control function (regarding management and
the Swiss tax authorities to distinguish taxable legal compliance), which it actually exercises
income items from tax-exempt income items. at the meetings;
Financial products that do not enable a distinc- • all board meetings must be held outside of
tion between taxable income and tax-exempt Switzerland; and
items might be more difficult to sell, assuming an • for open-ended collective investment
investor is mindful of the after-tax position. With- schemes, the custodian bank in the regula-
out the necessary documentation, the investor tory sense must be located outside of Swit-
is subject to a discretionary tax assessment zerland. The function of the custodian bank is
based on a market rate of return (in a worst- divided into control tasks and technical tasks.
case scenario, any return is treated as taxable While the control tasks relate to legal compli-
income). The Swiss Federal Tax Administration ance (applicable laws and articles of incorpo-
(FTA) maintains a publicly accessible product list ration, etc), the technical tasks primarily cover
(course listing) summarising the relevant Swiss the safekeeping of the fund assets, the issue
tax values for various kinds of financial prod- and redemption of fund units, and payment
ucts currently available on the market. Issuers of transactions. While the technical tasks may
financial products may directly approach the FTA be delegated to a provider in Switzerland, the
to have a product registered in the course listing. control tasks must be performed by a cus-
For more frequent issues, it would be more com- todian bank, administrator or trustee located
mon for issuers to register their financial prod- outside of Switzerland.
ucts with SIX Financial Information, which offers
a service feeding the data relevant for Swiss tax Withholding Tax Relief for Investors
purposes into the FTA’s list. Investors liable for income taxation in Switzer-
land may generally claim back the Swiss with-
Swiss Tax Withholding Obligations of Funds holding tax in full. Other investors may qualify for
Regardless of whether a (foreign) collective an exemption from Swiss withholding tax under
investment scheme would be considered trans- the affidavit procedure (applicable to Swiss
parent or opaque for Swiss income tax pur- funds that generate at least 80% of income from
15Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
foreign sources), or may reclaim Swiss withhold- Exemptions
ing tax based on an applicable double tax treaty. Exemptions from Swiss Securities Transfer
Tax can be available for specific transactions
Swiss Securities Transfer Tax or securities, or for specific parties (“exempt
Switzerland levies a tax on transfers for a con- investors”). If the tax exemption applies because
sideration of certain domestic securities or sim- of the nature of the transaction or security, no
ilar foreign instruments. The Swiss securities Swiss securities transfer tax is levied at all. If the
transfer tax is triggered if: tax exemption applies because of the nature of a
party involved, then 50% of the tax will fall away
• taxable securities are transferred; while another 50% charge continues to apply,
• the transfer is made against consideration; unless the other party is also an exempt investor.
• a Swiss “securities dealer” (as defined in
Swiss tax law) is involved as a party or inter- Exemptions available because of the nature
mediary; and of the transaction or the nature of the security
• no tax exemption applies. include issuing securities, with some exceptions:
for example, the issue of rights in non-Swiss col-
“Taxable securities” include, but are not limited lective investment funds is not an exempt trans-
to, investment fund units – whether the issuer action.
of the securities is in Switzerland or overseas.
Exemptions available because of the nature of
The term “Swiss securities dealer” includes, but a party involved include, for example, collective
is not limited to, banks in Switzerland, brokers investment funds.
and professional securities dealers in Switzer-
land, asset and wealth managers in Switzerland,
and Swiss companies with balance sheet assets 3 . R E TA I L F U N D S
of more than CHF10 million in taxable securities.
A business established outside Switzerland and 3.1 Fund Formation
not acting through a Swiss branch office is not
a “Swiss” securities dealer; the same is true for 3.1.1 Fund Structures
a Swiss securities dealer’s branch office outside The majority of Swiss retail funds are open-
Switzerland. ended and can take the form of either FCPs or
SICAVs. The following asset classes are suitable
The tax is levied on the consideration owed for retail investors:
for the transfer of the securities. For securities
issued by a Swiss issuer, the tax rate is 0.15%. • securities funds (Swiss equivalent to the
For securities issued by a non-Swiss issuer, the European UCITS);
tax rate is 0.3%. The Swiss securities dealer • real estate funds; and
owes the tax. If the Swiss securities dealer acts • other funds for traditional investments.
as an agent or on behalf of a customer, mar-
ket practice is that the Swiss securities dealer Although closed-ended structures such as a
charges the tax to the customer. SICAF can be used for retail funds, no such
vehicle has been registered in Switzerland since
CISA was introduced in 2007.
16SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
For further information on the fund structures rial, published in Switzerland within 30 days of
available in Switzerland, please see 2.1.1 Fund the relevant changes becoming effective in the
Structures. home jurisdiction. For certain corporate actions,
specific reporting obligations must be met prior
Different market participants can act as invest- to the effective action.
ment managers for these funds. The fund man-
ager for an FCP must be a FINMA-licensed 3.2 Fund Investment
Swiss fund management company in order to
obtain FINMA approval. Nevertheless, the fund 3.2.1 Types of Investors in Retail Funds
management company can delegate the invest- Swiss retail funds are mainly established for and
ment management to a licensed investment purchased by local investors.
manager of collective assets if this is deemed
to be in the interest of the investors. 3.2.2 Legal Structures Used by Fund
Managers
3.1.2 Common Process for Setting Up Please see 2.1.1 Fund Structures for Swiss-
Investment Funds domiciled fund structures.
Please see 2.1.2 Common Process for Set-
ting Up Investment Funds for all types of funds There are two forms of regulated Swiss open-
except the Swiss LP, which is not available to ended collective investment schemes: FCPs and
retail investors. SICAVs. Both are subject to the same investment
rules, and are divided into categories based on
3.1.3 Limited Liability their investment strategy.
Investors are only liable for their investment in
a Swiss open-ended fund, including FCPs and The category typically used for retail investors is
SICAVs. securities funds (the Swiss equivalent to UCITS
funds), which offer a conservative investment
The Swiss LP is not available to retail investors. strategy. Real estate funds can also be struc-
With respect to a SICAF, the shares are those of tured as FCPs and SICAVs, which are open to
a typical corporation, so investors are only liable retail investors. Finally, open-ended funds in the
for full payment of their investment. category of “other funds for traditional invest-
ments” are considered to follow strategies that
3.1.4 Disclosure Requirements present risks comparable to those of the other
Prospectus Requirements retail funds.
Please see 2.1.4 Disclosure Requirements,
which applies to both AIFs and retail funds. 3.2.3 Restrictions on Investors
Anyone can invest in retail funds in Switzerland;
Reporting Requirements there are no restrictions.
Further to the reporting requirements outlined
under 2.1.4 Disclosure Requirements, foreign 3.3 Regulatory Environment
retail funds (UCITS) approved by FINMA are sub-
ject to a number of reporting obligations, which 3.3.1 Regulatory Regime
are the responsibility of the Swiss representa- Securities funds are open-ended collective
tive. Ordinary amendments to the fund’s docu- schemes that invest their assets in securi-
ments must be reported to FINMA and, if mate- ties and comply with the laws of the European
17Law and Practice SWITZERLAND
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
Union. They may invest in transferable securities Concerning Marketing of Alternative Funds
issued on a large scale and in non-securitised for further details.
rights with the same purpose traded on a stock
exchange or on another regulated market. Per- 3.3.6 Marketing of Retail Funds
missible investments include securities, deriva- All Swiss funds except Swiss LPs and invest-
tives, shares of collective investment schemes, ment companies can be marketed to anyone,
money market instruments and short-term unless they are specifically restricted to qualified
deposits. However, precious metals, precious investors in the fund documentation. Foreign
metal certificates, commodities or commodity UCITS funds approved by FINMA may also be
certificates are prohibited. Short selling is not offered to all investors.
permitted. Admissible investment techniques
include, within limitations, securities lending, 3.3.7 Investor Protection Rules
repurchase agreements, credit up to 10% of the Swiss retail investors can only invest in Swiss
net assets, and the pledging and transferring as open-ended products that are not restricted to
security of up to 25% of net assets. qualified investors; they may not invest in Swiss
LPs. They may only invest in foreign funds
Real estate funds may invest, in particular, in real established as UCITS and approved by FINMA
estate, real estate companies, interests in real for marketing in Switzerland.
estate funds and real estate assets abroad. The
use of derivatives is permissible, subject to limi- An open-ended Swiss fund structured as an
tations. As security for loans, real estate funds “other fund for alternative investments” must
may not encumber their real assets on average include a written warning regarding the risks
for an amount exceeding one-third of their mar- involved in the investment on the front page of
ket value. the prospectus.
3.3.2 Requirements for Non-local Service 3.3.8 Approach of the Regulator
Providers Please see 2.3.8 Approach of the Regulator.
Please see 2.3.2 Requirements for Non-local
Service Providers. 3.4 Operational Requirements
Please see 3.3.1 Regulatory Regime regarding
3.3.3 Local Regulatory Requirements for Non- investment and borrowing limitations.
local Managers
Swiss funds can only be managed by a Swiss For information on the protection of assets, con-
fund management company or an authorised duct rules and best practices, please see 2.4
Swiss fund in corporate form. Operational Requirements.
3.3.4 Regulatory Approval Process 3.5 Fund Finance
Please see 2.3.4 Regulatory Approval Process. In principle, retail investment funds may take out
loans in Switzerland for the purpose of efficient
3.3.5 Rules Concerning Marketing of Retail portfolio management. However, such borrow-
Funds ings are subject to certain regulatory restric-
Registration as a client adviser and affiliation tions that depend on the type or category of the
with an ombudsman may be required for the respective retail investment fund. Currently, the
marketing of retail funds. Please see 2.3.5 Rules following restrictions apply to retail investment
18SWITZERLAND Law and Practice
Contributed by: Andrea Huber, Oliver Widmer, Nils Harbeke and Joseph Steiner,
Pestalozzi Attorneys at Law Ltd.
funds that can be classified as follows, due to 3.6 Tax Regime
their holdings of investments (portfolio): Swiss tax law does not distinguish between
sorts of funds (alternative, retail or non-retail)
• securities funds may take out loans for an but rather between the type of legal structure
amount not exceeding 10% of the fund’s net of the fund.
assets, but only on a temporary basis. Fur-
thermore, such retail investment funds may Please see 2.6 Tax Regime for further com-
only pledge or transfer (securities) as collat- ments.
eral up to a maximum of 25% of the fund’s
net assets;
• real estate funds may take out loans but, to 4 . L E G A L , R E G U L AT O R Y
secure their liabilities, they must maintain an O R TA X C H A N G E S
adequate proportion of the fund’s assets in
short-term fixed-interest securities or in funds 4.1 Recent Developments and
available at short notice. For example, funds Proposals for Reform
available at short notice are cash positions A new type of investment fund is expected to be
or bank account deposits at sight and on introduced in Switzerland in the second quar-
demand with maturities of up to 12 months, ter of 2023: the Limited Qualified Investor Fund
as well as guaranteed credit facilities with a (L-QIF), which is neither subject to approval nor
bank for up to 10% of the fund’s net assets. supervised by FINMA. However, it is only open
The credit facilities must be included in the to qualified investors and must be managed by
maximum level of encumbrance permitted by an institution that is approved and supervised
law – ie, the encumbrance may not exceed by FINMA, typically a fund management com-
on average one-third of the market value of all pany (administration and portfolio management).
real estate assets of the investment fund; and Hence, there will only be indirect supervision by
• other funds for traditional investments may the FINMA. It will be quicker and more cost-effi-
take out loans for an amount not exceeding cient to set up a L-QIF compared to the currently
25% of the fund’s net assets. Furthermore, available Swiss fund structures.
such retail investment funds may only pledge
or transfer as collateral up to 60% of the On the investor side, pension funds and insur-
fund’s net assets and commit to an overall ance companies in particular have expressed
exposure of up to 225% of the fund’s net their interest in the new structure. The L-QIF
assets. will offer qualified investors a Swiss alternative
to similar foreign fund structures, and is most
FINMA may regulate any details and/or grant comparable to Luxembourg’s reserved alterna-
exemptions on a case-by-case basis in rela- tive investment fund (RAIF). L-QIFs will be open
tion to the restrictions (but also the permitted exclusively to qualified investors. The launch
investments, the investment techniques and the of the new fund structure will not include the
risk diversification). Please also see 2.5 Fund introduction of a new legal structure. Instead, it
Finance with respect to possible security pack- will be possible to launch an L-QIF in the form
ages. of an existing Swiss fund structure, namely a
contractual fund, a SICAV or a Swiss LP. The bill
adopted by the Federal Assembly does not con-
tain any restrictions on possible investments or
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