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Corporate Law

The Real Estate Purchase Process in Switzerland

April 7, 2022 0 Comment lexpro read

What you need to know about purchasing in Switzerland

Buying a home may be a stressful experience at times. If the property is located in a foreign country, this might be emphasized even more. It might be difficult for foreigners relocating to Switzerland to understand the Swiss property market. Foreign ownership laws and Swiss mortgage regulations might lead anybody to lose their cool. You may learn how to purchase property in Switzerland whether you are an expat or a Swiss citizen by reading this guide.

The Notary

When you’ve agreed to purchase a house, you’ll first need to hire a notary public. The notary must be registered in the canton where the property is located in order to represent both the seller and the buyer.

It is common for a sales agent or developer to recommend a notary who is both efficient and proficient in English as part of their service. The notary is often picked because of their familiarity with the paperwork from a prior transaction.

The Foreigner Permit

The notary’s most critical job is securing a buyer’s permission for non-citizens. In certain resorts, the local commune refuses to provide any licenses for foreigners to purchase the property. In Zermatt, foreigners must get permission to purchase a second property, whereas, in Verbier, they are free to do so. If the foreigner is a citizen of an EU country, they may be entitled to purchase property in Zermatt if they are a Swiss resident. It isn’t straightforward!

Foreigner permits come in two flavors: general and specific.

A “contingent” general permission must be obtained if the project is new. In most cases, a second-home permit would allow for 15 of the new flats to be sold to foreigners out of a possible 20.

Afterward, they’ll require special permission to sell unit X to buyer Y. The notary only has to apply for a particular permission if a foreigner already holds the property. The cantons provide the licenses, but the Federal government must also authorize them in Bern before they can be implemented.

Other Documents

The architect must split the legal title into distinct titles for each unit when building a new structure or converting an existing property or hotel into several properties. They’ll draft a contract that specifies how much of the total building’s expenses each unit is responsible for paying and how the building’s owners and administrator will collaborate.

This document is referred to as a PPE in French-speaking areas and an SWTE in German-speaking areas. It might take weeks or even months to complete and register these papers. As soon as this has been completed and registered, the notary may apply for both the general and particular permits at the same time in order to expedite the process.

The notary will want a copy of the buyer’s passport and information from them on the foreigner application form.

Agreement for Reservation

You may be asked to sign a reservation agreement and pay a deposit if you purchase a property from a developer. You’ll often have to pay to an agency or a dealer since the notary isn’t allowed to collect a deposit until your foreigner permission arrives.

Only properties less than 200 square meters in net livable area and less than 1,000 square meters in the total land area are allowed to be sold to foreigners. A “Bestatigung,” a certification that the property conforms with the m2 regulations, may be required even if a foreigner already holds it.

If the property is particularly large, built from scratch, or converted into a hotel, the notary may also require the seller and buyer to sign the drawings. The parties will also sign a technical description outlining the grade of finishing included in the selling price if the home is new construction or recently refurbished.

The Mortgage

Your mortgage should be completed while you are awaiting the foreigner’s permission. Swiss banks have unique lending requirements and processes, so you need to check beforehand what are the particular requirements.

Now that you’ve secured a mortgage, it’s time to sign the paperwork. In certain cantonal and smaller Swiss banks, the borrower must sign all of the paperwork in person. Several foreign banks enable you to sign in person or even online, depending on where you are in the world.

The Deed of Sale

You have 30 days to sign the notary’s sales deed once the notary obtains the appropriate foreigner permission. The notary must apply for a fresh permit if it is not signed within that time frame. The buyer may pay the deposit and stage payments to the notary after the contingent for new construction has been received.

The sale deed must be completed in person before a notary; however, sellers and buyers may now sign electronically instead of in person.

The Completion Date

The parties can agree on a “completion” date, which might be when the buyer has paid in full or when the property has been completed in the event of a new construction or renovation. If you’re buying anything used, it’s common for the sales contract to stipulate that payment for the remaining amount must be made within 30 days of signing it.

Guarantees

The seller must give an electrician’s certificate that the electrical system has been evaluated and authorized before selling you a resale property older than 20 years. Sellers in Switzerland have additional legal requirements and assurances related to the willful concealing of faults.

Keys and Money

Vendors and purchasers commonly think that the deal is “finished” when the keys are handed over to each other. For non-Swiss buyers and sellers alike, this isn’t always the case in the country.

If the buyer is a foreigner, the Federal government (Bern) has 30 days to appeal to the canton’s permission. So, until the 30-day time has ended and the change of ownership has been recorded in the land registry, the transaction has not “finished.” The cantonal authorities manage many land registries, and it can take weeks to register a change of ownership. Valais currently needs six to eight weeks to process.

The seller will frequently agree to give over the keys to the property once the buyer has paid in full since these two stages are only formalities.

There is a delay in receiving money from a transaction if the seller is a foreigner because of all the legal paperwork (if the buyer is a foreigner). To guarantee that any outstanding taxes are paid, the notary will hold 5% of the selling profits even after the recorded property transfer. They’ll release the last 5% after they’re satisfied that everything has been paid.

What Else Would You Like to Know?

Additionally, keep in mind that the date of sale recorded in the Land Registry will reflect the day the sales deed was signed, not the date the property was sold (not the date the land Register processes it). If you ever decide to resell the home, this will be an essential consideration since, in Canton Valais, a foreign seller cannot do so until they have held the property for five years.

An application for special approval from the notary to sell your property before the five-year limit may be made. In the event of bankruptcy, divorce, or illness, you will be granted this, but you will not be allowed to resell it for a profit.

Corporate Law

Company Types in Switzerland

March 22, 2022 0 Comment lexpro read

What are the main forms of business types? What are the advantages and disadvantages of each company type?

The following are the two most common types of business vehicles in Switzerland:

Limited liability company
Corporation with limited liability

For each of these two types of organizations, the legal name and membership structure are different from each other. The LLC is better suited to small businesses because it doesn’t need as much money, has more control over how the company runs and must do certain things (like making sure all shareholders’ names are made public in the commercial register).

There are times when other legal entities, like businesses, may be used as commercial vehicles.

Cooperative is a concept that refers to non-profit organizations that directly benefit its members.
The word “association” is appropriate for non-commercial professional groupings.
A partnership limited by shares differs from a corporation limited by shares in that at least one shareholder is jointly and severally responsible to creditors in a partnership limited by shares.
A foundation is a legal body that has no members but may have beneficiaries for philanthropic reasons.

The following are examples of unincorporated businesses:

Ownership by an individual
Simple partnership
Partnership in general
Partnership with a limit

With the exception of the sole proprietorship, these entities are seldom employed in business since all or at least part of the members are personally liable. Swiss law forbids a limited partnership in which the general partner is a corporation.

Establishing a Presence from Abroad

While a foreign firm may form a joint venture with a Swiss company, purchase an existing Swiss company, or form a partnership to do business in Switzerland, the following are the most prevalent options:

Establishing a local branch.
Creating a subsidiary corporation.

Local Branch

A Swiss branch office is a business facility that performs the same functions as the parent company’s headquarters while maintaining economic and commercial autonomy. The branch lacks its own legal existence and is wholly reliant on the parent company. As a result, the parent company is liable for all obligations and penalties incurred by the Swiss branch office. The branch office and its chosen authorized representatives, who must be registered in the business registration, are subject to Swiss law. Switzerland must have at least one single signature authority representative or two joint signature authority representatives at all times, or both of them.

Subsidiary Company

A Swiss subsidiary company is a legal entity subject to Swiss jurisdiction and controlled by Swiss law. The foreign parent firm often owns the majority of the shares in the subsidiary business and has managerial control over it. While the Swiss subsidiary firm is legally separate from the foreign parent business, its commercial and economic independence vary. For the most part, the foreign parent company is not responsible for the Swiss subsidiary’s debts or promises to pay.

The two most popular legal kinds of subsidiaries in Switzerland are corporations limited by shares and limited liability firms (LLCs). The required minimum capital in Swiss currency (CHF 100,000 for limited liability corporations and CHF 20,000 for limited liability partnerships) must be invested in the firm at the time of formation. When these businesses are registered under commercial registration, they get legal personality. At least one authorized representative with a single signature or two authorized representatives with joint signatures must reside in Switzerland and be registered with the business registry. Third-party shares (in a business limited by shares) or quotas may be issued or transferred (in an LLC). Another way for a limited liability subsidiary company to become public is to put its stock on a stock market.

Comparison

Compared to subsidiaries, local branches offer the following advantages:

Swiss corporate income tax on earnings and yearly capital tax on taxable stock apply to Swiss branches and subsidiaries. However, profits returned to headquarters from branch offices are free from Swiss withholding tax.
The process of launching a branch office may be simpler and more cost-effective. Compared to a subsidiary company, branch offices dissolve more quickly in liquidation and have lower operating costs (like fees to register changes to the commercial register), which makes them cheaper to run.
Local branches are not obliged by law to have a certain amount of corporate capital.
If you’re only going to be in Switzerland for a short time and you don’t know what the future holds when you start a business, branch offices are better than subsidiary businesses.

The following are some of the benefits of having a subsidiary firm rather than a local branch:

Branches are immediately impacted by the bankruptcy or insolvency of the principal foreign business since they are an integral element of the foreign principal firm’s activities and depend on it.
Customers in Switzerland can choose to work with a local subsidiary instead of a global company (branch office).

Branch offices sometimes fall short when it comes to the parent company’s non-responsibility for the subsidiary company’s duties and pledges.

Except in the event of a regulated organization (such as a Swiss firm operating in the same industry), a foreign corporation may normally trade without acquiring a license in Switzerland. Trading can be conducted cross-border (via postal services, telecommunications, and occasional business travel to Switzerland), through the establishment of a representative or branch office in Switzerland, or through collaboration with a Swiss individual or legal entity acting as an agent, distributor, franchisee, or similar. The immigration legislation, which restricts the number of days foreigners may remain in Switzerland each year without acquiring a residency or work visa, may generate practical complications.

If a foreign firm does business in Switzerland via a local branch, the branch must be registered with the commercial register.

General Partnerships

General partnerships, which must have at least two partners, are governed by articles 552 to 593 of the Swiss Code of Obligation (CO) (natural persons). After the parties sign a partnership agreement, the general partnership is formed. It is required to register with commercial registration (it is constitutive for businesses pursuing non-commercial aims and declaratory for businesses pursuing commercial aims). A general partnership has no minimum capital requirement.

A general partnership seems to be legally distinct. It may thus acquire rights, take on obligations, bring litigation, and be sued in its own name. The assets are held by the partners jointly. Any obligations taken on in the partnership’s name by the controlling partner, as well as any tortious conduct performed by a partner while performing partnership activities, are the responsibility of the partnership. The partners are jointly and severally accountable for the partnership’s commitments to third parties. A partner’s assets, on the other hand, are only held responsible in a secondary capacity (after the partnership’s assets have been exhausted). Individuals who join a general partnership after it has been created are jointly and severally responsible with their whole assets for the firm’s existing obligations. Creditors have five years from the date of dissolution to make claims against the partnership. The individual partnership agreement governs internal responsibility.

For tax reasons, the partnership is deemed transparent. Individual partners, on the other hand, are responsible for paying taxes on their portion of the partnership’s revenue and assets, as well as any additional sources of income and assets.

Limited Partnerships

Articles 594 to 619 of the CO regulate limited partnerships. Limited partnerships, like general partnerships, have quasi-legal personalities, are required to register with the commercial register (which is constitutive for non-commercial organizations and declaratory for commercial enterprises), and do not have a minimum capital requirement. Limited partnerships, unlike general partnerships, may incorporate legal entities as partners (but only as limited partners). Two partners are required, with at least one of them being a natural person with unlimited liability. The responsibility of the other partners is restricted to the amount specified in the business registration. If the restriction of responsibility is not written down in the business register, the “limited” partner is responsible for everything unless the partner can show that the third parties knew about the restriction of responsibility.

Joint ventures

In Switzerland, international joint ventures (JVs) are prevalent and may assume a number of legal forms. The stages involved in forming a JV differ depending on the legal structure chosen. Contractual joint ventures, for example, may be created via the execution of one or more agreements between existing legal entities; corporate joint ventures, on the other hand, need the formation of a new company. Additionally, agreements are often used in corporate joint ventures to define the enterprise’s governance.

Trusts

Swiss law doesn’t allow trusts to be set up. In some cases, though, different legal methods may all lead to the same thing.

When the HCCH Convention on Trust Law and Recognition was signed in 1985, Swiss people agreed to sign it in 2007. For this reason, Swiss courts usually accept the results of trusts set up properly under a foreign law that the settlor named in the trust instrument.

Forming a Private Company

Regulatory Framework

A corporation limited by shares (SA) and a limited liability company (LLC) are both legal entities with distinct legal personalities. Shareholders (or quota holders in the case of an LLC) are their members, and their responsibility is limited to the registered company capital. Due to its reduced minimum capital requirement and customizable governance structure, the LLC model is preferred by several small to medium-sized firms. A limited liability company’s disclosure requirements are more stringent than those of a corporation limited by shares.

The name of the quotaholder, in particular, is recorded in the corporate registry and therefore accessible to the general public. A limited liability company (LLC) must have a minimum capital of CHF 20,000 (payable in full at the time of establishment), whereas a company limited by shares must have a minimum capital of CHF 100,000 (of which at least CHF 50,000 must initially be paid up).

The commercial registration authority of the canton in which the firm will be registered is the competent authority for the formation of a company limited by shares or LLC.

Contract Law

What Causes Contracts To Be Null and Void according to Swiss law

March 22, 2022 0 Comment lexpro read

It’s all about the details, especially in legal contracts.

What does it mean in legal terms, when a contract is null and void? To draft a legally binding contract can be a challenging task, and can cause a great deal of discomfort and trouble if declared unenforceable by law. When a contract is declared null and void, it basically means that it is missing some of the key elements that make it legally binding.

Here is a list of the key elements you need to have in mind, to create a legally valid contract:

· Contractual capacity – Minors, mentally challenged, and people under the influence of drugs and alcohol, do not have the power of law to enter into a fully binding legal contract. Therefore, only people of a certain age (in most cases above 18) and of sound mind can enter into contractual obligations.

· Offer and Acceptance – The offer and the acceptance of an offer, are two sides of a contractual coin, if one is missing, you cannot have a contract.

· Legality of contracts – A contract can only be legal if it abides by the rule of law. If some of the terms oppose the existing laws, it can be declared invalid and thus unenforceable.

· Consideration of contracts – This entails the exchange of goods, services, or anything of equal value between the parties of the contract.

· Mutuality of contracts – A contract means that at least two parties have to provide something for the other, for it to be valid. You cannot have a valid contract where only one party has obligations and the other only has a right to something.

The difference between void and voidable contracts

When we say a contract is void it means that it cannot be enforced and cannot be fixed to be legally valid. Basically, these contracts do not have some of the key elements that we mentioned previously.

Voidable contracts, on the other hand, mean that even though some element is missing, they could still be enforced under certain circumstances, especially if both parties of the contract when discovering the missing element, choose to continue with the enforcement.

The main difference is that void contracts are invalid from the very beginning of the engagement but voidable contracts may become invalid at a certain time, maybe at the beginning or if circumstances change later on.

Termination of contracts

· Termination by mutual consent of the parties: the best option to terminate a legally binding contract is when both parties find an amicable solution to terminate it. This entails the signing of a legally binding agreement, which in many ways is a type of contract where the parties agree to release one another from their obligations.

· Convenience: In some cases, the contracts contain a clause that allows the parties to terminate the contract by giving reasonable notice in time and if certain criteria are met.

· Causable termination: When a party fails to perform one or more of its obligations, the other party usually has the right to cancel the contract by giving notice.

The proper way to review contracts

Now that you know the key elements of a contract, and how they can become unenforceable, here is some advice on what to keep in mind to avoid troubles in the future.

Read carefully and thoroughly

It goes without saying that one of the most important things to do before entering into legal obligations with another person or entity is to read the contract entirely and check all the important provisions. These types of documents may be very long and confusing, so having them checked by a person with legal knowledge is not a bad idea.

Make it plain and clear

Every detail of the contract should be easy to understand. Don’t leave any room for misconception and multiple meanings.

If something is not clear, make sure it is

When reading the draft of a contract, you might stumble upon some provisions and terms that you will not fully understand. In such cases, you should make sure to ask for clarification, if you wish to avoid future headaches. You should be comfortable with all the content of the contract before signing.

Put it on paper

Laws typically recognize the validity of oral agreements, but they are much more difficult to enforce and prove their existence. When you have the contract in writing, it is easier to enforce in cases of dispute about some of the terms.

Know your contractual party

You cannot enter into a legal obligation with everyone out there, can you? Well, you can, but it can be a major issue if the other party proves to be untrustworthy and deceiving. This is why you should always make a background check of the person or entity you wish to engage in legal obligations with. Always make sure that as much as possible that the other party can deliver on their promise.

Read it again

Last but not least, it is always a good idea to double-check what you already read. Sometimes a key issue may escape your eye or can be understood differently than intended. So before you put your signature at the bottom of the paper, try to make sure that you understood it completely.

Banking and Finance Law

The Swiss Anti-Money Laundering Act Projected to Undergo Major Changes in 2022

March 22, 2022 0 Comment lexpro read

The Financial Action Task Force released an annual national report on Switzerland in December 2016. The report rated the Swiss system for detecting money laundering and terrorism funding as generally excellent. But the FATF also found several flaws and advised to address them.

Federal Council (government) authorized the Swiss Federal Department of Finance to develop an initial consultation draft that incorporates the findings and suggestions of FATF’s country report and improves the Swiss financial center’s reputation. September 2018 marked the conclusion of this consultation session.

In June, 2019, the Swiss Federal Council released a report on the proposed amendments to the Anti-Money Laundering Act (AMLA). There has been a lot of talk about the AMLA change during the last two years. On the other hand, the Swiss Parliament finally agreed to enact a new AMLA on March 19, 2021. By the middle of 2022, the updated AMLA and the supporting secondary legislation should go into effect.

Swiss authorities are likely to encounter further pressure in the future to strengthen its anti-money laundering laws.”

An issue in the proposed law was the inclusion of so-called ‘advisers’ in the AMLA’s duty. According to the law, physical or legal individuals who are commercially engaged in connection with the formation, management, or administration of domiciliary corporations and trust and the formation of raising money in this context have been referred to as “advisors.”

In addition, the AMLA would have covered the acquisition and sale of domiciliary corporations and the provision of addresses or buildings as a domicile for a domiciliary firm or trust. This change would have impacted attorneys and notaries in particular. Switzerland’s parliament voted to reject the proposed change, primarily to maintain the attorney-client privilege.

Natural citizens and legal entities that sell things and take cash are subject to the AMLA, as stated in Article 2 of the AMLA, as are financial intermediaries (dealers).

In the course of a business transaction, dealers who take more than CHF 100,000 in cash are required to perform specific tasks under Article 2 of the AMLA. FATF had suggested a $15,000/€15,000 cutoff. On the other hand, the Swiss parliament rejected a plan to lower the cash payment threshold for precious metals and gemstones from CHF 100,000 to CHF 15,000.

The most significant modifications to the AMLA are outlined below in a quick summary.

Verification of the beneficial owner

Financial intermediaries must verify the identification of the beneficial owner according to the AMLA’s Article 4 paragraph 1 to comply with the applicable regulations. For this reason, a formal statement from the client is usually required by the financial intermediary, explaining who the beneficial owner is.

By law, financial intermediaries will now be required to authenticate the identification of the beneficial owner in addition to establishing that person’s identity under the new AMLA. According to Article 4, paragraph 1 of the amended AMLA, a financial intermediary shall do due diligence to identify the beneficial owner and authenticate his or her identity.

According to a government dispatch, depending on the contracting party, the financial intermediary may use a risk-based approach and apply various steps to check the plausibility of the beneficial owner’s information. The financial intermediary’s evaluation isn’t indicated in the message. Just asking for a copy of the beneficial owner’s identification document is not enough to satisfy the legal need to verify the beneficial owner.

Duty to update all business relationships

A financial intermediary is only required to verify or establish an individual’s identification once throughout an ongoing commercial relationship under the present AMLA. The absence of a broad and clear requirement to ensure that customer data is up to date was described as a severe shortcoming by the FATF in its most recent country report on Switzerland.

Now that the AMLA has been changed, it mandates that customer data be verified and updated regularly. No matter how risky, all commercial connections are bound by this commitment. Only when it comes to the frequency and breadth of the review does a risk-based strategy apply.

Customer data must be updated by Articles 3 and 4 of the AMLA and a more general evaluation of the client profile to comply with the obligations imposed by the AMLA. According to the current legal regulations, data and paperwork must be updated as needed. As a result, financial intermediaries with extensive and long-standing customer bases will have to invest a significant amount of time and effort.

Suspicious behavior must be reported.

Article 9 of the AMLA, which requires financial intermediaries to report suspicious activity to Switzerland’s Money Laundering Reporting Office, needs to be revised as well (MROS). Under current legislation, a SAR should be filed if a financial institution has “actual knowledge of or reasonable grounds to suspect” an illegal origin of acquisitions. However, according to case law, the statutory requirement to submit a SAR is triggered by mere suspicion, and thus, the obligation to register a SAR is relatively low in this case.

As mentioned in the parliamentary sessions, the low simple suspicion’ threshold caused legal confusion and led to many SARs and a backlog at MROS. Even more importantly, the Swiss Parliament said that a breach of the obligation of reporting might result in penalties of up to CHF 500,000 and/or professional suspension, necessitating more legal clarity.

To put it another way, if money laundering is suspected, a financial intermediary must examine any tangible or multiple indicators that the assets may have originated from a predicate offense to money laundering, as mandated by Article 6 of the AMLA. Reports are required when suspicions cannot be dispelled, and it is determined that they are well-founded.

Under the new rebuttal procedure, the real compliance obligations of financial intermediaries are not yet evident. According to AMLA article 6, no new explanations have been made, and no way has been specified for their implementation. AMLO-FINMA Article 16 paragraph 1 provides possible investigative methods to provide some advice. This ordinance was published by the Financial Markets Supervisory Authority (FMSA).

The investigation process can include obtaining written or verbal information on the contracting party, the controlling person or beneficial owner of assets, as well as visits to their place of business, consultation of public sources and databases, and, if necessary, information from trustworthy individuals. Consequently, depending on the circumstances, investigations may include, for example:

As required by AMLO-FINMA Article 16 paragraph 2, financial intermediaries must verify the integrity of these investigations and keep records of their findings. In accordance with Article 7 of the AMLA, the documentation must be adequate such that a competent third party may make a trustworthy decision.

Money Laundering Reporting Office Switzerland (MROS)

As a result, the current deadline for MROS processing a report is eliminated by Article 9b of the revised AMLA. In exchange for this elimination, Article 9b grants a financial intermediary the right to terminate their reported business relationship with the SCC if MROS does not notify them within 40 working days after a report is filed under Article 9 paragraph 1 lit.

An intermediary financial wishing may withdraw only substantial assets that law enforcement agencies can track to end the commercial connection (Article 9b paragraph 2 of the revised AMLA). MROS must be notified right once a commercial connection has ended and the date of the termination (Article 9b paragraph 3 of the revised AMLA).

Transparency enhancements for organizations that may be sponsoring terrorists.

For the time being, associations may choose to be included in the commercial register but are not required to do so. If the association has a commercial purpose or is audited because of its economic relevance, it is responsible (Article 61 paragraphs 2 and 69b of the Civil Code).

Suppose associations under Article 60 et seq. of the Civil Code have an increased risk of abuse, such as collecting or distributing assets abroad primarily to benefit charitable, religious, cultural, educational, or social causes. In that case, they will be required to register in the cantonal commercial register in the future to prevent their abusive implementation.

Incorporating these organizations into the business register allows the public access to crucial information, such as the purpose, board members, authorized signatories, auditors, or the organization’s location. A company’s registration in the commercial register is also accompanied by the need to keep accurate financial records in compliance with the Code of Obligations.

In the future, all organizations that are obliged to be registered in the commercial register will be required to retain a list of members with their first and last names or firm name and address, like corporations regulated by the Code of Obligations. There must be a mechanism to access the registry at any time in Switzerland.

The membership registry may only be accessed by a representative who is a Swiss citizen or permanent resident. As long as the association has a Swiss resident on hand, any legal action against it will be investigated without the need for overseas legal aid.

The Federal Council might exempt such organizations from registration if the quantity, origin, purpose, or planned use of the assets gathered or dispersed represent a minimal risk of abuse for money laundering or terrorist funding, according to a new Article 61 paragraph 2ter of the Civil Code.

This clause ensures that organizations that pose a minimal risk of money laundering or terrorist funding are exempt from the need to register under this law. Even though the Federal Council did not include an exclusion to the scope of applicability in its draft of the new Commercial Register Ordinance, the danger of money laundering or terrorist funding was clearly not enhanced.

After the modifications of March 19, 2021, organizations that are already registered must comply with the new criteria for member lists and Swiss representation within 18 months of the amendments taking effect. A representative in Switzerland must be designated within 18 months for existing organizations made mandatory to register.

A new Article 327b in the SCC will be adopted, which punishes willful violations of the obligation concerning the register of members and representation in Switzerland with a fine to effectively enforce the new transparency standards for organizations. Article 153 of the SCC (false statements to commercial registration authorities) already makes it illegal to violate the requirement to register in the business register intentionally, and it is punished by up to three years in jail or a fine.

Outlook

To begin with, the Federal Council, on October 1, 2021, started the consultation process for changes to the Anti-Money Laundering Ordinance and other laws. The proposed modifications to the updated Anti-Money Laundering Act give greater information on the measures.

Real Estate Law

Real Estate Ownership and Transfer of Ownership

March 7, 2022 0 Comment lexpro read

Ownership in Real Estate

Main Types of Ownership

Different kinds of real estate ownership are permitted under Swiss law. The most prevalent types of real estate ownership are single ownership, joint ownership, and co-ownership, which may be divided into (i) classical co-ownership and (ii) condominium-principled co-ownership. The latter is more often seen in apartments in multifamily dwellings.

In general, ownership of real property comprises ownership of the ground and all of its integral parts, including any structures placed on it. The owner of a property, on the other hand, has the power to give a construction right to a third party, resulting in a split of ownership in the soil and the structure built on it.

Land Register

In Switzerland, all privately held land (including condominium units) must be registered with the land register. Under federal law, land registries are required to give some minimal information about each real estate property, such as title information, easements, and mortgages.

Because there is a legal presumption that federal land registry entries are truthful and correct, anybody who relies on such information in good faith is completely protected by the law.

Transfer of Ownership

Asset Deal

To transfer legal title to real property, the buyer and seller must engage in an asset sale and purchase agreement in the form of a public deed in the presence of a notary public. Following that, the public deed must be submitted to the property registrar, which will record the title transfer in the land register. With the registration in the so-called journal, the transfer becomes effective.

Share Deal

If a legal entity owns Swiss real estate, such real estate can be acquired indirectly by purchasing shares in the relevant legal entity. In this circumstance, the buyer and seller will engage in a share sale and purchase agreement, which does not need to be notarized. Furthermore, no registration with the land registry is necessary since the immediate owner of the property stays the same. Share deals are not commonly used in real estate transactions in Switzerland due to their complexity and due diligence requirements.

Real Estate Due Diligence

Prior to purchasing real estate, most real estate investors conduct due diligence. Because registration with the land register is conclusive legal, due diligence entails analyzing the land register extract and its accompanying papers, which include all important property information.

Furthermore, in legal, due diligence for a real estate transaction, the following areas are often reviewed:

All current lease agreements provided that they are transferred to the buyer by operation of law following the sale’s completion;
Environmental law concerns, given that the legal owner of property investment has some responsibility risks as a result of such problems (see section 3 below);
A possible violation of the Lex Koller, given that any violation may constitute the transaction null and invalid (see section 4 below);
Potential zoning laws and other public law limitations
In addition to legal, due diligence, prudent bidders perform tax, technical, and financial due diligence.

Typical Representations and Warranties

In asset transactions, representations and warranties are often provided on a limited basis. First and foremost, a seller often does not make any assurance as to the structure’s content, i.e., any seller warranty in that regard is usually excluded to the greatest degree authorized by law.

However, it is common practice for sellers to make statements about the accuracy of rent rolls and due diligence information and data that the buyer cannot independently verify (i.e., pending or threatened litigation, tax payments, etc.). In certain situations, representations, warranties, and/or indemnities may be provided about current or possible contaminations of the soil or parts of the building.

As a result of the transaction structure, extra guarantees are often provided in share transactions. A share sale and purchase agreement will often include corporate warranties about the company’s proper orientation and legal existence, accurate and correct presentation of financial statements, and title to shares. However, in share purchases, most of the seller’s guarantees are often set at an agreed-upon value; normally, this restriction does not apply to the seller’s title warranty.

In the case of a misrepresentation, the seller is obligated to compensate the buyer for any resulting damage. In shareholdings, a portion of the purchase money is sometimes kept in escrow for a certain time to protect the buyer.

Corporate Law

Licensing of Reviewing Bodies Under the Financial Services Act – An Initial Assessment

March 7, 2022 0 Comment lexpro read

Introduction

From January 1, 2020, FinSA (together with FinSO) implemented a new prospectus regime for Swiss capital markets, including specific statutory requirements, applicable to all financial instruments (subject to exemptions and customizations for certain financial instruments), under which

(i) any individual in Switzerland who makes a public offer to purchase securities or

(ii) any person seeking the admission of securities to trading on a Swiss trading venue must first publish a prospectus (article 35(1) FinSA).

Perhaps most significantly, and in contrast to the previous system, any such prospectus has to be submitted to a Reviewing Body for approval before publication (i.e., ex-ante prospectus approval) (article 51(1) FinSA). Notably, prospectus approval may be requested for qualifying debt instruments after the prospectus is published (i.e., ex-post prospectus approval).

BX Swiss AG (BX Swiss) and SIX Exchange Regulation AG (SIX Exchange Regulation) stated on May 28, 2020, that they had received clearance from FINMA to function as Reviewing Bodies under FinSA beginning on June 1, 2020. As a result, the prospectus review offices at SIX Exchange Regulation and BX Swiss accept prospectus review and/or deposit applications by FinSA.

According to FinSO, when a public offer or a request for admission to trade on a trading venue is submitted, the need to publish a FinSA approved prospectus will only take effect on December 1, 2020 (i.e., six months after the Reviewing Bodies were licensed by FINMA, article 108(1) FinSO). Therefore, until December 1, 2020, issuers may continue to comply with the former system, in which a so-called offering and listing prospectus may be prepared in line with the Swiss Code of Obligations (CO) and/or the listing requirements of the relevant exchange (where applicable) (article 109(2) FinSO).

After the six-month transition period expires, the duty to issue a FinSA compliant prospectus will apply to all publicly offered securities in Switzerland as well as to those looking to be admitted to trading.

Following their designation as Reviewing Bodies, SIX Exchange Regulation and BX Swiss have now issued the respective rules, lists, directives, and fee schedules of their prospectus offices as anticipated by FinSA and FinSO.

Importantly, if FINMA gives a license to more than one Reviewing Body, it must guarantee adequate coordination of their activity, under article 72(5) FinSO. The prospectus review offices of BX Swiss and SIX Exchange Regulation have collaborated on a number of directives and lists.

Under the new prospectus framework imposed by FinSA and FinSO, the prospectus approval procedure and entry to trade on a Swiss trading venue are often two concurrent processes:

– FinSA prospectus approval (i.e., by a Reviewing Body such as SIX Exchange Regulation or BX Swiss, subject to exclusions and adaptations); and

– Application for trading access on the applicable trading venue (i.e., by the exchange admission body, such as SIX Exchange Regulation).

Following the implementation of the new prospectus system, the Swiss stock exchanges revised their listing regulations to allow these two procedures to run concurrently. However, and probably most importantly, parties are not required to submit a prospectus for approval to the prospectus office of the trading venue on which they are also seeking admission to trade. For example, the BX Swiss prospectus office might approve a FinSA compliant prospectus for an issuer who is also seeking admission to trade on the SIX Swiss Exchange (through the SIX Exchange Regulation application procedure) and vice versa.

This might result in some rivalry in the Swiss market between the two licensed Reviewing Bodies in terms of, among other things, speed, efficiency, and accessibility. Nonetheless, FINMA must guarantee that their processes remain coordinated (see FinSO article 72(5)).

Corporate Law

Corporate Audit Requirements in Switzerland in 2022

March 7, 2022 0 Comment lexpro read

Recent Legislative Changes

The Enron crisis in the United States and the accompanying regulations (particularly SOX) directly influenced Switzerland. The modified provisions in the Swiss Code of Obligations (articles 727 et seq. CO) and the new law requiring auditors to be overseen by a regulator did, in fact, significantly change the CG landscape.

An examination of CG and auditing reveals, in my opinion, both improvements (e.g., the establishment of a supervisory authority for all auditing firms in Switzerland) and shortcomings (i.e., first, the rule that the smallest corporations may opt-out of the auditing process, which was previously mandatory for all corporations; second, the introduction of mere review auditing for small corporations with a lower independence standard for the auditors; and perhaps third, the presence of a supervisory authority for all auditing firms.

Mandatory Auditing by External Auditors?

Until lately, all companies in Switzerland — except the LLC – were subject to required external audits. The pertinent Swiss laws have been modified as of 2008.

As a general rule, all firms (excluding partnerships) must be audited, regardless of their legal structure (corporation or LLC); nevertheless, three “categories of auditing” exist, including ordinary auditing, review auditing, and opting out of auditing.

Under the new laws, only bigger organizations that fulfill particular criteria or other requirements (e.g., all publicly listed companies) must undergo regular audits (article 727 CO). Smaller firms, i.e., corporations that do not fulfill the specific criteria and standards for regular audits, may choose to review auditing at a lesser quality (article 727a CO). Finally, even the tiniest businesses may “simply say no” to any auditing at all (opting out of the auditing process following article 727a para 2 CO).

Tasks and Levels of Independence

The regular auditors must evaluate and report on whether the annual accounts and the board’s suggestions for the use of balance-sheet profits correspond with the legislation and the articles of incorporation (articles 728a et seq. ); especially, the regular auditors must verify the internal control system (article 728a para 1 Alinea 3 CO). In contrast to regular auditors, review auditors have fewer duties in line with articles 729a et seq.; for instance, the internal control system is not a problem.

Auditors’ independence is always a vital and frequently complex issue for CG reasons. However, in Switzerland, the independence standards vary depending on whether a regular or review audit is performed.

Of course, all audits must be independent in general, as underlined by articles 728 para 1 CO and 729 para 1 CO. However, as an additional general rule, regular auditors (article 728 CO) must meet a higher standard of independence than review auditors (article 729 CO); the main difference between the auditing providers is that review auditors are permitted to provide bookkeeping and other services, such as legal and tax advice, to the corporations to be reviewed by them (article 729 para 2 CO).

Auditors’ Civil Liability

Article 755 CO of Swiss corporate law explicitly allows for audit liability. All persons engaged in the audit of annual accounts and consolidated financial statements, etc., i.e., involved in auditing processes, are liable to the corporation and the shareholders and creditors for all damages caused by intentional or negligent breaches of their auditing duties.

If many people are accountable for damages, they are jointly and severally liable with the others (article 759 CO). This provision seems to jeopardize auditors if a claimant concentrates on them rather than the board members because of an alleged “deep pocket hypothesis.”

As a result, the current legislative reform wants to include a new clause in Swiss corporate law to limit auditors’ obligation to the plaintiff:

The Federal Council specifically included Germany and Austria in its initial proposal (bundesrätlicher Vorentwurf), which suggested limiting caps in case of negligence of CHF 10 million for private firms and CHF 25 million for listed corporations. In my opinion, such a clause would be inconsistent with Swiss general liability laws and would not qualify as a privilege for auditors. Nonetheless, the majority of observers support such a provision.

For complete information about the Audit Law and for audit services please contact our law firm in Switzerland.

Real Estate Law

Real Estate in Switzerland: Main Agreements and Risks

March 7, 2022 0 Comment lexpro read

Main Agreements and Risks

Purchase Agreement

A real estate purchase (right) agreement, which must be completed in a notarial deed, is often used to acquire a property. While this approach is still widely used, the acquisition phase may also be carried out via various forms of contracts:

If the property is held by a real estate company (or is transferred to such a company before sale), ownership of the property may also be transferred by purchasing shares in such a company through a share purchase agreement (see chapter on Private Share Deals). In contrast to a traditional real estate purchase agreement, such an agreement does not need to be signed and often has various tax and legal implications.

If the property has already begun to be developed, it might be acquired in conjunction with the existing real estate development project through a project purchase agreement. Such an agreement may be reached at different phases of development, such as once the construction permit is issued. Such an agreement might take the form of a standard notarized real estate purchase agreement or if the property is held by a real estate corporation, a share purchase agreement (not necessarily to be notarized).

Another option is to enter into a development agreement, which includes both the seller and the buyer in the operation’s success. A profit-sharing (i.e., earn-out) provision is often included in such an agreement to compensate the seller because the property’s price may not completely represent its potential. An earn-out clause compares the expenditures invested by the buyer for project development to the market worth of the property once completed at completion of a real estate development project.

Subsequently, the profit margin is distributed between the seller and the buyer, ensuring that both parties benefit from the project’s success. Finally, such a method entails determining a variable price for selling the property. Like any other real estate transaction, a development agreement may be included in a conventional notarized agreement or a share purchase agreement (which does not have to be notarized). It can involve the purchase of an existing property.

The primary risks of the acquisition phase are legal (e.g., if constraints are not considered, particularly in the event of public law legislation restricting the purchase and/or use of the real estate at stake) and economic character (e.g., poor market valuation). As a result, all of the agreements mentioned above need due diligence and the implementation of appropriate protections, particularly about the guarantees provided (if any) by the seller. For example, we often see combinations of the aforementioned earn-out terms and warranty agreements that guarantee the buyer a particular minimum rent revenue by the seller over a certain period.

Public Law Planning Agreements

A public law planning contract is a contract between a public institution (for example, a municipality or a canton) and a private entity that deals with planning and zoning issues. Such contracts may be seen, for example, in the conversion of industrial wastelands into residential and commercial zones and the supply of infrastructural amenities and compensation for zoning added value. Such contracts are frequently restricted because the rule of law constrains public institutions and (ii) negotiating power is usually unequally allocated between the state/public institutions on one side, and the private parties engaged on the other.

Planning Agreements with Architects and Engineers

The initial stage in planning is to envision the project. Under a planning agreement, a single service provider performs the design work for regular projects, such as an architect. An arrangement of this kind often includes construction management throughout the project’s execution.

Design contests are generally held for bigger projects to determine the best architectural and design approach. While formal agreements with the different bidders are not required for design contests, clear guidelines governing the selection process and possible awards for the competition winners must be developed. In most circumstances, the winning bidder is subsequently employed to carry out the planning via an arrangement known as a planning agreement. Once the planning is complete, administrative actions are necessary to get a construction permit.

A change in municipal planning may be required for bigger projects. Given the legal complexity of building projects and the legal protection afforded to interested third parties, the time and legal hurdles involved in obtaining such administrative authorizations should not be underestimated. Once the construction permission has been obtained, thorough planning must be completed, generally under the terms of the planning agreement.

Instead of contracting separate planning agreements with the many specialists (architects, engineers of all types, and other professions depending on the nature of the project) participating in large-scale projects, it is feasible to complete a general planning agreement. Under such an arrangement, the general planner agrees to conceptualize the whole project and engage its specialists to complete the planning.

Financing Agreements

Real estate development requires a large investment (often several million CHF), with return on investment typically occurring many years after the funds are spent.

As a result, only a few real estate developers can complete property with their own money. Investors often give the funds (mainly banks/insurance firms acting on behalf of investment funds, pension funds, or sovereign wealth funds) through equity investment agreements. Financing is often arranged via loan and securities agreements backed by mortgages. Foreign financing must be properly verified from a legal standpoint well in advance since stringent limitations may apply under the so-called Lex Koller (see chapter on Acquisition of Real Estate, section 4).

Contractor Agreements

The construction is carried out by the execution of contractor agreements, which may be of several types:

The project developer and several vendors sign into individual contractor agreements. Each of these providers just provides its services and is therefore not accountable for the overall project execution. Entering into such contracts requires a substantial level of coordination and monitoring on the project developer.

A general contractor contract is made with a “main contractor,” who will engage several subcontractors to do the task. Depending on its structure, the general contractor may do specific tasks on its own or outsource all tasks to subcontractors. In any case, the general contractor is still liable to the project developer for the subcontractor’s work.

A complete contractor agreement is similar to a general contractor deal, but it also covers the services of an architect and engineer. As a result, the total contractor is responsible for both the design and implementation of the real estate development project.

The most significant hazards throughout the building process are both practical (e.g., delays in planning, coordination among numerous contractors and subcontractors) and legal (e.g., unexpected increase in costs, defects, claims from unpaid subcontractors). To avoid risks, the agreement must be properly designed and give suitable safeguards for the project developer as much as feasible.

Bank guarantees, insurance requirements, and fines for poor performance are examples of such safeguards.

Real Estate Management Agreements

Once the real estate development project has been completed, its upkeep and administration must be addressed. Various agreements, such as asset management agreements, property management agreements, and facility management agreements, are in play. The differences between asset management, property management, and facility management agreements are difficult to define. Still, it is generally understood that an asset manager would focus on property administration (e.g., lease conclusion). A facility manager would be in charge of practical and technical aspects, with the property manager falling somewhere in between.

Furthermore, numerous service or maintenance agreements will be put into with third-party suppliers to guarantee the building’s proper functioning (e.g., elevator maintenance, electricity, heating, water supply, etc.).

Agreements for Sale or Lease

An exit of the investor and/or the owner is possible at any stage of the real estate development. The property and project, respectively, can be sold on the market either as a whole (under a conventional real estate purchase agreement or under a share purchase agreement) or as small units with the formation of a condominium. Legally, sales to foreigners must be rigorously scrutinized well in advance since strong limitations may be imposed under the so-called Lex Koller.

If the property is to be leased, traditional commercial or residential lease agreements are signed. In Switzerland, residential and commercial leases are subject to tight legal limits, including rent regulation and tenant termination protection. Therefore, the developer is well advised if he is aware of the framework established by the necessary rules of Swiss tenancy law and considers it from the beginning of each real estate development.

Commercial Law Contract Law

Swiss Commercial Contracts – Distribution Agreements

March 7, 2022 0 Comment lexpro read

A company may promote its products in a variety of ways. While some manufacturers choose to offer their products directly to customers via their retail stores and websites, most opt to work with intermediaries through so-called distribution agreements.

The following are the most popular forms of distribution agreements in Switzerland:

Agency agreement: The agent acts as the manufacturer’s extended arm. The agent facilitates sales of products or enters into sales contracts on behalf of and for the account of the manufacturer.

In a nutshell, a distribution agreement states that the distributor is an independent dealer. The distributor buys the items from the producer and resells them under its name and account. The distributor is responsible for the sales risk.

Franchise agreement: The franchisee is also an independent dealer, but they distribute products and services by the franchisor’s standard distribution and marketing philosophy.

The parties are allowed to negotiate the conditions within the bounds of the law. Competition law establishes important boundaries. While an agency agreement must conform with numerous statutory aspects of contract law, the parties to the other two kinds have significant leeway in drafting their contracts.

Agency Agreements

The agent gets compensated depending on performance. It is entitled to the agreed-upon commission on all transactions aided or closed throughout the agency relationship. Unless otherwise agreed in writing, the agent is likewise entitled to a commission on transactions closed by the principal without the agent’s active participation, provided that the agent sought the respective client for such transactions. Suppose an agent is assigned an exclusive territory or client group. In that case, the agent is entitled to a commission on any transactions finished with customers from that territory or customer group, even if the agent did not contribute to completing the corresponding transaction. Because disagreements often develop at the end of a partnership, it is especially important to agree on clear and easy norms for the commissions that the principal owes at and after termination.

If the following requirements are satisfied, an agent may be legally entitled to fair remuneration for customers upon the termination of the agency agreement: The agent’s activities significantly increased the principal’s clientele; the principal benefits significantly from the business relationship with the clientele after the agreement is terminated; the award of such compensation is not inequitable, and the agreement was not terminated for a reason attributable to the agent. The maximum compensation amount is equal to the agent’s net yearly profits from the agency connection computed as the average over the previous five years or, if shorter, the average throughout the life of the agreement.

A Narrow Interpretation of Distribution Agreements

There are no special requirements in Swiss contract law that relate to distribution agreements in a broad sense. However, by analogy, rules designed for other agreements may apply to the individual distribution agreement. This may be especially true for agency law rules. The remuneration for clientele is the most prominent example of such an analog application. The Federal Supreme Court specified the grounds for a distributor’s entitlement to clientele reimbursement. In a nutshell, it demands that the distributor’s condition be comparable to that of an agent. The Federal Supreme Court considered the amount of autonomy of the distributor: the more restricted the distributor’s autonomy and the greater its integration into the seller’s sales team, the more likely the distributor would be entitled to compensation. This determination must be made on a case-by-case basis, considering the specific circumstances.

Franchise Agreements

Franchise agreements may be subject to rules created for other sorts of agreements. Aside from sales agent legislation (e.g., the claim for clientele compensation), individual labor law rules may apply by analogy to safeguard franchisees, especially under a subordination franchise agreement where the franchisee lacks control over its business choices (similar to an employee). The more the franchisee’s lack of autonomy, the greater the possibility for labor law to be relevant by analogy.

This risk may be reduced by not placing limits and requirements on franchisees normally placed on employees. It is also critical to mention explicitly in the agreement that the franchisee will continue to be a legally independent entrepreneur with the flexibility to make its own business choices. On the other hand, a judge may reach a different decision after reviewing the whole agreement and how it was executed. The implementation of labor law rules may have far-reaching implications for the franchisor. The franchisor, for example, may be held liable for the franchisee’s social security payments.

Real Estate Law

Ownership in Real Estate in Switzerland – Main Types of Ownership

March 1, 2022 0 Comment lexpro read

Different kinds of real estate ownership are authorized under Swiss law. The most common types of real estate ownership are single ownership, joint ownership, and co-ownership, which may be divided into two types:

(i) classical co-ownership and

(ii) condominium-principled co-ownership.

The latter is more often seen in apartments like multifamily dwellings.

In general, ownership of real property comprises ownership of the ground and all of its essential parts, including any structures placed on it. The owner of a property, on the other hand, has the power to give a construction right to a third party, resulting in a split of ownership on the land and the structure built on it.

Land Register

In Switzerland, all privately held land (including condominium units) must be registered with the land register. Under federal legislation, land registries are required to give some minimal information about each real estate property, such as title information, easements, and mortgages.

Because there is a legal presumption that federal land registry entries are truthful and correct, anybody who relies on such information in good faith is completely protected by the law.

Transfer of Ownership

Asset Deal

Share Deal

If a legal entity owns Swiss real estate, such real estate may be purchased indirectly by acquiring shares in the appropriate legal entity. In this circumstance, the buyer and seller will engage in a share sale and purchase agreement, which does not need to be notarized. Furthermore, no registration with the land registry is necessary since the immediate owner of the property stays the same. Share deals are not widely utilized in real estate transactions in Switzerland owing to their complexity and due diligence requirements.

Real Estate Due Diligence

Before purchasing real estate, most real estate investors perform due diligence. Because registration with the land register is conclusive legal, due diligence entails analyzing the land register extract and its accompanying papers, including all important property information.

Furthermore, in legal, due diligence for a real estate transaction, the following areas are often reviewed:

All current lease agreements provided that they are transferred to the buyer by operation of law following the sale’s execution;
Environmental law concerns, given that the legal owner of a real estate has some responsibility risks as a result of such problems;
A possible violation of the Lex Koller, given that any violation may declare the transaction null and invalid;
Potential zoning laws and other public law restrictions
In addition to legal, due diligence, savvy purchasers do tax, technical, and financial due diligence.

Typical Representations and Warranties

However, it is common practice for sellers to make statements about the correctness of rent rolls and due diligence information, as well as data that the buyer cannot independently verify (i.e., pending or threatened litigation, tax payments, etc.). In certain situations, representations, warranties, and/or indemnities may be provided regarding existing or possible contaminations of the soil or portions of the structure.

As a consequence of the transaction structure, extra guarantees are often provided in share transactions. A share sale and purchase agreement will often include corporate warranties about the company’s proper orientation and legal existence, accurate and correct reporting of financial accounts, and title to shares. However, in share agreements, most of the seller’s guarantees are often set at an agreed-upon value; normally, this restriction does not apply to the seller’s title warranty.

In the case of a misrepresentation, the seller is obligated to reimburse the buyer for any resulting damage. In share transactions, a portion of the purchase money is sometimes kept in escrow for a certain time to safeguard the buyer.

Environmental Law Considerations

According to the Environmental Protection Act, the legal owner of real estate is accountable for such pollution, in addition to the person who produced it, even if it occurred previous to the acquisition. Furthermore, a landlord might be held liable for environmental damage caused by a tenant.

Legal Restrictions on Foreign Investors

Lex Koller

The Act regulates the purchase of certain kinds of Swiss real estate by foreign investors on the Acquisition of Real Estate by Persons Abroad, the corresponding ordinance, and further cantonal and municipal laws (all these provisions are referred to as the so-called Lex Koller).

Definition of a Foreign Investor

The Lex Koller gives an extremely wide definition of “foreigner,” which encompasses, among other things, the following individuals and legal entities:

− Non-Swiss citizens domiciled outside of Switzerland;

− Non-Swiss citizens domiciled in Switzerland who are neither citizens of an EU/EFTA member state nor hold a valid permanent residency permit category C;

− Legal entities having their registered office outside of Switzerland (even if a Swiss citizen directly or indirectly owns them);

− Legal entities with a registered office in Switzerland but under foreign control, where foreign control is inferred if a foreign person owns more than one-third of the firm capital or voting rights, or if any foreign person offers a huge loan.

Acquisition of Commercial Properties

The Lex Koller does not, in general, limit the purchase of commercial assets. As a result, foreign investors may purchase commercial properties for personal use or just for investment reasons. Manufacturing facilities, warehousing facilities, offices, shopping centers, retail establishments, hotels, restaurants, and medical practices are examples of commercial properties.

Commercially exploited properties with more than one-third of undeveloped land are exempt from the authorization requirement unless such undeveloped property is developed within one year after the purchase date. In general, it should be emphasized that sections of a property include a building regarded developed, but so are other areas that feature access roads or parking spaces.

Acquisition of Residential and other Non-Commercial Properties

Foreign investors’ residential and other non-commercial real estate purchase is subject to the Lex Koller authorization requirement. Authorizations are seldom given because the requirements for obtaining them are so strict.

There are very few exceptions for (i) foreigners who are legitimately and really residing in Switzerland and want to buy a main residence in Switzerland and (ii) foreigners who want to buy a vacation home or apartment in Switzerland (maximum net habitable surface: 200 sqm).

Acquisition of Mixed-Use Properties

If a property is used for both commercial and residential purposes (mixed-use property), a foreign investor may acquire it without authorization only if (i) the residential space is required for the business (apartment for technician or housekeeper), (ii) the residential space cannot practicably be separated from the commercial premises (e.g., minor residential areas in a multi-story building with commercial premises), or (iii) zoning law requires it.

Acquisition of Shares in a Company Holding Real Estate

The purchase of shares in a corporation is subject to authorization if the major factual purpose of the firm is the acquisition, holding, or sale of real estate, which foreign investors may only acquire with an authorization (i.e., residential and certain types of mixed-use properties as set out above). Due to the lack of clear legal precedents, it is argued under what conditions a firm is considered to have such a primary purpose, and cantonal policies vary.

Purchase in Breach of the Lex Koller

Purchases made in violation of the Lex Koller are null and void. Furthermore, evasion of authorization requirements may result in administrative penalties as well as criminal prosecution in cases of intentional or negligent misbehavior.

Lex Koller Ruling

Given the serious implications of a breach of the Lex Koller, it is prudent to acquire in advance a judgment from the appropriate cantonal Lex Koller authority verifying that a proposed transaction does not infringe the Lex Koller.