SWITZERLAND Law and Practice Contributed by: Marion Bähler, Ramona Wyss, Florian Gunz Niedermann, Fabienne Limacher and Urs Hofer, Walder Wyss Ltd
5. Employment Incentives 5.1 General
discount, currency, term, etc) on these CLAs to more than ten (non-bank) lenders or issues CLAs with different terms to more than 20 (non-bank) lenders in total (so-called 10/20-non-bank- rules), the SFTA qualifies the CLAs as convertible bonds and levies withholding tax on the interest payments when the interest is due. Furthermore, the SFTA in practice generally also qualifies the convertible discount as an inter - est payment and levies income and withhold - ing tax on it if the 10/20 non-bank rules are not observed, unless it qualifies the CLA as “classic” CLA. Pursuant the current practice of the SFTA, a CLA with a conversion discount of more than 20% no longer qualifies as “classic” CLA. For the refund of the withholding tax, see above. Upon conversion of a CLA, stamp duty will be due (see above) on the amount that is converted to equity. Furthermore, Swiss withholding tax is due irre - spective of the qualification as a convertible bond, if the interest is requalified as a construc - tive dividend. This is the case if the loan CLA is held by an existing shareholder or a related party, and the interest on the CLA is not at arm’s length according to the rules set out by the SFTA (the SFTA publishes safe haven rates every year) or if the company is thinly capitalised for tax pur - poses. An exception may apply to PIK interest (ie, interest that is paid in the form of additional shares upon conversion of the CLA instead of a cash settlement). 4.3 Government Endorsement See 4.1 Subsidy Programmes .
The long-term commitment of the founders and other key employees to the venture is crucial for the success and the sustainable develop - ment of the company. This commitment is often procured by offering key employees equity or virtual equity in the company. A (virtual) equi - ty participation ensures that the interests and efforts of the relevant beneficiary are aligned with the long-term success of the company. In some instances, a start-up would also grant monetary performance-based incentives: in par - ticular, bonuses to its key personnel. Non-com - pete and non-solicitation arrangements with key personnel, which serve to protect the company’s intellectual property and trade secrets as well as the relationship with both customers and other personnel, are prevalent in Switzerland. 5.2 Securities Swiss companies use various instruments to incentivise their key personnel. The most preva - lent ones are share plans, stock options plans and virtual share plans. In a share plan, benefi - ciaries are granted shares and thus directly and immediately participate in the equity capital of the company. In a stock option plan, the employ - ees are granted the right to acquire employee shares within a defined period (exercise period) at a certain price (exercise price). Often, compa - nies would opt to implement a virtual share plan, which means that the beneficiaries are granted virtual shares only, which reflect the value of a certain category of share (typically common stock), and, from a monetary perspective, gener - ally equates their holders to the holders of such category of (real) shares. However, holders of vir - tual shares neither hold a stake in the company nor have any shareholder rights.
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