About the Editor Adam Starchild can occassionally be persuaded to take time off from his private entrepreneurship activities to write. During these interludes he has written over a dozen published books and hundreds of magazine articles, primarily on international business and finance. Four of his books have been on tax havens, the earliest in 1978, and the most recent in 1993. His articles have a appeared in a wide range of publications around the world -- including Euromoney, International Living, The Futurist, Tax Planning International, Trusts & Estates, and many more. Discretionary Accounts If you have something on the order of $100,000 to invest (depending on the bank, more at most of them), you might consider a discretionary account with a Swiss bank. The bank will manage the investment for you, according to criteria you define. The investment will move among markets and currencies and instruments, according to the bank's best judgment. For this sort of operation, you should consider Geneva's private banks, rather than the large nationwide Swiss banks. Most of these banks require a $250,000 minimum investment. Remember that most of the smaller Swiss banks (except for Baer and Vontobel, which are listed on the Swiss stock market) do not publish their balance sheets. Many of them will not accept business without an introduction. This is not a matter for a first-time overseas investor to undertake with only a book as a guide. The leading Swiss private banks are Pictet, Lombard Odier, and Hentsch in Geneva. (Hentsch will take an account with $100,000, but the others probably will not.) They do not welcome walk-in clients. Two other private banks are a bit more accessible. Gutzailler, because it is a Eurobond issuer, and Vontobel, because it does corporate finance. It is possible to use a corporate banking relationship as a doorway to private banking services at these banks, which is why they are included in the listings at the end of this chapter. Swiss banks have developed the gold storage business into a fine art. Although the days of sales tax-free gold buying in Switzerland are over, the fee for storing your gold in Switzerland is still quite low. The minimum for having a Swiss bank store your money is one kilogram (2.2 pounds) or 30 gold coins. It is perfectly legal for Americans to buy and store gold outside the United States. You do not have to declare to any authorities that you own gold abroad in any amount. However, you should declare for U.S. taxes any capital gain from a sale of gold. Despite these options, most foreigners in Switzerland have simple bank accounts. Most of these are not numbered accounts, but ordinary name accounts. The minimums for ordinary accounts (which vary by bank) are much lower. You can arrange for your bank to keep your statements for you or send them in a plain envelope once a year. You can work out a code with your bank to be sure that, when you call, the person on the other end of the telephone actually is you. Most common is to give your mother's maiden name. The largest banks operate throughout the country. Private banks are concentrated in Geneva because most of their clients historically were French. Many Swiss bankers (and even bank employees at the bottom of the totem pole, such as tellers and switchboard operators) speak English. They also speak German, French, and Italian as a matter of course and frequently speak other languages as well, such as Spanish. Still the safest wealth protection haven Based on liquidity ratio (a function of how easily a bank can cover its outstanding obligations by selling off its assets), the following banks are the safest in Switzerland, and perhaps the world. These banks will open accounts for new clients only if they are known to the bank or are recommended by an advisor or correspondent with whom the bank is familiar. Banque Financiere De La Cite Banque Lausannoise de Portefeuilles BFZ Bankfinanz Cambio Valorenbank Dreyfus Sohne & Cie Ferrier Lullin & Cie SA FIBI Bank (Switzerland) Ltd. Guyerzeller Bank PBZ Privatbank Zurich Ruegg Bank Zurich The Dutch connection One way to invest in a broad portfolio with a Swiss bank without too much money is through the Dutch mutual fund group Robeco (Rotterdamse Belegings Co.). The Dutch group was founded in 1929. The SEC doesn t approve of it because it is publicly listed and open-ended. (In the United States, publicly listed mutual funds are closed-ended.) In practice, this means that Robeco intervenes on the Dutch stock market to repurchase its shares or sell them to keep the price close to net-asset value. Legally, the funds in the group are incorporated investment institutions with variable capital. The Robeco group is the largest mutual fund management group in the world outside the United States and Britain, with funds under management topping $15 billion. It offers four funds: Robeco, an equity fund aiming at worldwide blue chips; Rolinco, an equity fund aiming at growth but still prudent; Rodamco, a diversified international real estate investment company (whose largest investments are in the United States) aiming at appreciation and income; and Rorento, a bond fund, a fixed-interest accumulator trust aiming at earning interest and capital gains. Investors can switch among the funds without fees. The Dutch fund management group has opened a bank in Geneva, Banque Robeco (Suisse), and which acts as a distribution center for Robeco products outside the Netherlands. A few years ago, the Dutch government began to fuss about nondistributed earnings being reinvested in the funds and threatened to make trouble about getting identification from new clients (as part of a crackdown on tax evasion within the Netherlands). To help circumvent these developments the group opened its bank in Geneva. The whole operation still is essentially run out of Rotterdam, with the added advantage of Swiss secrecy and multi-currency efficiency. Deposits or withdrawals can be made in any major currency. The highly efficient computerized system automatically reinvests all dividends (without withholding taxes, as would be required were Robeco Swiss rather than Dutch). The minimum investment is $5,000, and you can divide it among up to four funds to best match your investment needs. These folks speak English well: Robeco, N.V., Heer Kobelweg 133, Postbus 973, NL-3000 Rotterdam, The Netherlands; tel. (31-10)465-0711; fax (31-10)465-1544. SWITZERLAND AND EUROPE 1991 was Switzerland's 700th birthday, but there was no grand, flag-waving celebration. Throughout the year, cities and villages celebrated in their own way, with alpine yodeling and wrestling fests, fireworks over Lake Zurich, and ballet in Lausanne. This country -- made up of 26 highly independent cantons, embracing four languages -- is simply too diverse to host a big, nationalistic bash such as the United States put on in 1976, the Swiss explain. Seven hundred years ago, if legend is to be believed, three brawny peasants met on a pretty meadow called the Rutli at the foot of the steep climb to the St. Gotthard pass, then as now the most direct route from the upper Rhine to Venice and the silk routes leading east. The perpetual alliance they swore is usually considered the nucleus of the Swiss Confederation. The three men in the meadow 700 years ago were tribal chieftains of what later became the cantons of Schwyz, Uri and Unterwalden. They signed a treaty for mutual protection in the crisis of succession after the death of the Habsburg ruler Rudolf I. The Habsburgs' ancestral castle was not far away, and the men of the forest cantons worried that some more remote king might be less amenable to leaving them alone to collect bridge-tolls and provide guided mule trains. Twenty years later the neighbors in Lucerne were invited to join the loose confederation. Its influence spread, sometimes by persuasion and often by conquest, only after a resounding defeat by the French at Marignano in Lombardy in 1515 did the mountaineers decide to eschew foreign military adventures. That neither kept them from fighting among themselves for a few centuries more nor, since the country was desperately poor in natural resources, from hiring themselves out as mercenaries for others. The last survivors of that practice are the Vatican's Swiss Guards. But expansion has its limits. In December, 1992, the Swiss electorate voted against affiliation with the European Community. What should we make of the Swiss vote? Here is the richest country in Europe (and on some measures the richest in the world), in the middle of the world's largest trading bloc, saying it can stand back from closer union. On the face of it, it looks as though the Swiss have made a serious and uncharacteristic error, at least in economic terms. While the vote will not lead to any economic catastrophe, conventional wisdom suggests that it will clip something off future growth. Swiss firms live by their exports and, to some extent at least, they will find it harder to export across the border. They may be forced to push some production over to subsidiaries within the European Community. Perhaps some investment that would have gone to Switzerland will go elsewhere. It was fear that the brilliant Swiss economy would be damaged that encouraged the political leaders to press for membership of the European Economic Area. Is this a case of ordinary voters allowing their hearts to rule their heads against the advice of the establishment? The conventional view was that the decision would hinder future economic growth. It reckoned that as far as the stock market was concerned a combination of higher trade costs and lower gross domestic product growth would more than offset any advantages from non- membership such as lower interest rates and freedom from EC competition policy. By this theory the economic effects of a "no" vote would justify a permanent fall in Swiss share prices. This was an intriguing exercise, but of course a move in the stock market of between 5 and 10 per cent is not that much, given the scale of the swings that take place in securities prices every week. The implication for growth is perhaps more worrying. A major investment banking firm, Goldman Sachs, immediately published a crisis report reckoning that the diversion of investment following the "no" vote, and labor migration (skilled people leaving) might together chip 0.6 per cent off annual growth over 10 years. That would be quite a lot, if it were to happen. But will it? There is a counter argument to be made, which is that staying outside the EEA might actually enhance Switzerland's economic performance. It runs like this. Switzerland happens to be in an extremely strong structural position. It has great strength in industries that look like being winners for the next decade or more. These include financial services (the three big banks and the Geneva-based fund management industry), pharmaceuticals (the three big chemical companies), food (Nestle, Suchard), and up-market tourism (St. Moritz, Klosters and Verbier). These are all areas of the world economy in which Japan and the newly industrialized countries cannot actively compete, and where the price of the product is not being constantly shaved by some new technological advance. By contrast, Switzerland is not strong in cars, aircraft, electronic consumer durables, computers -- all areas where European industry is, or is about to be, threatened by the Far East. In that sense it is better protected than most of the EC. Switzerland does have important industries in areas like machine tools, which are more open to international competition and might suffer if the economy were distanced from the rest of Europe, but much of its strength is in areas where it is quite well protected. Indeed in some of these areas, being outside the EC is a positive advantage. Take financial services, which accounts for 30 per cent of the value of the securities on the Swiss stock market. Swiss banks trade on their safety and their discretion. It was fascinating to see that foreign money actually flowed into Swiss securities following the vote. Switzerland was perceived as being a safer place to put cash if it remained outside the EEA, presumably for fear that at some future date the EC bureaucrats would get their fingers on those numbered bank accounts. In most of the other areas noted above, EEA membership is not really an issue. In pharmaceuticals there might be some modest disadvantage from staying outside, but the market is such an international "brain-based" one that it is hard to see any serious damage. Food products? Well, Nestle generates roughly 97 per cent of its turnover outside Switzerland, and is not really dependent on exports across the Swiss national boundary into the rest of Europe. Tourism? Membership of the EEA is not an issue. So while there might be some modest disadvantage to Switzerland, the Swiss winners would be fine. Some sectors, in particular financial services, would do better by staying outside. The effect might therefore be merely to push the country even further towards its specialties. But since these are good growth areas that does not matter. One could even construct an argument that Switzerland will benefit by keeping apart from the rest of Europe. The Use of Tax Havens Tax havens are one of the most important subjects for an international entrepreneur, yet few understand and use them properly. One group discount them as hiding holes for dirty money, which is not a legitimate use for tax havens. Others think they are only for banking money after you have made it. Not true either. Money grows much faster if a tax haven is part of your business planning, and almost any international business has an opportunity to use tax havens. It is the purely domestic business, confined to one country, that cannot benefit from the international fiscal loopholes. Switzerland is a major financial center, but not generally a tax haven. Simply stated, a tax haven is any country whose laws, regulations, traditions, and, in some cases, treaty arrangements make it possible for one to reduce his overall tax burden. This general definition, however, covers many types of tax havens, and it is important that you understand their differences. No-Tax Havens. These are countries that have no income, capital gains, or wealth (capital) taxes, and in which you can incorporate and/or form a trust. The governments of these countries do earn some revenue from corporations; "no-tax" means that what you pay is independent of income derived through a company. These states may impose small fees on documents of incorporation, a small charge on the value of corporate shares, annual registration fees, etc. Primary examples are Bermuda, Bahamas, and the Cayman Islands. No-Tax-on-Foreign-Income Havens. These countries do impose income taxes, both on individuals and corporations, but only on locally derived income. They exempt from tax any income earned from foreign sources that involve no local business activities apart from simple "housekeeping" matters. For example, in such a haven there is often no tax on income derived from export of local manufactured goods. The no-tax-on-foreign-income havens break down into two groups. There are those that allow a corporation to do business both internally and externally, taxing only the income coming from internal sources, and those that require a company to decide at the time of incorporation whether it will be one allowed to do local business, with the consequent tax liabilities, or one permitted to do only foreign business and thus be exempt from taxation. Primary examples in these two sub-categories are Panama, Liberia, Jersey, Guernsey, Isle of Man and Gibraltar. Low-Tax Havens. These are countries that impose some taxes on all corporate income, wherever earned. However, most have double-taxation agreements many the high-tax countries that may reduce the withholding tax imposed on income derived from the high-tax countries by local corporations. Cyprus is a primary example. The British Virgin Islands is another, but no longer has a tax treaty with the U.S. Special Tax Havens. These are countries that impose all or most of the usual taxes, but either allow special concessions to special types of companies (such as a total exemption from tax on shipping companies, or movie production companies) or allow very special types of corporate organization, such as the very flexible corporate arrangements offered by Liechtenstein. The Netherlands and Austria are particularly good examples of this. To understand the precise role of tax havens, it is important for you to distinguish two basic sorts of income: (1) return on labor and (2) return on capital. The first kind of return is what you get from your work: salary, wages, fees for professional services, and the like. The second kind of return relates, basically, to the return from your investments: dividends on shares of stock; interest on bank deposits, loans and bonds; rental income; royalties on patents. It is the second kind of income, income from an investment portfolio, that tax havens are useful for. Forming a corporation or trust in a tax haven can make the second form of income totally tax free, or taxed so low that you will hardly notice. Certain types of businesses can be effectively based in a tax haven. If you publish a newsletter, for example, you might be able to set up the entire operation in a totally tax free country such as the Bahamas or the Cayman Islands. If your income comes from copyright royalties, perhaps on the computer program you invented, the Netherlands is famed as a base for sheltering royalty income. Tax havens are a very complex subject, but the hours you spend studying their use will probably pay you more per hour than the hours you spend directly earning an income -- an unfortunate commentary on the confiscatory taxation policies of most governments. For the best detailed information on tax havens, order The Tax Haven Report from Scope International Ltd., 62 Murray Road, Waterlooville, Hants., PO8 9JL, United Kingdom. Price is approximately US$135, including airmail postage worldwide, and they accept Visa or MasterCard. Just stop and think for a moment how much faster your money can grow if you are not paying out an average of 40% to a taxing government somewhere. THE SWISS INSURANCE INDUSTRY Insurance companies belong to one of the most important sectors of the economy in Switzerland. It is also extremely conservative and safe. In 130 years none have failed, a record that even Swiss banks cannot match. Unique tax advantages combined with conservative money management cause Swiss insurance products to perform much better than one might expect. Conservative does not have to mean low returns. (If the insurance company doesn't have to deduct losses on a lot of bad investments, it is much easier to maintain a conservative, safe, high return.) Swiss government insurance company regulation keeps investment portfolios at a nearly no risk level. Liquidity and valuation of investments are ultra- conservative. Only a maximum of 30% of investible funds may be put in real estate. Swiss real estate has always held the highest values, but this is ultra- conservatism at work. If it should go down, it might not be liquid enough to cover claims -- so let's be ultra-conservative and severely limit the exposure. A philosophy that a lot of American banks and insurance companies are probably now wishing they had followed -- or at least their policyholders are wishing they had. Then just in case this isn't enough, Swiss insurance companies often carry their real estate holdings at less than half their present market value, allowing a very wide margin of price changes before safety can possibly be affected. Swiss accounting in general seems to be on the conservative side. Companies tend to have hidden reserves of millions, rather than the North American style of overvaluing assets to achieve a high stock market price for takeover bids. This conservatism applies all the more to the insurance industry. The Swiss insurance companies offer a greater range of services than the American investor is used to. In fact, the range is broader than that offered by most Swiss banks. There are only about 20 insurance companies in Switzerland. This concentration makes the industry stronger, and easier to supervise, than the thousands of American insurance companies. There are no weak insurance companies in Switzerland, unlike the United States were insurance laws in many states permit an insurance company to be formed with capital as low as $100,000, and licensed, empty insurance company shells are frequently sold in classified ads in The Wall Street Journal and other newspapers. The industry is regulated by the Swiss Federal Bureau of Private Insurance -- a very strict regulator. There is no rate competition -- the emphasis is on maintaining the strength of the insurer, and prohibiting risky investments (although it is unlikely that a Swiss insurance manager would even think of making a risky investment). Regulation of private insurance companies has been established by a clause in the Swiss federal constitution since 1885. Contrast this to the United States where insurance companies are often regulated only by rules promulgated by a politically appointed insurance commissioner, who expects to be employed by an insurance company when the governor who appointed him is retired in a few years. BOOKS BY ADAM STARCHILD It's Your Money: A Consumer's Guide to Credit Books for Business How to Develop and Manage A Successful Condominium Books for Business Business in 1990: A Look to the Future anthology introduced and edited by Adam Starchild University Press of the Pacific Starchild & Holahan's Seafood Cookbook (co-author) Pacific Search Press Tax Havens: What They Are and What They Can Do for the Shrewd Investor Arlington House Tax Havens and Corporations Gulf Publishing Co. Investing in the USA Euromoney Publications The Amazing Banana Cookbook Lakewood Books Everyman's Guide to Tax Havens Paladin Press The Tax Haven Story PPI Publishing Establishing Self Employed and Individual Retirement Plans PPI Publishing Building Wealth: A Layman's Guide to Trust Planning AMACOM, publishing division of the American Management Association How to Develop Your Own Construction & Land Development Business Nelson-Hall Publishers Tax Planning for Foreign Investors in the U.S. (co-author) Kluwer Law & Taxation Publishers The Seafood Heritage Cookbook Cornell Maritime Press Marketing Computer Hardware & Software in Latin America & The Caribbean Books for Business The Tax Haven Report Scope Books You will find these and other books by Adam Starchild listed in Books in Print at your public library or bookstore. These books generally are not available directly from the author, but most bookstores will order them for you directly from the publishers. Those books which are out of print may be obtained from the Books on Demand Service of University Microfilms in Ann Arbor, Michigan. Again your bookstore may place this order for you, or you may obtain current price and ordering information by calling University Microfilms. The Shareware Principle Extended to Consulting Offering this material on disk through shareware distribution channels is an experiment. The principle of "try before you buy" computer shareware is now well established, and the author is now offering a test of "try before you buy" consulting services. Normally the author works with a client's own lawyers and accountants, advising them on the comparative advantages and legal structures available in the various tax havens, while the domestic professionals then relate that knowledge to the tax laws of the particular client's country of citizenship and/or residence. The author's fees for such consultations are normally $250 per hour plus travel expenses. You now have the opportunity to study the basic structure of that advice, and determine if you can use it in your personal financial situation. There is no set fee for the use of this program, and the author leaves it to the individual user to determine how much use he has derived from it. If you read it and enjoy it as a book, but have no particular use for the information except as information, then a price similar to that you would have paid for a book would be appropriate -- say $25. (The author's books on tax havens sell for as much as $125.) If you are using this program as a substitute for personal consultations, then a substantially larger fee is requested -- a minimum of $250 would be appropriate. Checks should be made payable to Adam Starchild and mailed to: Adam Starchild P. O. Box 917729 Longwood, Florida 32791 U.S.A. It is understood that some readers of this type of information may prefer to leave no trail by sending a money order, or remain anonymous even to the author by sending a money order or cash. That is perfectly acceptable. Others may prefer to maintain proof of payment in order to take a tax deduction for tax or investment information. Swiss Secrecy: Not A Legend Swiss banking is often identified in America with banking secrecy. Popular media stories have created two contradictory pictures: that Swiss secrecy hinders law enforcement officers from prosecuting criminals, while others claim that Swiss secrecy does not exist anymore and is as full of holes as a Swiss cheese. Neither is true. The basic position in Swiss civil law is that the information concerning a customer and the customer's financial dealings is protected as part of the individual's legal right to privacy. In Switzerland, this has been made part of Article 28 of the Swiss Civil Code, and not only protects the information, but makes the person violating the secrecy liable to pay damages to the customer. In addition, the banking law makes it a criminal offense in Switzerland for a banker to divulge information about a customer in violation of the law, punishable by fine or imprisonment. Both the bank and the bank employee may be subject to various penalties if a violation occurs. A bank can only disclose information when authorized to do so under existing statutory provisions or by a Swiss court order, which must be founded on law. Secrecy is interpreted so broadly that it is illegal for a bank to say whether or not a person is a customer, since if the bank failed to do so it would be implying that the person was a customer. The right of secrecy is a right belonging to the customer, not the bank. It is the customer's privacy that is protected by law. The customer can waive the secrecy, but the bank cannot. For example, the customer may waive secrecy and ask the bank to give a credit reference to a specific creditor. But such a waiver is only valid if the customer acts voluntarily and not under duress. Therefore, waivers that were signed pursuant to foreign court orders compelling a customer to sign a waiver may well be invalid. A financial institution cannot ask the government for an order waiving secrecy. Only the customer can waive the secrecy. Contrary to an opinion current in America, Swiss secrecy is not absolute. It can be overridden by statutory provisions which compel the giving of information. Such rules requiring disclosure of information -- usually with a limited scope -- can be found in Swiss inheritance law (you really wouldn't want your legitimate heir going into the insurance company with your death certificate to be told they can't tell him anything), in enforcement of judgments from creditors, in bankruptcy or in divorce. The most widely known limitation on secrecy is in treaties concerning Swiss cooperation in foreign criminal matters. In a criminal investigation conducted in Switzerland, of a Swiss crime committed by a Swiss citizen, secrecy can be lifted by court order. The treaties extend this possibility to foreign crimes by foreign citizens in foreign investigations, but only in the limited circumstances spelled out in the treaties. Before a foreign legal assistance request for Swiss financial records can be honored the following conditions must be met: 1) Compulsory disclosure is only possible if the offense that is being prosecuted is punishable as a criminal offense in both countries (the requesting state and Switzerland). 2) In tax cases assistance is available to foreign prosecutors only if the investigated violation of foreign tax laws would be qualified under Swiss law as a tax fraud and not merely as tax evasion. Tax evasion is simply the failure to declare income or assets for taxation. Tax fraud is distinguished by the fact that "fraudulent conduct" is involved. Normally "fraudulent conduct" can only be assumed if forged documents are used. There is a special provision of the Swiss-United States Treaty on Mutual Assistance in Criminal Matters that provides Swiss legal assistance to U. S. prosecutors even in tax evasion cases if they are conducting an investigation against an organized crime group. 3) As a general rule, the information obtained in Switzerland through a legal assistance procedure may not be used for investigative purposes nor be introduced into evidence in the requesting state in any proceeding relating to an offense other than the offense for which assistance has been granted. It must be emphasized that foreign authorities or foreign courts cannot directly ask a Swiss financial institution for information. Even in cases in which legal assistance can be granted and therefore secrecy is lifted, only a Swiss court order - which in these cases is based upon a foreign request for legal assistance - can validly lift secrecy. Considering this, it can be said that secrecy is strict and is only put aside in case clearly defined by Swiss law and pursuant to Swiss rules. Secrecy is, however, not absolute and does therefore not protect criminals. Switzerland has long served as a magnet for the money of wealthy foreigners who perceive the world as buffeted by over-taxation, over-regulation and political turmoil. They are attracted, of course, by the confidentiality and discretion that have been a hallmark of Swiss bankers since the French Revolution, when they offered financial refuge to French aristocrats. In 1934 secrecy was enshrined into law. Insurance Annuities Swiss annuities minimize the risk posed by U. S. annuities. They are heavily regulated, unlike in the U.S., to avoid any potential funding problem. They denominate accounts in the strong Swiss franc, compared to the weakening dollar. And the annuity payout is guaranteed. Swiss annuities are exempt from the 35% withholding tax imposed by Switzerland on bank account interest received by foreigners. Annuities do not have to be reported to Swiss or U.S. tax authorities. They are not a foreign financial account for the purpose of U.S. reporting requirements. A U.S. purchaser of an annuity is required to pay a 1% U.S. federal excise tax on the purchase of any policy from a foreign company. This is much like the sales tax rule that says that if a person shops in a different state, with a lower sales tax than their home state, when they get home they are required to mail a check to their home state's sales tax department for the difference in sales tax rates. The federal excise tax form (IRS Form 720) does not ask for details of the policy bought or who it was bought from -- it merely asks for a calculation of 1% tax of any foreign policies purchased. This is a one time tax at the time of purchase; it is not an ongoing tax. It is the responsibility of the U. S. taxpayer, to report the Swiss annuity or other foreign insurance policy. Swiss insurance companies do not report anything to any government agency, Swiss or American -- not the initial purchase of the policy, nor the payments into it, nor interest and dividends earned. Earnings on annuities during the deferral period are not taxable in the U.S. until income is paid, or when they are liquidated, following exactly the same tax rules as for annuities issued by U.S. insurance companies. Swiss annuities can be placed in a U. S. tax- sheltered pension plans, such as IRA, Keogh, or corporate plans, or such a plan can be rolled over into a Swiss-annuity. (To put a Swiss annuity in a U.S. pension plan, all that is required is a U.S. trustee, such as a bank or other institution, and that the annuity contract be held in the U.S. by that trustee. Many banks offer "self-directed" pension plans for a very small annual administration fee, and these plans can easily be used for this purpose.) Investment in Swiss annuities is on a "no load" basis, front-end or back-end. The investments can be canceled at any time, without a loss of principal, and with all principal, interest and dividends payable if canceled after one year. (If canceled in the first year, there is a small penalty of about 500 Swiss francs, plus loss of interest.) A new Swiss annuity product (first offered in 1991), SWISS PLUS, brings together the benefits of Swiss bank accounts and Swiss deferred annuities, without the drawbacks -- presenting the best Swiss investment advantages for American investors. SWISS PLUS, is a convertible annuity account, offered only by Elvia Life of Geneva. Elvia Life is a $2 billion strong company, serving 220,000 clients, of which 57% are living in Switzerland and 43% abroad. The account can be denominated in the Swiss franc, the U.S. dollar, the German mark, or the ECU, and the investor can switch at any time from one to another. Or an investor can diversify the account by investing in more than one currency, and still change the currency at any time during the accumulation period -- up until beginning to receive income or withdrawing the capital. If you are not familiar with the ECU, it is the European Currency Unit, a new currency created in 1979. It is composed of a currency basket of 11 European currencies, and its value is calculated daily by the european Commission according to the changes in value of the underlying currencies. The ECU is composed of a weighted mean of all member currencies of the European Monetary System. Since the ECU changes its balance to reflect changes in exchange rates and interest rates between these currencies, the ECU tends to limit exchange rate risk and interest rate risks. Although called an annuity, SWISS PLUS acts more like a savings account than a deferred annuity. But it is operated under an insurance company's umbrella, so that it conforms to the IRS' definition of an annuity, and as such, compounds tax-free until it is liquidated or converted into an income annuity later on. SWISS PLUS accounts earn approximately the same return as long-term government bonds in the same currency the account is denominated in (European Community bonds in the case of the ECU), less a half- percent management fee. Interest and dividend income are guaranteed by a Swiss insurance company. Swiss government regulations protect investors against either under-performance or overcharging. SWISS PLUS offers instant liquidity, a rarity in annuities. All capital, plus all accumulated interest and dividends, can be freely accessible after the first year. During the first year 100% of the principal is freely accessible, less a SFr 500 fee, and loss of the interest. So if all funds are needed quickly, either for an emergency or for another investment, there is no "lock-in" period as there is with most American annuities. Upon maturity of the account, the investor can choose between a lump sum payout (paying capital gains tax on accumulated earnings only), rolling the funds into an income annuity (paying capital gains taxes only as future income payments are received, and then only on the portion representing accumulated earnings), or extend the scheduled term by giving notice in advance of the originally scheduled date (and continue to defer tax on accumulated earnings). According to Swiss law, insurance policies -- including annuity contracts -- cannot be seized by creditors. They also cannot be included in a Swiss bankruptcy procedure. Even if an American court expressly orders the seizure of a Swiss annuity account or its inclusion in a bankruptcy estate, the account will not be seized by Swiss authorities, provided that it has been structured the right way. There are two requirements: A U. S. resident who buys a life insurance policy from a Swiss insurance company must designate his or her spouse or descendants, or a third party (if done so irrevocably) as beneficiaries. Also, to avoid suspicion of making a fraudulent conveyance to avoid a specific judgment, under Swiss law, the person must have purchased the policy or designated the beneficiaries not less than six months before any bankruptcy decree or collection process. These laws are part of fundamental Swiss law. They were not created to make Switzerland an asset protection haven. In the Swiss annuity situation, the insurance policy is not being protected by the Swiss courts and government because of any especial concern for the American investor, but because the principle of protection of insurance policies is a fundamental part of Swiss law -- for the protection of the Swiss themselves. Insurance is for the family, not something to be taken by creditors or other claimants. No Swiss lawyer would even waste his time bringing such a case. Contact information The only way for North Americans to get information on Swiss annuities is to send a letter to a Swiss insurance broker. This is because very few transactions can be concluded directly with foreigners either with a Swiss insurance company or with regular Swiss insurance agents. When you contact a Swiss insurance broker, be sure to include, in addition to your name, address, and telephone number, your date of birth, marital status, citizenship, number of children and their ages, name of spouse, a clear definition of your financial objectives (possibly on what dollar amount you would like to receive), and whether the information is for a corporation or an individual, or both. One firm specializes in dealing with English speaking investors, and everybody in the firm speaks excellent English. They are also familiar with U. S. laws affecting the purchase of Swiss annuities. Contact: Mr. Jurg Lattmann. JML Swiss Investment Counsellors AG, Dept. 212, Germaniastrasse 55, 8031 Zurich, Switzerland; tel. (41-1) 363-2510, fax: (41-1) 361-074. WHY SWITZERLAND? Switzerland has long served as a magnet for the money of wealthy foreigners who perceive the world as buffeted by over-taxation, over-regulation and political turmoil. They are attracted, of course, by the confidentiality and discretion that have been a hallmark of Swiss bankers since the French Revolution, when they offered financial refuge to French aristocrats. Banking in Switzerland, a land of few natural resources, has been immensely lucrative. Operating in a country less than half the size of Maine, Swiss banks control more than $400 billion in assets, making the country the third-largest financial center in the world. For people with money to protect -- whether a little or a lot -- Switzerland is traditionally considered the world's safest repository. These days, the Swiss can give Americans many reasons to leave funds in Switzerland But the promise of total secrecy in financial matters remains one of the greatest attraction of Swiss banks. The Withholding Tax The Swiss impose a 35% withholding tax on interest paid in Swiss francs. You can recover this money by the simple expedient of declaring the interest to the IRS. You will come out ahead doing this, because you will receive a refund, if you are in the standard 28% bracket and not subject to state or city income taxes. However, the Swiss do not issue 1099 forms, and it may be difficult to determine the appropriate exchange rate for the dollar. One way to avoid the withholding tax is to have an account denominated in a currency other than the Swiss franc. A certificate of deposit can be denominated in Swiss francs, but held outside the country. However, such accounts may be only as sound as the foreign bank into which the Swiss bank placed your money. Another, very common, way to avoid the withholding tax is to have the Swiss bank act as your money manager, in what is called a fiduciary account. All of the investments are made outside of Switzerland, in whatever you tell the bank to do -- mortgages, mutual funds, other banks. The money is merely passing through Switzerland, and is not taxed there.