Duty-Free Warehouses

The value of all luxury goods worldwide is estimated at around $4 trillion, whereas the British magazine The Economist estimated that goods, worth several hundreds of billion dollars, are kept in duty-free warehouses (ZFL, Zollfreilager) worldwide. The model duty-free warehouse (ZFL) experiences a worldwide boom. Wealthy people increasingly invest part of their money into valuables, first and foremost precious metals. Duty-free warehouses are so popular because, after the demise of banking secrecy, they are one of the last places where one can park assets safely and anonymously. The confidence in the banking and financial system is more than badly damaged and an improvement is not in sight, on the contrary. In addition to duty-free and tax-free trading and safekeeping, duty-free warehouses also offer customers similar discretion as banks once did with the Swiss banking secrecy. Duty-free warehouses enjoy an extraterritorial status, that is, the goods are virtually in no man's land. Customs duties and value added taxes are only incurred when the goods are intended for sale in a country or are taken out from the warehouse. Duty-free zones are created for all types of goods in transit.

 

Duty-free warehouses have a long tradition in Switzerland. The country plays a pioneering role in this business, which grows at an annual rate of around 10%, and remains the most important hub for duty-free warehouses. The difference between a duty-free warehouse (ZFL) and an OZL (Offenes Zollfreilager; "Open Duty-Free Warehouse") is that the customs is not on-site at the OZL, but only sporadically carries out random sampling. The advantage is obvious: Since OZL do not rely on the presence of customs, a customer can inspect and/or pick up his goods in an OZL at any time (365 days a year). If the precious metals are in a ZFL, the customer must follow the opening hours of the customs. 

 

Elementum offers its clients to store precious metals in one of the safest OZLs worldwide: Inside the St. Gotthard mountain massif in central Switzerland – a state-of-the-art security system in a former military bunker, which was also used by the Swiss National Bank until the 1990s. Elementum's clients can store their precious metals in a safe and anonymous location, visit them personally at any time or pick them up. Only with the physical removal of the precious metals from the vaulting facility, the client must pay duty on the goods, however the client can sell its precious metals also at any time to a precious metal dealer (eg. Elementum Deutschland GmbH) or exchange it into gold (because contrary to silver, no VAT must be paid with gold).

 

Precious metals are purchased primarily for asset accumulation, optimization and protection, especially as a long-term value preservation in turbulent times of financial and political uncertainty. Therefore, the decision on the location of storage should be well considered, as precious metals should be kept in the safest jurisdictions in the world. In recent years, the trend has been heard in many places that precious metals from the Western world are being relocated to Asia, with Switzerland also experiencing enormous imports. For decades, Switzerland has been one of the most preferred locations for the storage of valuables by international private and institutional investors. There is a belief among them that safekeeping in Switzerland is more secure than in the EU, UK and US. In history, gold and silver flowed mainly to where they were treated and viewed most favorably. The trend is clearly one-way: Precious metals are leaving the exorbitantly over-indebted and vulnerable banking system. Switzerland traditionally enjoys the reputation of being one of the safest countries for storing precious metals, if not the safest location ever. The advantages at a glance:

1. Political Stability:

Switzerland has a multi-party democracy and a very high degree of direct democracy, since the population is allowed to exert influence on political legislation through referendums. This combination of democracy keeps the political system stable, while also basing it on compromise and cooperation, and additionally stabilizing it. The government operates on three levels (federal, cantonal and local). With its 26 cantons, Switzerland has always been considered neutral, with excellent bilateral relations with almost every country in the world. As a result, above-average numbers of first-time subsidiaries of international companies and groups are found in Switzerland, whereas conferences and events are also held by international organizations, with a preference in this county. Switzerland is not a member of the EU and this has allowed it to remain independent and less influenced by the EU banking system.

2. Currency Stability:

The Swiss Franc (CHF) has long been regarded as a safe haven, with less than other currencies losing purchasing power since the end of the gold standard. The currency strength of the CHF is based in particular on the strength of the domestic economy, the above-average gold reserves and the general expectation that Switzerland will not inflate its currency to the same extent as other countries. With a total of 1040 tonnes of gold from the Swiss National Bank, this represents one of the highest gold reserves per capita worldwide - despite the 1550 tonnes of gold sold between 1999-2004 and 2007-2008. Since 1971, the CHF has appreciated more than 300% against the USD.

3. Precious Metals Trading Hub #1:

Switzerland has a long history as the world's most important trading center for precious metals. This is also due to the fact that the "Zurich Gold Pool" gained enormous importance in the 1960s and 1970s, and put the "London Gold Pool" in the shade. In 1971, 80% of all South African gold sales were made in Switzerland (20% via London). The Swiss gold market handled most of the Russian gold in the 1950-1980s. Although Switzerland has since lost some ground with competition from London and New York, the country is still one of the most important centers for trading, refining and transit settlement, especially for Germany, the Middle East, India, and Asia (especially China). More than 1500 people work in the Swiss precious metals refining industry, as it is the global gold refining center (approximately 70% of the world's gold refining output comes from Switzerland).

4. Tax Advantages:

There is no VAT on gold in Switzerland when buying, and no import duty has to be paid on import. In Switzerland, VAT is 7.7% for most goods and services, with a reduced VAT of 2.5% on food, books, medicine, and 3.7% on hotel accommodation including breakfast. Some services are exempt from VAT (e.g. education and insurance).


For the other precious metals (silver, platinum and palladium) the VAT is 7.7%. However, even these three "white" precious metals are exempt from VAT if they are stored in a duty-free warehouse in Switzerland (for example the high-security vaulting facility in the St. Gotthard mountain massif). The VAT is only payable when the owner (i.e. Elementum's client) takes out the goods from the facility or when the operator carries out delivery on behalf of the owner/client. However, if the precious metals are exported from Switzerland (for example, delivery to the client abroad), the VAT of the respective country will be applied, whereas the Swiss VAT of 7.7% will be reimbursed there.

5. Discretion:

Secrecy and discretion is part of the Swiss financial industry, because it is based on trust and longevity. However, the banking laws have been increasingly softened in recent years. On the other hand, these banking laws do not apply to bank-independent precious metal custody and storage, whereas the Swiss precious metals industry (e.g. refineries) are also unaffected. Client discretion is taken very seriously at Elementum.

 

Since bank-independent storage of precious metals is not subject to Swiss banking laws, storage accounts are not per se bank accounts. There is no indication at all that this may change in Switzerland. Elementum has no obligation to disclose any authority about clients who have stored precious metals in Switzerland. Only Elementum has access to client data and information.

 

In addition, the stored assets are not part of the bankruptcy estate of the storer, which means that the customer in any case remains the owner of its precious metals and has an unrestricted right to surrender. Thus, clients/owners of the stored precious metals have no counterparty risk, as the stored values cannot not be accounted for by Elementum or the warehouse operator.

 

The storage contract, which the client signs with Elementum, falls under the general contract law of Switzerland and not under the banking law. The contract law is regulated in Switzerland by the Swiss Code of Obligations (OR) and is part of the Civil Code (BGB).