Jan van Bueren and Thomas Ming, of UBP’s FOSS Family Office Services Switzerland, outline one of the key elements to look out for when establishing a single-family office; its location
When families consider setting-up their own single-family office (SFO), they often overlook the matter of the jurisdiction in which that family office should be. This is actually an essential element that deserves serious thought.
There are quite a few questions that need answering before deciding on the jurisdiction for a SFO:
• In which jurisdiction does the family need support?
• What are the family’s goals?
• What should the legal form be?
• Which of the family’s entities need to be managed?
• Which assets need to be preserved and protected?
When establishing a SFO, affluent families need to select a country that is politically, religiously, economically and financially stable, provides easy access to financial service providers, and offers a sound infrastructure, and where staff is highly qualified and experienced.
A common mistake families make is to create a SFO in the same jurisdiction as where they live. Although this can be very practical, for example from a communication point of view, this is often not the best choice when examined from a wealth-preservation perspective. Because the primary roles of a SFO are to safeguard the family’s assets and to support the family under all kinds of circumstances.
A family office for wealth preservation
This means that the family office needs to be able to protect the family’s assets and interests against all types of risks, while remaining fully operational under any circumstances. Because unstable and unsafe jurisdictions outnumber the stable and safe ones by far, the majority of SFO’s will need to be located outside the home jurisdiction of the families they serve. This does not necessarily mean that the entire staff must be located in a foreign jurisdiction; some roles can be (partially) based in the family’s original jurisdiction.
In addition to providing stability and security, the jurisdiction of the family office must also:
• Be easily reachable
• Be tax-efficient.
• Allow the office to manage the family’s entities efficiently (holding companies, trusts, foundations, etc.)
Finally, most SFOs prefer to be located in a jurisdiction known for having a reputable financial centre. It considerably simplifies the activities of an SFO when it is in the vicinity of stable private banks and financial specialists with solid reputations and lots of experience. All the essential requirements highlighted above ultimately limit the number of best possible jurisdictions to only a few and that is exactly why you find so many SFOs in Switzerland.
Switzerland, the traditional safe haven
Switzerland is politically, economically and financially very stable. It has been a neutral country for two centuries. Thanks to broad diversification and strong domestic demand the Swiss economy has been growing steadily and has not been weighed down by the worldwide economic and financial crisis. Thanks to its constitutional debt brake, the Swiss government has been able to produce a budget surplus every single year since the start of the financial crisis in 2008 and as a result Switzerland nowadays has one of the world’s lowest government debt ratios and is one of the few countries left with a AAA rating.
Swiss financial infrastructure
Close proximity to solid private and investment banks is key, as one of the primary tasks of a SFO is to manage wealth. Swiss banks have been world leaders in the wealth management industry for a very long time and some of the best-capitalised banks in the world are located in Switzerland. Swiss private banks stand apart from local private banks thanks to their expertise and experience in investments and investment classes from around the world. A Swiss private bank does not only advise on securities traded on the Swiss Exchange, but also on securities traded on all other international stock exchanges (contrary to, for example, US-based banks).
Switzerland also has an attractive corporate income tax system. Rates are relatively low and Switzerland has signed agreements for the avoidance of double taxation with many countries. On top of that Switzerland is also a signatory to the Hague Trust Convention thereby recognising the existence and validity of trusts. All this is backed up by Switzerland’s reputable, trustworthy and solid legal system and its topflight specialists such as tax advisors, lawyers and notaries.
Family office staff
Highly experienced, motivated, reliable and educated staff with financial experience can also be well recruited or found in Switzerland. But even more importantly, such staff currently located elsewhere in the world can also be persuaded to relocate to Switzerland as its living standards are considered one of the best in the world.
All these elements make Switzerland one of the best locations to establish a SFO. Because a family office is not only there to manage a family’s wealth, but also to safeguard and protect it when the family’s home country turns out to be less stable than they had hoped or expected.
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