Free Trade Agreement Switzerland-China: Entering into force on 1 July 2014

in Tax, 02.05.2014

The free Trade agreement between China and Switzerland that was signed on 6 July 2013 by the Chinese Minister of Commerce, Gao Hucheng, and the Swiss Federal Councilor, Johann Schneider-Ammann, will enter into force on 1 July 2014.

With this, Switzerland will become the first continental European country with a free trade agreement with the soon largest economy of the world.

Strong effects on bilateral trade

With the Free Trade Agreement, existing Swiss tariffs on Chinese industrial products will be abolished. Likewise, the vast majority of Switzerland’s industrial exports to China will enjoy full or partial tariff dismantling. Whilst the majority of Swiss export goods will enjoy immediate exemption from the tariffs, some industry segments will receive a 5-10 year transitional reduction scheme, in exceptional cases up to 15 years. The FTA also includes tariff benefits for agricultural and food products.

… and on direct investments

Together with the new Double Tax Treaty between Hong Kong and Switzerland that entered into force in October 2012, Switzerland is now a top headquarter location for Chinese/HK companies as an ideal gateway to Europe, while foreign direct investments in China/HK via Switzerland are becoming even more attractive. Among other advantages, companies benefit from a 0% withholding tax on dividends on qualifying investments.

Additional benefits of the agreement

In addition, the FTA will provide increased certainty regarding IP regulation and work or residence permits.

China is Switzerland’s largest trade partner for industrial products in Asia, while Switzerland is China’s seventh largest trade partner and the sixth largest source of foreign investment in Europe. “With the advent of FTA, Switzerland will become the first country in continental Europe and the first of the world’s top 20 economies to reach an FTA with China, the implications of which will be significant,” Chinese Prime Minister Li Keqiang stated during his visit to Switzerland in May. The FTA will likely come into effect in the second semester of 2014 (estimate). The new FTA might also significantly improve Switzerland’s advantages in becoming an attractive trading hub for the Chinese Yuan in Europe.

How can you benefit from the new agreement?

In order to react appropriately and effectively, companies should start preparing now for changing regulations regarding customs procedures, rules of origin, trade facilitation, trade remedies, non-tariff barriers to trade etc. or for direct investments in order to fully benefit from the new FTA.
If you have any questions regarding the international business between Switzerland and China or Hong Kong, please do not hesitate to contact me or my colleagues from KPMG’s Swiss-Chinese Focus Group.

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