International Structuring: How International Companies Can Structure Their Businesses Between Singapore and Switzerland

In an increasingly globalised economy, international companies are continuously seeking ways to optimise their operations through strategic structuring. Singapore and Switzerland have long stood as prime jurisdictions for business operations, each with a long-standing historical relationship and a reputation as leading international financial hubs. In 2022, trade between the two countries reached impressive figures, with Switzerland exporting approximately CHF 9.9 billion (around SGD 15.2 billion) in goods to Singapore, while Singapore’s exports to Switzerland amounted to around SGD 4.55 billion.^[1] This enduring partnership has continually evolved since the 1830s, when Swiss textiles first made their way to Singapore’s markets. Today, both nations are recognised for their robust legal frameworks and dynamic business environments.

Comparative Analysis of Business Environments

When considering business operations in Singapore and Switzerland, it is essential to understand the comparative business environments of both countries. Their robust legal frameworks, stable economies, and positions as international financial hubs make them attractive locations for global enterprises seeking to expand their reach.

Singapore is consistently ranked as one of the easiest places to do business, largely due to its pro-business policies, strategic geographical location, and advanced infrastructure. The country actively supports foreign investment by offering various incentives, such as tax exemptions for startups and grants for research and development. Its status as a regional hub for trade and finance further enhances its appeal, making it a prime choice for companies looking to tap into the Southeast Asian market.

Switzerland is known for its rigorous regulatory framework and high standard of living. It boasts a highly skilled workforce and a reputation for excellence in financial services and high-value sectors. Many businesses choose also Switzerland for its strong protection of intellectual property rights and its position as a leader in research and development, particularly in industries such as pharmaceuticals and finance.

The convergence of Singapore’s dynamic, growth-oriented environment and Switzerland’s stability and innovation creates a unique opportunity for international companies. Operating in both jurisdictions allows businesses to leverage Singapore’s accessibility to the Asia-Pacific market while benefiting from Switzerland’s established reputation in high-value industries. This strategic positioning enables companies to optimise their supply chains, enhance their competitive advantage, and gain access to diverse markets. As a result, firms may establish a presence in both countries to capitalise on their respective strengths.

Benefits of Registering IP in Switzerland

Switzerland has continually ranked highly in global IP indices due to its comprehensive legal protections and efficient enforcement mechanisms, a vital comfort for businesses that rely on innovation and creativity.

Key benefits of registering IP in Switzerland include:

Robust Legal Framework: Switzerland’s legal system offers stringent protection for IP rights, covering patents, trademarks, and copyrights. This environment fosters innovation, as companies can secure their creations and ideas effectively.
Access to International Treaties: Switzerland is a signatory to numerous international treaties, including the European Patent Convention (EPC) and the Madrid Protocol, which facilitates the protection and enforcement of IP across multiple jurisdictions.
Business-Friendly Environment: The country offers a stable economic environment with low corporate tax rates (ranging from 11.9% to 21.6%), making it an attractive destination for businesses looking to structure their operations efficiently. It is also possible to negotiate a temporary tax holiday with the authorities at the cantonal and Federal level for newly established companies that serve the economic interests. This tax exemption is generally granted for a limited period, typically 5 to 10 years. Depending on the importance of the planned activity, the tax exemption can be either total or partial. To consider the tax exemption request, the authorities analyze in particular (but not only) the importance of the planned activity, the investments made in Switzerland and the number of jobs created. In general, no exemption is granted below the creation of 10 full time jobs. The application to a temporary tax holiday could be an alternative to consider, however it is more intended to attract innovative and large companies in Switzerland. The conditions to obtain a tax holiday are quite restrictive.
High Level of Innovation: Switzerland consistently ranks as one of the most innovative countries in the world. Companies can benefit from a vibrant ecosystem that supports research and development, thus enhancing the value of their IP.
Efficient Dispute Resolution: Swiss courts are known for their expertise in handling IP-related disputes, providing a reliable mechanism for enforcing rights and resolving conflicts.

Framework for IP Licensing Between Singapore and Switzerland

Establishing an IP licensing framework between entities in Singapore and Switzerland can facilitate the cross-border sharing of technology and innovation. Both countries have laws and regulations that support IP licensing, crucial for businesses aiming to expand their reach in international markets.

In Switzerland, IP licensing is governed by specific laws pertaining to patents, trademarks, and copyrights. Companies can enter into various types of licensing agreements, such as exclusive or non-exclusive licenses, with defined terms regarding the scope, duration, and remuneration. Notably, Switzerland is a signatory to the NICE Agreement, which standardises the classification of goods and services for trademark registration. This alignment enhances the clarity and efficiency of trademark licensing in cross-border transactions.

In addition, in Switzerland they are some other tax incentives in relation to Research & Development (R&D), which are as follows:

In some cases, the Swiss corporate income tax can be reduced at cantonal level by measures such as the “patent box”, the special deduction for R&D expenditure, tax relief or “step-up” solutions. The instrument available to promote R&D are as follows :

The patent box: this instrument allows reduced taxation of profits from patents and comparable rights. The net profits from patents and comparable rights are taxed, on request, in proportion to eligible R&D expenditure, (with a 10% reduction in Geneva, for example).
R&D expenses additional deduction: under this incentive, taxpayers who incur R&D expenses in Switzerland, either directly or indirectly through third parties, can deduct an additional 50% of their R&D expenditure justified by commercial use from their net taxable profit. The additional 50% deduction is calculated on the basis of R&D staff costs – plus 35% – and/or R&D costs invoiced by third parties – up to a maximum of 80%.
Limitation of the maximum tax reduction: the tax impact of the patent box and the R&D additional deduction are limited to a maximum of 9% of the taxable profit.
Step-up: new companies established in Switzerland may declare, without Swiss corporate income tax, hidden reserves on their assets. The declared hidden reserve must then be depreciated annually.

For all these tax instruments, it is generally recommended to request a tax ruling in advance to the competent tax authority.

Singapore’s IP regime is comparatively robust, with the Intellectual Property Office of Singapore (IPOS) overseeing the registration and management of IP rights. Licensing agreements in Singapore are guided by the Patents Act, Trade Marks Act, and Copyright Act, allowing businesses to tailor their agreements to suit their needs. Singapore also adheres to the NICE Agreement, which further simplifies the process of trademark classification and registration, making it easier for businesses to navigate the licensing landscape.

Tax Benefits Under the DTA Between Singapore and Switzerland

A Double Taxation Agreement (“DTA”) is a treaty between two or more countries aimed at avoiding the risk of double taxation, which can occur when a taxpayer is liable to pay tax on the same income in more than one jurisdiction.

The DTA between Singapore and Switzerland aims to eliminate double taxation, promoting a fair and efficient tax environment for businesses operating in both jurisdictions.

Key Provisions of the DTA

Royalties on Intellectual Property Licensing: Article 12 of the DTA specifically addresses royalties in relation to intellectual property rights, stating, “Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.” However, it also establishes that such royalties may be taxed in the source state, “but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 5 per cent of the gross amount of the royalties.” This provides for a tax-efficient arrangement of licensing IP rights from a Swiss company to a Singapore company and vice versa, with the avoidance of double taxation in this respect enabling the business to increase its profits. Hence, international businesses may expand their footprint by structuring their operations such that their IP holding company is registered in Switzerland or Singapore, while licensing the use of their IP to an operating company in the other country.
Elimination of Double Taxation: The DTA provides mechanisms for alleviating double taxation on income sourced from one jurisdiction and earned by a resident of the other. This is achieved through tax credits and exemptions, ensuring that companies are not taxed twice on the same income.
Tax Information Exchange: The agreement includes provisions for exchanging tax information between the two countries, facilitating transparency and compliance. This cooperation helps ensure that both jurisdictions can enforce their tax laws and the DTA effectively.
Capital Gains Tax Relief: The DTA also offers potential relief from capital gains tax for certain transactions, particularly for gains derived from the sale of shares or interests in companies. This can be beneficial for companies restructuring their operations across borders.

Future Trends in International Structuring

As global markets continue to evolve, international companies must remain agile in their structuring strategies to adapt to shifting dynamics. Several key trends are emerging that warrant attention:

Digital Transformation: The rise of digital technologies is reshaping how companies operate. More organisations are adopting cloud-based solutions, which streamline processes and enhance collaboration across borders. While this digital shift can complicate cross-border structuring, it also presents opportunities for greater efficiency and flexibility in international operations.
Sustainability Initiatives: Sustainability is becoming a focal point in the economic policies of both Singapore and Switzerland. Companies that align their business practices with sustainable development goals may unlock new avenues for growth and access to funding.
Regulatory Changes: In a rapidly changing landscape, staying informed about regulatory developments in both jurisdictions is crucial. Companies must monitor evolving taxation and intellectual property laws to ensure compliance and optimise their operations.

In summary, these trends indicate that international companies must remain vigilant and proactive in their approach to structuring in order to navigate the complexities of operating in a global marketplace.

Conclusion

International companies seeking to establish or expand their operations between Singapore and Switzerland can benefit from the strong legal frameworks, favourable business environments, and tax advantages offered by both jurisdictions. By strategically structuring their businesses, particularly through IP registration and licensing, as well as leveraging the tax benefits under the DTA, companies can enhance their competitiveness and foster innovation. As global markets continue to evolve, the collaboration between Singapore and Switzerland offers a promising pathway for businesses looking to thrive in an interconnected economy.

For more information about structuring your businesses in Singapore and Switzerland, please contact Kenneth Pereire and/or Lin Yingxin in Singapore by email at kenneth@kgplegal.com.sg and yingxin@kgplegal.com.sg respectively, or Fabien Gillioz and/or Alexandre de Boccard in Switzerland at fgillioz@oalegal.ch and adeboccard@oalegal.ch respectively.

^[1] OEC (Observatory of Economic Complexity). “Switzerland-Singapore Trade.” Accessed October 8, 2024. https://oec.world/en/profile/bilateral-country/che/partner/sgp.