Most relevant tax measures

Israel and Switzerland have many similarities. Their populations are roughly the same size, their economic success is based on “brain power” rather than natural resources, and they are two of the most innovative nations in the world. So it is no surprise that scientific and commercial relations between the startup nation and the number one innovative country are flourishing.

Switzerland is the second most important supplier (after the USA) of goods and services to Israel, with about $8 billion in 2018. Israeli exports to Switzerland are smaller ($1.35 billion). Official figures are more modest: exports to Israel amount to $2 billion; imports from Israel total $739 million.

However, the significant development in the past seven years is the exponential growth in Israeli service exports to Switzerland, from $50 million in 2012 to $459 million last year. This is a tenfold increase and a doubling of service exports from $408 million to $937 million. This means that the potential for cooperation between the two “high-tech laboratories” is based on the digital economy.

Switzerland is an industrial nation with large companies in the fields of pharmaceuticals, machinery, metals, food, and watches. Switzerland invests capital in R&D (3.2% of its GDP, $14 billion, compared to $11 billion and 4.2% in Israel). Productivity is among the highest in the world, and this is the recipe for maintaining competitive advantage.

In addition, Switzerland has a highly liberal policy. It is integrated into the European market and enjoys free trade agreements with many countries, including Israel and China. This Alpine country was the second in Europe after Iceland to sign a free trade agreement with Beijing in 2013. Since then, there has been steady growth in trade with China, which has contributed to its export industry.

We will highlight three characteristics explaining the success of the Swiss economic model:

1. Political stability: Since 1959, nearly the same coalition has governed.
2. The decentralized federal system allows competition between 26 cantons, as most corporate and personal taxation falls under their authority. For example, corporate taxation in Bern is more than 20%, while in the cantons of Zug and Nidwalden, it is less than 15%.
3. The education system is based on vocational training and provides companies with a skilled workforce according to market needs. About two-thirds of young people join the workforce at age 16 rather than only attending academia.

The beauty of this model is that anyone can attend university, even after starting a professional career as an apprentice. If there is desire and ability—builders and carpenters can become architects.

These features have attracted many international corporations, and today about 25,000 international companies operate in Switzerland, including a high concentration of companies ranked in the “Fortune 500” list.

Nestlé, which has a significant presence in Israel, is the largest Swiss company in terms of the number of employees it employs (320,000 employees worldwide). Glencore leads in annual turnover (more than $200 billion). ABB, Novartis, and Roche are prominent companies in the top ten. All are active in Israel.

Two years ago, we realized that the Israeli startup scene was not sufficiently aware of the potential in Switzerland. We asked, “Why exit to California when much closer Switzerland can open the doors to the world?”

We launched a dynamic program aimed at introducing Israeli companies to the Swiss ecosystem. In March 2020, we will launch the Israel-Switzerland Lean Launchpad. We invite Israeli and Swiss startups to work together in a shared space, in Switzerland and Israel.

The goal is mutual enrichment, which on one hand will lead Israeli innovative companies to develop their products and see Switzerland as an excellent base for global expansion. At the same time, we would be happy to inject some Israeli boldness into Swiss habits.

The Swiss are more aware of risk than risk-takers. In Switzerland, recovering from bankruptcy is difficult, whereas Israeli venture capital seeks people who have learned from their mistakes.

It is important and necessary to promote venture capital investments in Switzerland. The $1.24 billion invested in Swiss startups in 2018 pales in comparison to Israel, where $6 billion was invested.

Some argue that innovation in Switzerland occurs in hundreds of thousands of small and medium-sized businesses just as much as in large corporations. Moreover, due to the cautious mentality of the Swiss, many more startups survive and become profitable. Perhaps. But in a world where startups are like racing boats, showing the way to aircraft carriers, we need many more racing boats than we have today. And this is something we can learn from Israel.

The author is Jean-Daniel Ruch, Swiss Ambassador to Israel.