What Switzerland Gets Wrong

March 09, 2025

There’s been lots of talk lately on how to make Europe more competitive. Grand strategies and and ambitious initiatives are often proposed. Yet these discussions often overlook the small administrative and practical hurdles entrepreneurs face daily.

Switzerland is often seen as a cradle of innovation, a paragon of a well run nation and the last fortress of capitalism in Europe. Running a company here has revealed a different reality: a country whose administrative machinery often works against its own ambitions. The issues to me seem fixable - if there’s the will to address them.

Required Insurance, Reluctant Providers

Companies here must provide employees with accident insurance and pension plans through private providers. The catch? You’re legally required to use their services, but they’re not required to serve you. Many simply decline to work with small companies.

Accident insurance was a little bit easier. Some providers even had an online form you could submit to get a quote instantly. To sign up, I had to visit their office in-person to make the deal. Invoicing is still done on paper and new employees have to be added to the plan by writing their information on a paper form they send out every year, which you fill out and mail back to them.

A default package for small businesses, with the option to optimize later, could solve this.

Mountains of Paper

There is a clear lack of digitalization.

Many contracts have to be signed in physical signatures, such as employment contracts in most cases. Most bills are still sent on paper by mail.

Issuing shares and incorporation still require an appointment with a notary. A notary is a person licensed and authorized to verify signatures.

The government has attempted to modernize through the ironically named ‘Easygov’ platform. When our company moved, I had to notify of an address change. Easygov generates the necessary paperwork that you are supposed to take to a notary for signing. There is an early version of a digital signature process, but it took me trying three of their recommended signing services before I could get the digital signature through the system.

First, I tried the Swiss Post’s signing platform. I was unable to go through their signing process. Next, I tried Skribble hoping that a private company might run a tighter ship. However, it failed to generate a compliant PDF that would be accepted by the platform. Finally, I tried Swisscom Sign. After going through the arduous sign up process, which required visiting a Swisscom shop, I was able to sign the document which miraculously was accepted by the Easygov platform. Swisscom Sign is only available through a mobile phone app though, not the most convenient for signing business PDF documents.

To Easygov’s credit, it also generates letters that you are expected to print out and mail to your pension fund, your accident insurance provider and so forth.

This leaves me wondering if they have fully grasped the benefits of digital communication.

The Cantonal Tax Maze

For employing B-permit holders (international talent), employers must withhold taxes - reasonable enough. Luckily, there is an online service where you can put in all their information, including all their family members information, and they will generate a tax code for you and invoice you for the taxes.

Problem is, you need to sign up separately with each canton you have employees from, who have each built a separate service to do this. They then each have their own quirks, they ask for different pieces of information, you get invoiced separately by each entity and you have to submit reports to each of them separately about salaries paid out. What a joy to deal with.

The Ten Investor Limit

While the confederation managed to unite twenty-six cantons centuries ago, uniting more than ten investors under a convertible loan agreement remains impossibly ambitious.

Internationally, it is quite common to finance new companies through convertible loan agreements. This proves problematic in Switzerland, due to the so called 10/20 rule. What it basically says is that if you have convertible loan agreements with more than 10 counterparties, they consider it a bond issue. In the case of convertible loans, the unrealized gains upon conversion to equity are taxed upon conversion. Therefore, you must stay below the limit of 10 counterparties to avoid this.

In our case, this meant we had to decline many investors that wanted to invest money into our company. We are talking very successful entrepreneurs that would have likely also gone out of their way to help our company in addition to the money they would have put in. Valuable capital and expertise left on the table, sacrificed to an arbitrary limit.

Ghost Equity

The financing peaks may be steep, but the real alpine challenge emerges when attempting to structure employee ownership.

The problem in Switzerland is threefold. When employees exercise their stock options, not only are the gains taxed as income, but the company becomes liable for social security and pension contributions on these gains - gains that occurred during employment but might be realized years later. This liability could arrive unexpectedly and be substantial, as companies can’t control when former employees exercise their options.

And even before these tax complications, each grant of actual equity would require a visit to the notary and a mountain of paperwork - adding cost, complexity, and delays to what should be a straightforward transaction.

This forces most companies to resort to phantom stock option programs - essentially contracts that mirror share ownership without granting actual shares or their associated rights. While functionally similar, anything with “phantom” in its name struggles for legitimacy, especially in equity discussions. Combined with Swiss workers’ traditionally conservative view of equity compensation, it makes attracting talent through ownership a particularly steep climb.

Immigration

We get lots of applications from very talented people that would be willing to move here and work with us. Many of them with Phds from top universities, YouTube channels with a following and objectively impressive projects under their belt.

Unfortunately, we have to reject most of these applicants because of the passports they hold. Restricted nationalities include USA, Canada and UK, not only low GDP countries, although it should not matter. Should we want to hire them, we would have to prove that no local person was available and file for a visa, which could take months and is uncertain until the very last moment.

Final thoughts

These friction points aren’t inevitable - they’re choices, maintained by willingly by inertia rather than necessity. For a nation that prides itself on efficiency and innovation, the gap between reputation and administrative reality is remarkable. The solutions seem straightforward, requiring only the will to implement them.