How to Start a Hedge Fund in Switzerland
Updated on Thursday 17th September 2020
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Switzerland represents an attractive market for hedge fund startup. In the last years, more and more investors preferred to set their investment operations in this country. Also, the country became an attractive jurisdiction for the managers of the hedge funds operating here and most of the vehicles set up as a hedge fund startup operate as offshore hedge funds.
What are the main types of hedge funds in Switzerland?
The Swiss legislation prescribes several types of hedge funds which can be registered here. The taxation of the hedge funds incorporated in Switzerland is performed following the regulations of the Federal Act on Collective Investment Schemes. Businessmen interested in starting a hedge fund in Switzerland may set up one of the following legal entities:
- • investment companies with variable capital (SICAV) - a type of investment company which has its capital divided into shares;
- • investment companies with fixed capital (SICAF) - it is set up as a company limited by shares and it is registered following the Swiss Code of Obligations;
- • Swiss contractual funds - they are registered under a collective investment agreement signed by the investors, the custodian bank, and the fund management company;
- • limited partnership for collective investment (LP) - under this structure, it is necessary to obtain approval for starting the operations on the local market from the Swiss Financial Market Supervisory Authority (FINMA).
Businessmen should know that most of the hedge funds registered in this jurisdiction are set up as contractual funds. In this particular situation, it is necessary to register the fund under a Swiss corporation, which should be managed by a management company.
You can read about how to create a hedge fund in Switzerland in the infographic below:
Taxation of hedge funds in Switzerland
Depending on the vehicle chosen for incorporation, the taxation of hedge funds can vary. For example, in the case of a hedge fund startup set up as SICAV, LP, or as a contractual fund, the income tax or the capital taxes are not imposed under the applicable legislation. Investors interested in how to start a hedge fund under one of the above-mentioned vehicles should know that the taxation will be applied to the fund’s founders.
In a SICAF, the taxation is performed following the corporate tax regulations, which means that the fund will be taxed according to the provisions applicable to commercial companies. In this case, the fund will be liable to pay the corporate tax rate as well as capital taxes.
What are the main taxes applicable to Swiss hedge funds?
Investors who are interested in how to start an investment fund operating as a hedge fund must know that the local legislation prescribes the same tax regulations that are available in the case of open-ended and closed-ended retail funds. It is important to know that the corporate income tax will apply as long as the fund is established as a SICAF, in which case, the fund will be taxed at the standard corporate tax rate.
In the case of hedge funds that are set up as FCPs, SICAVs, or LPs, the corporate tax is not applied. These types of funds are also liable for the payment of the capital tax, but only as long as the fund owns real estate. In the case of a SICAV, the capital tax is available at communal and cantonal levels, with the mention that the tax rate can vary depending on the canton in which the fund operates.
Hedge funds are also liable to the withholding tax which, regardless of the type of legal entity chosen for registration, is applied at the standard rate of 35%. Still, differences are available (based on the type of vehicle selected for the hedge fund) in terms of the type of income tax that will be taxed with the withholding tax.
For example, FCPs, SICAVs, and LPs are subjected to the withholding tax for the fund’s profit distributions and accumulated profits, while in the case of a SICAF, the tax is imposed only for the fund’s distributions. Investors should know that the distributions will be exempted from the withholding tax for FCPs, SICAVs, and LPs as long as the income is obtained from real estate.
Another available tax is the issuance stamp tax, which is imposed only on funds registered as SICAFs; the standard rate is 1%, but the fund can be exempted from the payment of the tax for the first issuance of shares with a value of CHF 1 million.
In special conditions, hedge funds set up in Switzerland can benefit from the provisions of the double taxation treaties signed here, but this is applicable for specific jurisdictions, such as Japan, Australia, Canada, Germany or France. Businessmen interested in more details on the registration of a hedge fund in this jurisdiction are invited to contact our affiliates in Switzerland for assistance.