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SEPTEMBER 2014
A Legal Guide to Investing in... 37
Banking, Insurance and other areas
Swiss Banking and Insurance are considered high potential investment opportunities. However, foreign investments in these areas may be subject to certain conditions. A bank which is organized under Swiss law but is under a controlling foreign influence (irrespective whether at the time of its incorporation or at a later stage), requires a specific licence by the Swiss Financial Market Supervisory Authority (“FINMA”) in addition to the standard banking licence. A controlling foreign influence can be exercised by any means, for example voting rights. A foreign person is either an individual who is not a Swiss citizen and does not have a residence permit in Switzerland
or a company which has its registered office abroad or in Switzerland if it is controlled by a foreign person. A licence may be issued if the foreign person’s state of origin grants reciprocal rights (however, this provision is irrelevant for WTO members) and the corporate name does not suggest that the Bank is controlled by Swiss individuals or entities. Further, investors who hold at least 10 percent of the capital or voting rights of a bank or otherwise have a controlling influence, must guarantee that their influence will not have a negative impact on a prudent and solid business activity. When affiliated companies are concerned, the licence may also be conditional
on the approval of a foreign regulatory authority. The establishment of a branch office or an agency is subject to further conditions.
FINMA may prohibit a direct or indirect equity holding in an insurance company that equals at least 10 percent of the capital or voting rights or impose conditions if the nature or extent of the holding might endanger the insurance company or the interests of the insured. A foreign insurance company intending to operate an insurance activity in Switzerland needs approval by FINMA. In such case, the company, among other things, needs to comply with financial conditions in the same way as domestic insurance companies and leave a deposit in Switzerland.
EFTA member state who commute cross-border to work in Switzerland. For the earlier mentioned investor from the United Arab Emirates this means that the purpose of the real estate project is crucial in determining whether the Lex Koller is applicable on his investment.
The Lex Koller requirement is not limited to the acquisition of property, but extends to any transaction that gives a person abroad actual control – from an economic viewpoint – over real estate. This includes the purchase of shares in a legal entity whose shares are not listed on a stock exchange in Switzerland if its real purpose is the acquisition of real estate. The purchase of shares in a real-estate investment fund whose shares are not traded on the market on a regular basis, is also subject to the Lex Koller.
In financing transactions involving a Swiss company it is common that Swiss real estate
is pledged directly or indirectly by pledging the shares in a company which owns Swiss real estate. In the event of enforcement, no approval under the Lex Koller is required if the real estate is used as commercial premise. However, to the extent that the properties at issue are used for residential purposes or that excessive reserves of undeveloped land exist and the lender were to take possession or sell the relevant assets to another person abroad, approval from the Swiss authorities is required.
There are only few grounds on which an authorisation for the acquisition of real estate can be granted. These grounds include, but are not limited to holiday homes and serviced flats, charitable purposes, hardship cases, secondary residences and real estate that is pledged in favour of a bank or insurance company with a licence to operate in Switzerland and which acquires the real estate as part of a foreclosure.
Both in the banking and insurance sector the directors and managers of the investing parent company as well as the directors and managers of the Swiss company must have good reputations and must offer every assurance of proper business conduct.
Further restrictions for foreign investors apply in the area of stock exchange, securities dealer, maritime traffic, aviation, nuclear power and pipelines.
Concluding remarks
Switzerland is an investor-friendly country and with appropriate legal advice the few legal challenges that remain for foreign investors are manageable. However, the precise effect of the new law regarding bearer shares is yet unknown and foreign investors need to be aware of its potential consequences on real estate transactions, Swiss banks and other areas.