Franchise 2013 - Switzerland

Author:Mr Martin Ammann and Christophe Rapin
Profession:meyerlustenberger | lachenal


1 What forms of business entities are relevant to the typical franchisor?

While there is no requirement for a foreign franchisor offering or selling franchises in Switzerland to form a Swiss corporate vehicle for this purpose, many do. Franchisors have a variety of legal forms from which to choose; however, the most common form is the company limited by shares (AG), followed by the limited liability company (GmbH). The latter has become more and more popular in the past few years. The minimum share capital of an AG amounts to 100,000 Swiss francs divided into shares with a nominal value of at least 0.01 Swiss francs. Upon incorporation, 20 per cent of the par value of each share must be paid in in cash, by a contribution in kind or by a set-off; in all cases the contributions made must total at least 50,000 Swiss francs. For the establishment of a GmbH a minimum capital of 20,000 Swiss francs is required, which must be fully paid in either in cash, by a contribution in kind or by a set-off. The capital of the GmbH may be divided into shares with a par value of at least CHF 100 Swiss francs each. Both the AG and the GmbH are companies with limited liability for its holders. Only the AG qualifies for a listing on a stock exchange in Switzerland, namely the SIX Swiss Exchange or the BX Berne Exchange.

2 What laws and agencies govern the formation of business entities?

The formation of business entities is governed by the Swiss Code of Obligations (CO). AG and GmbH must be registered with the commercial register in the canton of their registered office. The Commercial Register Ordinance governs the technicalities of the registration.

3 Provide an overview of the requirements for forming and maintaining a business entity.

An AG or a GmbH may be formed by one or more physical persons or legal entities. The founders have to declare formation in a formal act, the minutes of which must be notarised. In this act the founders have to adopt the articles of incorporation, appoint the company's officers, subscribe to the shares or contributions and record that the promised contributions have been made. The articles of incorporation contain, in particular, the name and the registered office of the company, its purpose and its share capital. The board of directors is responsible for the management and the representation of the company. Nevertheless, the day-to-day management and representation can also be delegated to some of its members if the articles so provide. In the case of a GmbH, all members also act as managers unless another rule is provided in the articles of incorporation. Foreign franchisors must be aware that for AG and GmbH it is mandatory that at least one person resident in Switzerland with individual signature power must be entitled to represent the company. This person may be a board member, a manager or another officer in the case of an AG, or a managing officer or manager in the case of a GmbH. If joint signature power is granted, the above resident and function requirements must be met by two individuals.

4 What restrictions apply to foreign business entities and foreign investment?

See question 3, regarding the residency requirement, and question 8, regarding the restriction of the acquisition of real estate by persons abroad. There are no other requirements specific to foreign franchisors in Switzerland.

5 Briefly describe the aspects of the tax system relevant to franchisors. How are foreign businesses and individuals taxed?

Switzerland is a confederation of 26 cantons (states) with about 3,000 municipalities. Taxes are levied at the federal and cantonal or communal level. This system leads to a certain degree of tax competition between the cantons, and therefore, to relatively low tax rates compared to other countries in Europe or worldwide.

Resident individuals are subject to personal income and net wealth tax. Partnerships (and similar groups of persons without legal personality) are transparent for tax purposes, with the partners being taxed individually. Generally, non-residents deriving income from Swiss sources may be subject to certain withholding taxes, but admission fees and royalties payable to foreign franchisors are generally not subject to Swiss withholding taxes.

The corporate income tax rate in Switzerland depends on the location of the taxable entity and amounts to 11.3 to 24.4 per cent. Attractive tax planning opportunities are available for international groups of companies for activities such as (regional) headquarter or finance functions as well as intellectual property management or international trading. Tax rates for these types of activities may amount to significantly less than the statutory rates as indicated above.

Generally, pursuant to decision BGE 134 I 303 of the Federal Supreme Court, the business of a franchisee generally does not qualify as a permanent establishment of the franchisor even if the premises owned by the franchisor are rented to the franchisee. Therefore, no tax duties arise for franchisors in the cantons in which their franchisees are domiciled.

In general, the Swiss value added tax (VAT) system is in line with the principles applicable in the European Union, in particular with those of the Sixth VAT Directive of the European Union regarding the uniform basis of assessment. Deliveries and services rendered in Switzerland by a taxable person are in principle subject to VAT. Taxable persons are classified as entrepreneurs exercising a business activity in Switzerland if their turnover exceeds 100,000 Swiss francs per year. The legal form of the business has no influence on liability to VAT. All persons (also private individuals) must pay VAT if they import services exceeding 10,000 Swiss francs per year. In addition, persons (also private individuals) importing goods from abroad are subject to VAT if they are liable to custom duties. The ordinary VAT rate is 8 per cent. Reduced rates apply for, among other things, lodging services and the personal consumption of food, pharmaceuticals and newspapers. Services related to franchise relationships are subject to VAT and do not benefit from special rates.

6 Are there any relevant labour and employment considerations for typical franchisors? What is the risk that a franchisee or employees of a franchisee could be deemed employees of the franchisor? What can be done to reduce this risk?

According to Swiss law, franchisees are considered to be 'independent contractors'. Nevertheless, where the terms of the franchise contract provide for specific dominance of the franchisor, thereby substantially limiting the entrepreneurial freedom of the franchisee, there is a certain risk that protective provisions of Swiss employment law are applied by analogy in connection with the franchise relationship. In a major case, BGE 118 II 157, the Federal Supreme Court confirmed that employment law provisions on abusive termination and the respective indemnifications must be applied by analogy to such relationships. This risk may be reduced in the franchise contract by limiting the level of control and influence that a franchisor may exercise on the franchisee and by extending the franchisee's entrepreneurial freedom. Nevertheless, in cases where the subordination is less marked, there is a risk that the protective provisions of Swiss agency law may be applied by analogy to a franchise relationship, in particular the claim of the agent for compensation for clientele could thereby be relevant. Unfortunately, no further decisions of the Federal Supreme Court have been rendered that might offer guidance regarding these issues.

7 How are trademarks and know-how protected?

In Switzerland, trademarks may be protected in two ways: franchisors can register trademarks nationally with protection in Switzerland, or via an international trademark (IR-trademark) based upon a foreign trademark. The World Intellectual Property Organisation (WIPO) in Geneva is responsible for registering and...

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