UK: Swiss Financial Taskforce Approves New Measures To Attract Hedge Funds

Last Updated: 24 September 2008
Article by Philip Rubens
  • Tax rules on hedge fund performance fees and carried interest to be clarified

  • Authorisation process for managers of offshore funds to be made easier

  • Swiss cantons target U.K. hedge fund managers

A joint taskforce for the Swiss financial services industry has approved several new measures aimed at attracting more hedge fund managers to Switzerland. The measures form part of a financial sector "Master Plan" launched last year by the Swiss Funds Association, Swiss Bankers Association, Swiss Insurance Association and SIX group to regain the country's status as one of the world's top three financial centres.

The first measure announced by the Swiss Financial Centre Dialogue Steering Committee is a clarification of the tax regime for hedge funds, specifically in relation to performance fees and carried interest. The tax position in Switzerland is complex because of different tax rates levied at federal, canton and local levels - according to a report by KPMG, the effective tax rate for hedge funds in Switzerland can vary from 16% to 27%. The new regime, which will be implemented "rapidly" by the Swiss Federal Tax Administration, will simplify the system to ensure a more "competitive fiscal environment."

The second measure announced by the committee is a simplification of the authorisation process required by the Swiss Regulator (the Swiss Federal Banking Commission) for hedge fund managers, particularly those who manage offshore funds. In a recent report, the SFBC noted the "limited opportunity" for managers of foreign hedge funds to be licensed by the SFBC, something it said that could deter institutional investors from investing in Swiss hedge funds.

A number of Swiss cantons have been aggressively targeting hedge fund managers since the change in the UK non-domicile tax regime announced by Alistair Darling earlier this year, which previously made London an attractive location for non-UK managers. Earlier this month, UK hedge fund Krom River announced it would be moving to the canton of Zug, one of the cantons that has successfully targeted the financial services industry.

Currently, Switzerland holds a 31% share of the global fund of hedge funds industry, with approximately CHF 280 billion (£225 billion) under management, but has relatively few single hedge funds.

For more information on the new measures, go to: Background Information on the Swiss Financial Centre Dialogue Steering Committee's Report to the Strategy Committee.

For a recent assessment of the Swiss Hedge Fund Industry, go to: Swiss Fund Association, Alternative Investments Committee, Review of First Half of 2008.

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