Trusts originated in England in the 12th century and developed across many Common Law jurisdictions. Trusts are now also used by many Civil Law jurisdictions.
Switzerland and the Use of Trusts
Switzerland did not introduce Swiss Law relating to trusts, but recognized trusts by ratifying The Hague Convention on the Law Applicable to Trusts (1985) on 1st of July 2007. This recognition led to the amendment of some internal Swiss Laws, principally dealing with jurisdiction, registration, enforcement of judgments and debt collection relating to trusts.
Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognized.
In Switzerland the Settlor (the individual who settles assets into the trust for the benefit of Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example a Guernsey trust can be established with a Swiss Trustee. The Trustee holds and manages the assets in the trust.
Why use a Trust?
A trust is a very flexible instrument, generally used for estate planning and asset protection. Trusts are also often used by charitable institutions, employee pensions and to implement employee stock option plans for a company listed on a stock exchange.
Why use a Swiss Trustee?
There are a number of reasons why use of a Swiss Trustee can be advantageous:
- Switzerland is located in the centre of Europe where many affluent individuals are based. Swiss Trustees are therefore generally located with easy access to their clients.
- The economic, political and legal stability of Switzerland provide a solid base for the provision of local administration services.
- Switzerland offers a number of favourable and well developed banking laws, and has been a popular international private banking centre for many years. It is a jurisdiction with a good reputation and offers a high quality of knowledgeable professionals in asset management, tax planning and private banking.
- Switzerland has a well deserved reputation for discreet professional support when managing the affairs of wealthy, private individuals.
Regulation
Swiss Trustees have to be registered as financial intermediaries in accordance with Swiss Anti Money Laundering Law. They can be registered with the Central Regulatory Authority or with a self-regulatory organisation (SRO), which must be recognized by the Swiss Federal State.
Formation
A trust can be legally established between individuals during their lifetime or through a testamentary instrument.
The two most common forms of trust instrument used to create a trust are:
a) A Deed of Settlement, whereby the Settlor and the Trustee stipulate provisions regarding the administration and preservation of the trust assets for the benefit of the Beneficiaries.
b) A Declaration of Trust, whereby the Trustee accepts assets into the trust, to administer and preserve them for the benefit of the Beneficiaries.
The trust is formed by the Settlor, but after its creation it becomes a relationship between the Trustee and the Beneficiaries.
Taxation
The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.
The tax advantages available in using a trust with a Swiss Trustee will essentially depend on the tax residence of the Settlor and the Beneficiaries.
In terms of Swiss Law:
- A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust. This is in accordance with Circular No 30 of 22 August 2007 issued by the Intercantonal Tax Conference.
- Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.
Annual Accounts
The Swiss Association of Trust Companies (SATC), provides in its Code of Ethics and Business Conduct that “a member must keep adequate, suitably detailed and orderly records on each trust. A member must ensure that records are maintained for an appropriate number of years”.
Protection
Under Common Law the Trustee is the owner of the assets and is required to administer the trust assets separately from his own assets. In the event of death or bankruptcy of the Trustee, the assets are not considered as belonging to the Trustee but are submitted to the trust’s protection and held separately for the Beneficiaries. The trust’s assets are therefore segregated from the Trustee’s estate.
Confidentiality
Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.
SATC provides that “any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees”.
A breach of confidentiality, whether professional or commercial, would only be permitted by law in the situation of criminal liability.
Summary
A Guernsey, English, Isle of Man or Nevis Law based trust with Swiss Trustees can offer a number of tax efficiencies as well as advantages in terms of wealth preservation and confidentiality. Dixcart can establish and manage such trust structures.
Additional Information
If you would like more information on this subject please speak to your usual Dixcart contact or to Christine Breitler at the Dixcart office in Geneva: christine.breitler@dixcart.ch
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