Switzerland phases out bearer shares

At the end of September, the Swiss government announced its commitment to phasing out so-called Bearer Shares. From the 1st November, the Federal Act on the Implementation of Recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes comes into effect. This is in line with the requirements of the European Union.

Two weeks later, the EU removed Switzerland from the grey list of “countries with concerning tax practices” and placed it on the White List of compliant jurisdictions.

Three Years of Progress

Switzerland first announced the abolition of bearer shares in July 2016. This followed the publication of a phase 2 peer-review report from the OECD Global Tax Transparency Forum which came out that month. The report listed multiple recommendations for Switzerland.

One of the main recommendations was that companies registered in the country should report beneficial owners to tax authorities for full tax accounting and transparency to tackle the potential for money laundering. Bearer shares was the main stumbling block to this in Switzerland, making such reporting almost impossible.

Moreover, the report stated that if those recommendations were not enacted, the country would fail a follow-up review planned for 2018.

A January 2018 Bill

The Federal Council of Switzerland introduced a Bill in January 2018 covering all the recommendations in the OECD report. This included compulsory measures to convert all bearer shares into registered shares. Yet there was opposition to the bill. Critics stated that the intended measures exceeded the requirements of the OECD report. It was discovered that the changes would affect 60,000 businesses in Switzerland, their creditors and shareholders.

In November, opposition was overcome, and the country took measures to finally abolition Bearer Shares for unlisted companies. The Bill passed through Parliament and it came into effect in June this year as the Anti-Money Laundering Act.

What Will Happen to Existing Bearer Shares?

Current existing bearer shares in unlisted companies will become invalid from the 1st November. However, they can be re-structured as intermediated securities. Listed companies are still able to issue them.

Individuals that hold such bearer shares who fail to meet the new legislative requirements must report the situation to the issuing company. They have 18 months to do this so that the conversion can take place by the 1st May 2021 deadline. The Act makes further provisions for procedures to permit the identification of shareholders who fail to report by the deadline.

Any shares owned by non-registered shareholders will simply become invalid on 1st November 2024, the fifth anniversary of the Act.

The Swiss Act also requires legal bodies with headquarters outside the jurisdiction but where administration effectively takes place in Switzerland, to maintain a register of beneficial owners at their Swiss offices.

Consequences of Non-Compliance

Any company that fails to adequately report beneficial owners will face fines. Fines will also be levied against businesses that do not adequately maintain a share register and list of such beneficial owners.

Any creditor, shareholder, or commercial register may initiate proceedings against those failing to maintain proper records. A court may enforce a deadline for doing so, or order the company’s dissolution. Further criminal sanctions may also be executed.