Swiss Bank Accounts and the Law
In the United States, law enforcement agencies, the judicial system, and even private citizens can gain access to financial information of all sorts. In Switzerland, however, neither a bank's officers, nor employees are allowed to reveal any account or account holder information to anyone, including the Swiss government.
The Swiss banker's requirement of client confidentiality is found in Article 47 of the Federal Law on Banks and Savings Banks, which came into effect on November 8, 1934. The article stipulates that "anyone acting in his/her capacity as member of a banking body, as a bank employee, agent, liquidator or auditor, as an observer of the Swiss Federal Banking Commission (SFBC), or as a member of a body or an employee belonging to an accredited auditing institution, is not permitted to divulge information entrusted to him/her or of which he/she has been apprised because of his/her position."
Exceptions
In order to sidestep this law, there must be a substantial criminal allegation before a governmental agency, especially a foreign one, can gain access to account information. Tax evasion, for example, is considered a misdemeanor in Switzerland rather than a crime.
According to the Swiss Bankers' Association Web site, however, there is also a duty for bankers to provide information under the following circumstances:
• Civil proceedings (such as inheritance or divorce)
• Debt recovery and bankruptcies
• Criminal proceedings (money laundering, association with a criminal organization, theft, tax fraud, blackmail, etc.)
• International mutual legal assistance proceedings (explained below)
International mutual assistance in criminal matters
Switzerland is required to assist the authorities of foreign states in criminal matters as a result of the 1983 federal law relating to International Mutual Assistance in Criminal Matters. Assets can be frozen and handed over to the foreign authorities concerned. Assistance in criminal matters follows the principles of dual criminality, specialty and proportionality.
Dual criminality means that Swiss courts don't lift the requirement of bank/client confidentiality unless the act being investigated by the court is punishable under the law in both Switzerland and the country requesting the information. The specialty rule means that information obtained through the arrangement can only be used for the criminal proceedings for which the assistance is provided. The proportionality rule means the measures taken in conducting the request for assistance must be proportionate to the crime.
International mutual assistance in administrative matters
Under these proceedings, the Swiss Federal Banking Commission (SFBC) may communicate information only to the supervisory authorities in foreign countries subject to three statutory conditions:
• The information given can't be used for anything other than the direct supervision of the banks or financial intermediaries who are officially authorized and can't be passed on to tax authorities.
• The requesting foreign authority must itself be bound by official or professional confidentiality and be the intended recipient of the information.
• The requesting authority may not give information to other authorities or to other public supervisory bodies without the prior agreement of the SFBC or without the general authorization of an international treaty. Information can't be given to criminal authorities in foreign countries if there are no arrangements regarding mutual legal assistance in criminal matters between the states involved.
Taxation
Swiss residents pay 35 percent tax on the interest or dividends their Swiss bank accounts and investments earn. This money is namelessly turned in to the Swiss tax authorities.
For nonresidents of Switzerland there are no taxes levied on those earnings, unless:
Swiss Withholding Tax
There is a 35 percent Swiss withholding tax on interest and dividends paid out by Swiss companies. So, if you invest in a Swiss company such as Nestlé or Novartis, then 35 percent of any dividends will be withheld as a tax regardless of where you live. The same is true if you buy bonds issued by a Swiss company. If you're a Swiss taxpayer (or if your country has a double taxation agreement with Switzerland) then you can claim the tax back. Double taxation is when income is taxed both in your home country, as well as the country in which the income is earned.
EU Withholding Tax
On July 1, 2005, the European Union Withholding Tax came into effect to prevent residents of EU member countries from avoiding paying tax on interest earned on money deposited in foreign banks with very strong banking secrecy laws. The EU goal had been for all countries to disclose interest earnings to the home countries of their bank clients so that that money could be taxed. Several non-EU countries, Switzerland included, didn't agree because it went against their banking privacy/secrecy laws. Now, bank clients who live in the European Union pay a withholding tax on the interest made by certain investments. This tax started at 15 percent and is gradually increasing to 35 percent by 2011. No exchange of information or taxes on capital or capital gains is levied.
Inheritance Tax
If you want to pass on your account to your family (and you're not a Swiss resident) you're in luck because there is no inheritance tax in Switzerland for nonresidents. Your heirs are responsible for declaring the holdings to their country's tax authorities, however. Swiss banks offer the same range of services of other banks: checking accounts, savings accounts, custodial accounts, etc. They also will hold other valuables like stock certificates, gold, silver, and other property for a fee. Like other Swiss accounts, they are protected under Swiss law from any snooping unless you're engaged in criminal activity.
When it's time to make a withdrawal, it can be paid in the currency of your choice. Swiss francs, American dollars, whatever you would like. Unlike American law where law enforcement agencies, the judicial system, and private citizens can gain access to all kinds of financial information under Swiss law, except for extraordinary circumstances neither the bank's officers or the bank's employees are allowed to reveal any information, relative to any account to anyone, including the Swiss government.
No private citizen, or their legal representative can ever receive any type of information about any one's Swiss bank account under any set of conditions. That includes all types of legal proceedings that the Swiss classify as "non-criminal behavior." The Swiss consider tax evasion and many other "crimes" under US law as "political offences." Things like divorce, inheritance disputes and bankruptcy cases are examples of "private matters," and as such the secrecy of the account is protected from any legal action to verify the presence of, or attempts to seize any assets. There are some notable exceptions. Three types of activity which the Swiss consider illegal, and are bound by treaty with the United States to "open" the account for possible legal proceedings are: organized crime activities, drug trafficking, and "insider trading" of securities. In instances of this kind, the Swiss authorities have the final say on whether or not to reveal any information.
The Swiss currently charge a hefty 35% tax on interest earned in Swiss accounts but Americans get 30% of that tax refunded by showing that they're not Swiss residents. To claim the refund there is a catch 22. You must identify yourself, which of course give up your secrecy. If you maintain the account in Swiss francs, and the franc increases in value relative to the American dollar, you may also be liable for a capital gains tax when you withdraw the money and convert it back to United States dollars. If you sustain losses from any decrease in value they are usually not deductible. There are no US restrictions on having Swiss bank accounts, but current IRS regulations require you tell them what foreign accounts you have when you file your annual income tax return. If you answer yes, the Internal Revenue Service requires more paperwork.
Interest earned in a foreign account is still taxable under present US Tax laws, but you usually get to offset foreign taxes that you may be required to pay. Consult with a tax expert to learn what present regulations are since they change frequently and are beyond the scope of this report.
With its long-standing association with the world’s finances, the perception of a Swiss Bank could be one of a series of dated institution, set in their ways and which don’t move with the times and, therefore, could become obsolete in time. This could not be further from the truth. Some older banking institutions do, in fact, get left behind when technology advances at a pace and so cease to exist. Switzerland has long understood the maxim ‘evolve or die’ and, as an offshore jurisdiction, has adapted rapidly to address the changes in modern life and modern banking. In the last few years
Swiss Banks have made huge strides to develop the ultimate in technological offshore banking:
encryption security technologies, electronic funds transfers, internet banking etc. Swiss Banking, if not leading the way, is certainly at the forefront of the modern technological age. Wire transfer of assets and electronic signatures are now the order of business.
Winston Wambua
International Offshore Specialist
For more information please contact me on
In the United States, law enforcement agencies, the judicial system, and even private citizens can gain access to financial information of all sorts. In Switzerland, however, neither a bank's officers, nor employees are allowed to reveal any account or account holder information to anyone, including the Swiss government.
The Swiss banker's requirement of client confidentiality is found in Article 47 of the Federal Law on Banks and Savings Banks, which came into effect on November 8, 1934. The article stipulates that "anyone acting in his/her capacity as member of a banking body, as a bank employee, agent, liquidator or auditor, as an observer of the Swiss Federal Banking Commission (SFBC), or as a member of a body or an employee belonging to an accredited auditing institution, is not permitted to divulge information entrusted to him/her or of which he/she has been apprised because of his/her position."Exceptions
In order to sidestep this law, there must be a substantial criminal allegation before a governmental agency, especially a foreign one, can gain access to account information. Tax evasion, for example, is considered a misdemeanor in Switzerland rather than a crime.
According to the Swiss Bankers' Association Web site, however, there is also a duty for bankers to provide information under the following circumstances:
• Civil proceedings (such as inheritance or divorce)
• Debt recovery and bankruptcies
• Criminal proceedings (money laundering, association with a criminal organization, theft, tax fraud, blackmail, etc.)
• International mutual legal assistance proceedings (explained below)
International mutual assistance in criminal matters
Switzerland is required to assist the authorities of foreign states in criminal matters as a result of the 1983 federal law relating to International Mutual Assistance in Criminal Matters. Assets can be frozen and handed over to the foreign authorities concerned. Assistance in criminal matters follows the principles of dual criminality, specialty and proportionality.
Dual criminality means that Swiss courts don't lift the requirement of bank/client confidentiality unless the act being investigated by the court is punishable under the law in both Switzerland and the country requesting the information. The specialty rule means that information obtained through the arrangement can only be used for the criminal proceedings for which the assistance is provided. The proportionality rule means the measures taken in conducting the request for assistance must be proportionate to the crime.
International mutual assistance in administrative matters
Under these proceedings, the Swiss Federal Banking Commission (SFBC) may communicate information only to the supervisory authorities in foreign countries subject to three statutory conditions:
• The information given can't be used for anything other than the direct supervision of the banks or financial intermediaries who are officially authorized and can't be passed on to tax authorities.
• The requesting foreign authority must itself be bound by official or professional confidentiality and be the intended recipient of the information.
• The requesting authority may not give information to other authorities or to other public supervisory bodies without the prior agreement of the SFBC or without the general authorization of an international treaty. Information can't be given to criminal authorities in foreign countries if there are no arrangements regarding mutual legal assistance in criminal matters between the states involved.
Taxation
Swiss residents pay 35 percent tax on the interest or dividends their Swiss bank accounts and investments earn. This money is namelessly turned in to the Swiss tax authorities.
For nonresidents of Switzerland there are no taxes levied on those earnings, unless:
Swiss Withholding Tax
There is a 35 percent Swiss withholding tax on interest and dividends paid out by Swiss companies. So, if you invest in a Swiss company such as Nestlé or Novartis, then 35 percent of any dividends will be withheld as a tax regardless of where you live. The same is true if you buy bonds issued by a Swiss company. If you're a Swiss taxpayer (or if your country has a double taxation agreement with Switzerland) then you can claim the tax back. Double taxation is when income is taxed both in your home country, as well as the country in which the income is earned.
EU Withholding Tax
On July 1, 2005, the European Union Withholding Tax came into effect to prevent residents of EU member countries from avoiding paying tax on interest earned on money deposited in foreign banks with very strong banking secrecy laws. The EU goal had been for all countries to disclose interest earnings to the home countries of their bank clients so that that money could be taxed. Several non-EU countries, Switzerland included, didn't agree because it went against their banking privacy/secrecy laws. Now, bank clients who live in the European Union pay a withholding tax on the interest made by certain investments. This tax started at 15 percent and is gradually increasing to 35 percent by 2011. No exchange of information or taxes on capital or capital gains is levied.
Inheritance Tax
If you want to pass on your account to your family (and you're not a Swiss resident) you're in luck because there is no inheritance tax in Switzerland for nonresidents. Your heirs are responsible for declaring the holdings to their country's tax authorities, however. Swiss banks offer the same range of services of other banks: checking accounts, savings accounts, custodial accounts, etc. They also will hold other valuables like stock certificates, gold, silver, and other property for a fee. Like other Swiss accounts, they are protected under Swiss law from any snooping unless you're engaged in criminal activity.
When it's time to make a withdrawal, it can be paid in the currency of your choice. Swiss francs, American dollars, whatever you would like. Unlike American law where law enforcement agencies, the judicial system, and private citizens can gain access to all kinds of financial information under Swiss law, except for extraordinary circumstances neither the bank's officers or the bank's employees are allowed to reveal any information, relative to any account to anyone, including the Swiss government.
No private citizen, or their legal representative can ever receive any type of information about any one's Swiss bank account under any set of conditions. That includes all types of legal proceedings that the Swiss classify as "non-criminal behavior." The Swiss consider tax evasion and many other "crimes" under US law as "political offences." Things like divorce, inheritance disputes and bankruptcy cases are examples of "private matters," and as such the secrecy of the account is protected from any legal action to verify the presence of, or attempts to seize any assets. There are some notable exceptions. Three types of activity which the Swiss consider illegal, and are bound by treaty with the United States to "open" the account for possible legal proceedings are: organized crime activities, drug trafficking, and "insider trading" of securities. In instances of this kind, the Swiss authorities have the final say on whether or not to reveal any information.
The Swiss currently charge a hefty 35% tax on interest earned in Swiss accounts but Americans get 30% of that tax refunded by showing that they're not Swiss residents. To claim the refund there is a catch 22. You must identify yourself, which of course give up your secrecy. If you maintain the account in Swiss francs, and the franc increases in value relative to the American dollar, you may also be liable for a capital gains tax when you withdraw the money and convert it back to United States dollars. If you sustain losses from any decrease in value they are usually not deductible. There are no US restrictions on having Swiss bank accounts, but current IRS regulations require you tell them what foreign accounts you have when you file your annual income tax return. If you answer yes, the Internal Revenue Service requires more paperwork.
Interest earned in a foreign account is still taxable under present US Tax laws, but you usually get to offset foreign taxes that you may be required to pay. Consult with a tax expert to learn what present regulations are since they change frequently and are beyond the scope of this report.
With its long-standing association with the world’s finances, the perception of a Swiss Bank could be one of a series of dated institution, set in their ways and which don’t move with the times and, therefore, could become obsolete in time. This could not be further from the truth. Some older banking institutions do, in fact, get left behind when technology advances at a pace and so cease to exist. Switzerland has long understood the maxim ‘evolve or die’ and, as an offshore jurisdiction, has adapted rapidly to address the changes in modern life and modern banking. In the last few years
Swiss Banks have made huge strides to develop the ultimate in technological offshore banking:
encryption security technologies, electronic funds transfers, internet banking etc. Swiss Banking, if not leading the way, is certainly at the forefront of the modern technological age. Wire transfer of assets and electronic signatures are now the order of business.
Winston Wambua
International Offshore Specialist
For more information please contact me on
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