BERN, SWITZERLAND – Ireland and Switzerland have agreed to a double taxation treaty, subject to the agreement of both countries’ parliaments, that will limit withholding tax to no more than 15 percent on gross dividend amounts. A crucial detail welcomed by the cantons and business associations, according to Bern, is that “there will be no withholding taxes on dividends paid to the national banks of the two countries or to pension funds.”
The agreement Wednesday 23 May is part of a new double taxation treaty, the latest in a series negotiated with other countries to ensure that Switzerland is in line with OECD provisions on the exchange of information.
The Irish agreement also states, says Bern, that “If, however, a company holds a stake of at least 10% in the capital of the distributing company, the dividends will be exempt from withholding tax.
Too big to fail banks should increase capital base more quickly
BERN, SWITZERLAND – The International Monetary Fund’s annual review of the Swiss economy holds no major surprises, but the IMF did warn of the risk of fallout from eurozone crises. It was firm that the country needs to heed its three recommendations, the federal government said in a statement issued Tuesday 20 March:
- In order to counter the financial consequences of demographic developments, the IMF recommends taking measures quickly to reform the pension system; in particular it recommends a “a binding rule that would link the retirement age and pension benefits to life expectancy”
- Given the environment of persistently low interest rates, the IMF experts see a growing risk of a real estate bubble in parts of the real estate market: “Against this backdrop, it considers it advisable to swiftly introduce the countercyclical buffer proposed in the report of the “Financial stability” working group and strengthen the capital requirements for the mortgage lending business. Moreover, the IMF recommends including affordability limits in the macroprudential oversight toolkit”; for future homeowners, this translates as larger downpayments.
- Finally, the big banks should raise high-quality capital more swiftly.
Your home is your castle, but getting the mortgage to buy it might get tougher
The IMF forecast reflects those issued in recent days by the big banks and Seco, the state economy ministry: “the IMF anticipates subdued economic growth due to slower export demand. It sees an upturn in the economic outlook in the second half of the year. This is mainly due to global economic growth picking up and improved competitiveness.”
The overall note for Switzerland was positive, with the IMF finding the cap on the Swiss franc, CHF1.20 to the euro, an “appropriate policy response” although in the medium term it would like to see a freely floating currency.
The pension system will begin to feel pressure at the end of this decade, the IMF warns, and measures should be taken now to improve the situation.
“Under unchanged policies, the increase in aging-related expenditure will already start to bite in earnest around the end of this decade. Consequently, time for reform preparation and implementation is running out quickly. Specifically in the pension system, equalization of the male and female retirement age and pension indexation to inflation only (rather than both inflation and wages) could be considered. Most important, drawing from the experience of other countries, a specific “fiscal rule” that automatically links the retirement age and/or pension benefits to life expectancy could be introduced. Such a rule would reduce the need for repeated and often difficult reform discussions.”
Beware the bubble in housing hot spots
Minimum affordability ratios should be more widely used to reduce risk in the housing market, the IMF says.
“As monetary conditions loosened in 2008, housing price growth accelerated and there are signs of overheating in some ‘hot spots’ and market segments, as well as evidence of loose mortgage lending policies. Since monetary conditions are unlikely to be tightened for some time, the risk that a bubble may form is intensifying. Domestically-oriented banks (and to a more limited extent, the insurance sector) are exposed to the domestic real estate market through both credit and interest rate risk. The latter is building up as longer-term mortgages at low fixed interest rates are becoming more widespread.”
Blackden is a boutique of Swiss-based financial advisers whose work includes expat mortgages and primary & secondary residences, pensions and taxation. Based in Versoix.
GENEVA, SWITZERLAND – Some 2 million public sector workers are slated to walk out Wednesday 30 November in the UK, affecting schools, hospitals, government offices and public transport, among other services. The strike is over changes to government pension plans, with workers being asked to work longer hours to earn their pensions. The government announced Tuesday it wants to bring forward to 2026 a plan to move the pension age to 67.
Early reports indicate that 75 percent of schools in Britain are affected by the strike.
Prime Minister David Cameron lashed out early Wednesday at the union, holding them responsible for taking labour action while negotiations are going on. The BBC cites General secretary of the National Association of Head Teachers Russell Hobby, that “blame for any rise in union militancy – particularly among moderate unions – belongs fairly and squarely at the government’s door: A failure to negotiate in any meaningful sense until the last minute”.
The 24-hour strike is widely expected to involve up to two million workers, with the BBC labeling it “what is set to be the biggest walkout for a generation”.
Links to other sites: Daily Mail, Guardian, the Scotsman, Telegraph
Real estate and recovery in share prices account for improvement
Zurich, Switzerland (GenevaLunch) – Per capita net worth for Swiss households rose to about CHF333,000 in 2009, up from CHF316,000.
Home values rose in Switzerland in 2010
Housing prices and a recovery in share prices have brought Swiss household income back up to the level of 2007, before the 2008 global economic crisis, figures published Friday 19 November by the Swiss National Bank show. Financial assets held by households grew 8.7 percent in 2009, up CHF151 billion to CHF1,883 billion.
“Movements in financial assets were strongly influenced by rising stock market prices: roughly one-third of the price losses suffered in 2008 was recouped in 2009 on stock markets in Switzerland and abroad,” the central bank notes in a statement. The stock market improvement resulted in the value of household shares rising by CHF43 billion to CHF212b. The value of collective investment schemes climbed by CHF19b to CHF181b.
Pension funds see contributions outweigh benefits drawn
Pension funds, too, saw an improvement: contributions to occupational pension schemes exceeded the benefits drawn and price gains were recorded on pension fund investments, says the SNB.
More home buyers and rising apartment prices account for higher real estate value
The Swiss government provides two useful brochures for people working here who are considering relocating or retiring elsewhere. Both are in pdf format and can be downloaded:
Social Security in Switzerland, January 2010 update
Leaving Switzerland and Moving to an EU or EFTA country
Additional information is available from the Swiss-EU Liaison Office.
Swiss households' real estate assets, now more transparent
Zurich, Switzerland (GenevaLunch) – The net worth of Swiss households fell in 2008 from an average of CHF334,000 per capita to CHF312,000. About CHF200,000 of this is real estate and claims against insurance and pension plans. The drop in assets, the first since 2002, was due to sharp falls in stock market values. It would have been worse but for higher real estate values, which provided something of a safety net. Real estate assets, CHF1,315 billion in total, accounted for 43 percent of all household assets at the end of 2008, up from 39 percent the previous year.
Real estate prices climbed in 2008
The total value of households’ real estate rose by CHF73 billion in 2008.
The figures were released by the Swiss National Bank (SNB) Friday 20 November, as part of the national financial accounts. This is the first year that assets include households’ real estate. The report notes that:
“financial assets held by households declined by CHF199 billion (10.4%) to CHF1,718 billion, while assets held in real estate increased by CHF73 billion (5.9%) to CHF1,315 billion. Liabilities rose by CHF15 billion (2.4%) to CHF629 billion. As a result of these developments, households’ net worth fell by CHF 141 billion (5.5%) to CHF2,403 billion.”
