Background
Recent regulatory and political developments around the world prove the topicality of business transactions relating to cannabis products. While for example the German parliament has voted over two years ago on the legalisation of medical cannabis, Canada and Uruguay issued regulatory frameworks to fully legalise cannabis products in general. As a result of those developments, the industry experienced an impressive amount of mergers and acquisitions as well as listings on several securities exchanges. But the transactions have not been limited to jurisdictions overseas, there is also an increasing interest to expand business operations to Europe with several transactions currently taking place in Switzerland. The current set-up of the European market with its countless SMEs makes it particularly attractive for foreign entities targeting industrial hemp companies. Those companies could become part of a consolidated structure thereby scaling the group business operations in Europe.
Looking at the regulatory, legal and tax environment in Switzerland, it seems that Switzerland, which is already known as a hub for leading consumer goods and pharmaceutical businesses, has taken an advanced position on trading cannabis products and offers advantageous conditions for serving as a business hub in Europe in this regard.
Regulatory legislation
According to the current regulatory set-up in Switzerland, it is permissible to sell and purchase cannabis products, as long as the THC level remains below 1%. Such products are not considered a narcotic drug according to the Swiss Narcotics Act. As a consequence, the industry currently focuses on cannabis products containing a low THC but high cannabidiol (CBD) level. The regulatory framework applicable to those products has to be determined by qualifying the relevant products into certain categories such as medical drugs, cosmetics, ingestible products or tobacco substitutes as well as seeds for commercial use. In February 2019, the Swiss government has also published its pilot plan which, in summary, aims at a reassessment of the current handling of cannabis products with a higher THC level to determine the effects of and options for non-medical use of cannabis. These recent developments may increase the share of Swiss businesses in the cannabis market for an extended range of cannabis products in Europe, not limited to CBD products, and also allow for out-of-industry transactions, which some expect to take place in the cannabis sector in the near future.
Direct tax
The attractive Swiss regulatory legislation is complemented by a highly attractive tax environment applicable to CBD. Low corporate income tax rates of between 12% and 14% in many Swiss cantons make Switzerland a well-established location for international trading and regional headquarter activities of multinational enterprises. Switzerland is able to provide an economic environment for businesses and is not tied back by the regulatory hurdles of the European Union, but is in the position to provide more flexibility for tax incentives, for instance by allowing the R&D super-deduction also on activities outsourced to related parties and third parties. The Swiss economy is very business and internationally orientated, which manifests itself in an extensive tax treaty network consisting of more than 95 comprehensive double tax treaties. Other beneficial tax features include full participation reduction on qualifying dividend income and capital gains, efficient tax ruling practice providing legal certainty and attractive personal income tax rates for executives (top tax rates of 23% in selected cantons).
Indirect tax
Since the business activities of multinational enterprises require a stable tax system facilitating the international import and export of goods and services, the Swiss customs authorities have taken into account the relevancy of cannabis products. They have published a practice overview outlining the different customs and tax aspects relating to cannabis products. Besides this, Switzerland offers a low standard value added tax (VAT) rate of 7.7%, whereas standard VAT rates in the European Union range between 17% to 27%.
About us
In view of the above considerations, Switzerland is a suitable jurisdiction for establishing a European hub for cannabis and related products. Loyens & Loeff is your ideal partner to advise on the most suitable cross-border business structure or acquisition project from a legal, tax and regulatory position, also offering a unique standing in Europe due to our representation in our home markets Belgium, Luxembourg, the Netherlands and Switzerland.
