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Changes in Swiss VAT law

Changes in calculation of height of security
(VAT registration)

A foreign company that registers for purposes of Swiss VAT must arrange a security on behalf of the Swiss tax authorities. This security can be either a deposit (bank transfer) or a bank guarantee issued by a Swiss bank. As long as the foreign company is registered for purposes of Swiss VAT the security is withheld by the Swiss tax authorities.

As of 1 August 2017 the calculation method for determining the height of the security is changed.

Before August 2017 the height of the security was based on the estimated VAT that would be due during the period of one year. The minimum security was CHF 5’000, and the maximum height was CHF 250’000. 

As of August 2017, the height of the security will be 3% of the estimated domestic (Swiss) turnover. The minimum security will be CHF 2’000, and the maximum height will be CHF 250’000. 

The Swiss tax authorities reserve the right to apply different calculation methods in specific situations. 

The new calculation method cannot be applied retroactively. Thus the height of the security for taxable persons that have been registered before 1 August 2017 will remain unchanged.


 

In the scope of the revised Swiss VAT Act several changes will become effective as of 1 January 2018:

Applicable VAT rates as of 2018

The VAT rates (standard rate and the rate for accommodation/food & beverage) will be changed:

Threshold for Swiss VAT liability: 
relevant turnover for threshold

For foreign companies that perform activities in Switzerland, the most important change in the Swiss VAT regulations will be the changed rules regarding the relevant turnover for determining whether a foreign company must register compulsory for purposes of Swiss VAT. Below the threshold, a foreign company may consider to register voluntarily for purposes of Swiss VAT. 

Before 2018, a (foreign) company would be subject to compulsory Swiss VAT registration when it would perform activities in Switzerland that would be subject to Swiss VAT, and in that scope would realise within a period of 12 months with those Swiss activities a turnover of more than CHF 100’000. 

As of 2018, the relevant turnover for determining whether the threshold of CHF 100’000 has been exceeded or not is determined by the worldwide turnover of the company, and thus is no longer limited to the turnover realised with the activities in Switzerland. This change means that practically every foreign company will have to register for purposes of Swiss VAT from the first Swiss Franc it realises with activities that are subject to Swiss VAT. In that scope foreign companies must realise that the concept supply of goods for purposes of Swiss VAT may differ from the corresponding concept according to their own national VAT system. However, for purposes of Swiss VAT only the Swiss terminology is decisive. Additionally, foreign companies must realise that according to Swiss VAT regulations reverse charge is applied only in specific situations, and certainly not in the extent as is normally the case in VAT systems like those applicable in, for example, EU member states. The threshold of CHF 100’000 based on the worldwide turnover is only relevant for determining whether a foreign company (with business activities in Switzerland) will have to register for purposes of Swiss VAT or not. The threshold must not be confused with the question what turnover will be subject to Swiss VAT. Namely, only the activities that are subject to Swiss VAT (‘Swiss turnover’) will have to be declared in the Swiss VAT return. The security on behalf of the Swiss tax authorities is calculated as a percentage (3%) of the Swiss turnover.

The change must be seen against the background of the struggling Swiss economy trying to keep up the competition with competitors from abroad. The revision focuses only on amending specific regulations of Swiss VAT that allegedly caused competitive disadvantages for Swiss companies. The revision leaves the numerous regulations of Swiss VAT with discriminatory or similar disadvantageous effects for foreign companies untouched.

Foreign companies that provide services to Swiss recipients, and those services are according to the Swiss VAT regulations taxable at the place where the recipient resides (Switzerland/Liechtenstein), for example services by lawyers or translators or consultants, will not face compulsory VAT liability -regardless the height of the turnover realized with those services. The only exception to the rule is when foreign companies provide telecommunication or electronic services to non-taxable recipients in Switzerland. 

VAT at import: subordination statement

The facility of the so-called ‘subordination statement’ will be codified in the Swiss VAT Act itself -instead of only in the implemental regulations. A subordination statement is necessary in case a company wants to act as importer in the scope of supplies of goods that are supplied from abroad to Switzerland. Applying the subordination statement is necessary for foreign companies that want to act in Switzerland as local distributor or reseller, and for that purpose import goods from abroad.
Foreign companies that make use of the subordination statement must be aware of the rules about how and when to use the statement.

Swiss VAT refund and domestic supplies

Foreign companies without business activities in Switzerland are only entitled to apply the regulation for refund of Swiss VAT to foreign companies when they have not performed domestic transactions during the refund period. Before 2018 only a limited number of domestic supplies (i.e. VAT relieved transport services or services subject to VAT on acquisitions) were not deadly for the entitlement to refund. As of 2018 any supply of services that is relieved from Swiss VAT will not block the entitlement of foreign companies to Swiss VAT refund.

Supply of electricity from abroad

As of 2018, the Swiss VAT Act itself will stipulate (and reformulate) the rule that foreign companies that supply electricity to taxable recipients in Switzerland will not become VAT liable for those supplies. Instead, the taxable recipients will have to subject these supplies to VAT on acquisitions. Only supplies of electricity to non-taxable recipients in Switzerland may trigger a VAT liability for foreign companies.
The application of the regulation of VAT on acquisitions is a form of subsidy, aiming to support Switzerland as trading location for international trade with electricity.

Foreign companies: beginning and ending of VAT liability

The revised Swiss VAT Act explicitly states that foreign companies must perform domestic supplies in order to be entitled to register for purposes of Swiss VAT. Without those domestic transactions, a foreign company can only recover Swiss input VAT by applying the regulation for refund of Swiss VAT to foreign companies. Foreign companies are registered for purposes of Swiss VAT from the moment they begin with the supply of goods or services -which is basically tied to the (first) invoice date.
Foreign companies must cancel their registration for purposes of Swiss VAT the latest at the end of the calendar year in which they made their last domestic supplies in Switzerland. 

 

 

Option for taxation of tax exempted supplies

As of 2018 the Swiss VAT Act will stipulate that the taxable persons can opt for taxation of qualifying tax exempted supplies either by invoicing with Swiss VAT or by declaring Swiss VAT on those supplies in the quarterly VAT return. Opting for taxation can already start before supplies are made, for example during start-up. Foreign companies that consider to opt for taxation of exempted supplies are well advised to consult timely (= in advance) the applicable regulations.    

VAT on acquisitions (‘reverse-charge’)

A regulation often misunderstood by foreign companies is the regulation regarding the VAT on acquisitions. Although regularly dubbed as ‘reverse-charge’, the Swiss regulation regarding VAT on acquisitions must be distinguished from foreign regulations regarding reverse-charge in which typically only the tax liability is shifted to the recipient. In contrary, the Swiss regulation of VAT on acquisitions is a regulation with its own taxable objects and taxable subjects. Foreign companies that are involved in transactions that directly or indirectly touch Switzerland are well advised to forget the reverse-charge mechanism as they know from their own VAT system. Instead they should consult the Swiss regulations and administrative notices of the Swiss tax authorities.

As of 2018 domestic recipients in Switzerland will have to declare VAT on the acquisition of:

  • services which according to the standard rule have their place of transaction within the Swiss tax territory, and have been rendered by suppliers that have their place of establishment outside of Switzerland and who are not registered for purposes of Swiss VAT. The aforementioned does not apply to telecommunication and electronically supplied services, supplied to non-taxable Swiss recipients. 
  • supplies in Switzerland of immovable property -not subject to VAT at import- by suppliers that have their place of establishment outside of Switzerland and who are not registered for purposes of Swiss VAT. Excluded are rental/lease transactions. It should be noted that the concept ‘supply of immovable property’ for purposes of Swiss VAT includes all kind of activities in connection with construction and maintenance of immovable property.
  • supplies of wired electricity, gas through distribution networks for natural gas, or district heating by suppliers that have their place of establishment outside of Switzerland to taxable recipients in Switzerland.

 

Distance sales from abroad to Switzerland
with relief of import VAT for small consignments

In order to reduce the alleged competitive disadvantage that domestic companies suffer due to the substantial price difference between Switzerland and other countries, the Swiss legislator has introduced a compulsory VAT liability for companies that sell goods from abroad to recipients in Switzerland, and which goods are imported for application of the relief of VAT at import for small consignments. As of 1 January 2019, the place of supply of goods from abroad to Switzerland, which at import fall under the relief of VAT at import for small consignments, is deemed to be within the Swiss tax territory when the supplier realizes with those supplies a turnover of more than CHF 100’000 annually.

This upcoming change reminds of a similar initiative of the European Commission for tackling VAT on e-commerce.