Wednesday, April 18, 2007


Switzerland enjoys a high level of reputation as of the countries with the lowest share of tax burden. In Europe, Swiss hedge fund regulation scheme seems to be sound and well enhanced in comparision with the continental counterparts in the region. However, hedge fund industry in Switzerland is hiked by extensive taxation. Individual investors in domestic hedge funds are taxed on a receipts basis, with a tax refund for any withholding tax (35%) levied by the fund on the distribution. The applicable tax rate for individual investors for this income is between 25%and 55%, depending on the canton where the individual investor is resident. Individual investors in domestic accumulating funds are taxable on deemed income distributions. Capital gains accumulated by funds are tax-exempt provided, sufficient information, is provided to Swiss tax
authorities and the investment is held as a private asset. Corporate, pension fund, bank and insurance company investors in domestic distributing funds are taxed on income and capital gains distributed. The average applicable tax rate is between 16% and 25%, depending on the canton where the company is domiciled and on any special tax status of the company. Accumulated income is not subject to tax on an unrealised basis. Pension funds may be exempt from income tax if certain conditions are satisfied.

Concerned with London's prime dominance of European hedge fund industry, Swiss officials are considering a dramatic tax cut for top hedge funds from current approximately 45 percent to 10 percent. London is still the home of European hedge fund industry, currently accumulating 80 percent of it. However, Switzerland realized that global benefits from tax competition are enormously important for competitiveness, vibrant financial markets and the mobility of hedge fund assets.

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