Switzerland will become the first country in continental Europe and the first of the world top 20 economies to reach an FTA with China, the implications of which will be significant stated Chinese Prime Minister Li Keqiang in May 2013 during his fruitful visit to Switzerland. Li words succinctly expressed the FTA impact will be enormous and unprecedented.
It is widely believed the FTA between he heart of Europeandthe world's second largest economy will not onlycement a win-win relationship between the two countries, but may also bring the concrete benefits to the border European Union.
The Importance and Impact of the FTA
Once the FTA goes into effect, it will improve mutual market accessor goods and services, enhance legal security for the protection of intellectual property and bilateral economic exchange in general, contribute to sustainable development and deepen bilateral cooperation.
For the vast majority of bilateral trade of goods, the FTA will dismantle tariffs fully or partially. The scope of tariff reductions will cover 99.7 percent of Swiss exports to China and up to 96.5 percent of Chinese exports to Switzerland, exceeding the 90-percent level of an average FTA which China inks with other economies. In the area of technical barriers to trade and sanitary and phytosanitary measures, sector-specific cooperation agreements are aimed at reducing non-tariff barriers to trade. Further, provisions on economic and technical cooperation will promote the mutual benefits of the agreement from the viewpoint of sustainable development, including trade and investment opportunities and strengthening competitiveness and capacity for innovation.
Moreover, by optimising the value chain, either Switzerland or Chinaill not just benefit from the reduction or elimination of the dutiesnd tariffs in the trade between the two countries, but also could leverage the other broad and comprehensive FTA networks and then more aggressively boom their trilateral trade with those countries. For example, a Chinese company may optimize their sourcing by establishing or acquiring a manufacturing facility in Switzerland to make he goods originating from Switzerlandunder the FTA and then enjoy the benefits of the FTA that Switzerland signs with the EU, which may substantially reduce the cost on tariffs and increase their margin profits and accelerate the company's industrial transformation and upgrading.
By strategizing their position, the border EU suppliers or multinational companies which have foot prints in Switzerland may optimally slice up their value chain to enjoy the same benefits under the FTA as Swiss suppliers do as long as the products have undergone substantial transformation in Switzerland.
The Benefits of Using Switzerland as Business Platform
For the fifth year in series, Switzerland tops the overall ranking in he Global Competitiveness Report 2013-2014of the World Economic Forum and is there named the most innovative nation in the world. What is the formula that makes the small country in the heart of Europe so successful?
One of the most attractive business environments
Apart from its central and strategic location in Europe and its close ties with the EU, enabling Switzerland to benefit from most of the advantages available to the EU member countries, the key reasons for Switzerland attractiveness include:
- A stable political system and a highly competitive economy with a strong currency;
- A highly-skilled, multi-lingual and flexible workforce, ensuring high productivity;
- The complete and sound infrastructure of an efficient transportation system with convenient connections to all major European and Asian cities;
- World-renowned universities, technical institutes, R&D institutions and technology clusters supporting its industry, enabling investors to acquire new skills, and making Switzerland a hot spot for innovation;
- A liberal and straight-forward business law providing high flexibility.
Low taxation for production, trading and holding companies
Switzerland also offers one of the lowest corporate tax rates in the world. Depending on the company domicile, the ordinary tax rates may be as low as 12% - 16%.
Moreover, certain corporate functions may benefit from special low taxation, such as licensing of intellectual property rights (tax rates of below 10%), group financing activities (tax rates of 2% or less) or holding companies (tax rates of close to 0%).
Hence, Switzerland is deemed as the top and ideal location for gateway to Europe by multinational companies. Not surprisingly, the numberf Chinese companies domiciled in Switzerland is steadily increasing. It includes, amongst others, companies like Lenovo, Trina Solar, Asus, Hainan, Yuanda, Maipu, Baoshida, Huawei, ZTE, Haidian, Suntech, Neusoft, Sinopec, GMT, or Acer.
Excellent Double Tax Treaty (TT network, including DTT with China and Hong Kong providing efficient structuring opportunities for profit repatriation
The new DTT between Switzerland and China and Hong Kong provide further specific benefits for Chinese investors doing business in Switzerland. A Swiss company held by a Chinese or HKG parent company enjoys a WHT as low as 5% (China) or 0% (HKG) on dividend payments, given that the investment amounts to a minimum share of 25% (China) or 10% (HKG) in the Swiss company. As dividends paid by a Hong Kong company are exempt from any WHT, the profits may be repatriated at low tax costs.
Deep-dive the Value Chain and Take the Pre-emptive Opportunities
The FTA will surely inject vitality into bilateral or even trilateral economic and trade ties. To enjoy the substantial and significant benefits under the FTA and to emerge as the winner in the competition of the next wave, the companies should deep-dive their current value chain and the accessed or the would-access markets with professional support to review the business plan from the legal and tax perspectives