The Swiss government aims to remove the competitive disadvantage for Swiss companies raised by Swiss VAT. To achieve this purpose, a partial revision of the Swiss Value Added Tax Act will come into force on January 1st, 2018. The main amendment targets the tax liability of foreign companies to Swiss VAT and certain Swiss companies which were exempted from the VAT liability. Hence, many companies will be impacted by this revision and should prepare a potential mandatory VAT registration.
The competitive disadvantage for Swiss companies comes from the actual legislation that allows foreign companies to avoid invoicing VAT for their supply of goods in Switzerland as long as their annual turnover in Switzerland stays under the threshold of CHF 100’000. This applies even if the worldwide turnover of a foreign company is higher than CHF 100’000. This is not possible for Swiss companies which have a turnover subject to VAT of more than CHF 100’000. With the revised VAT Act, the worldwide turnover realized by a foreign and a Swiss company from supplies that are not excluded from the VAT (pursuant to Article 21 (2) Swiss VAT Act) will be decisive for mandatory tax registration and no longer just the turnover in Switzerland. The turnover limit of CHF 100’000 remains. Consequently, many companies providing taxable supplies in Switzerland will be liable to VAT and will have to face a mandatory registration to Federal Tax Administration, appoint a tax representative in Switzerland, make a short-term deposit directly at the tax administration or present a bank guarantee, file quarterly VAT returns and prepare annual reconciliation between the turnover of the company and the VAT returns completed. Some Swiss companies that had been exempted from the VAT liability will also have to submit a registration request to the AFC if their worldwide turnover exceeds CHF 100'000 (especially companies supplying mainly services or goods abroad).
Nevertheless, independently of the turnover, companies will be exempted from the tax liability if they are based abroad and exclusively supply services on Swiss territory in the sense of Article 8 para. 1 of the Swiss Value Added Tax Act. These services are subject to the reverse charge mechanism. This exemption does not concern companies which supply telecommunication or electronic services on Swiss territory to recipients who are not VAT registered.
A UK company performs a onetime renovation work for a home in Switzerland. The work consists of design, architectural work, supply of goods and installation on site. The total of the work in Switzerland does not exceed CHF 80’000. Up to the end of 2017, the UK company does not have to register itself to VAT and no Swiss VAT is due on the work. The Swiss client has to self-declare this supply of goods/services, which is frequently not done and hard to track for the tax authority. After 1.1.2018, the UK company will have to register to Swiss VAT and invoice Swiss VAT provided its worldwide turnover is above CHF 100’000.
A French company provides market analysis to Pharmaceutical companies in Switzerland. Its turnover with Swiss clients is more than CHF 100’000 per year. Before and after 1.1.2018, no mandatory VAT registration for the French company in Switzerland as this supply of services will be dealt with through the reverse charge mechanism by the Swiss clients.
A German IT company performs SAP development/installation for clients in Switzerland. Before and after 1.1.2018, this company has to register to Swiss VAT and invoice its services with Swiss VAT.
A Swiss company provides mainly consulting services to companies located abroad. Its turnover resulting from these consulting services is more than CHF 100’000 per year but its turnover with Swiss customers does not exceed CHF 75’000. Up to the end of 2017, the Swiss company is not obliged to register for VAT and no Swiss VAT is due for this work. This company generates within one year, in Switzerland, a turnover of less than CHF 100’000 from taxable supply. After 1.1.2018, this company must register for Swiss VAT and henceforward invoice its services to its Swiss customers with VAT. Services to foreign customers remain exempt from Swiss VAT. The reason is that this company generates within one year, on the Swiss territory and abroad, a total turnover superior to CHF 100'000 from services which are not excluded from the field of the tax (pursuant to Article 21 (2) Swiss VAT Act).
This partial revision of the Swiss VAT also impacts mail-order companies such as Amazon. This amendment will come into force on January 1st, 2019. From 2019 onwards, mail-order companies will be liable to tax if their annual turnover from small consignments that are imported tax-free in Switzerland reaches at least CHF 100’000. Consequently, such companies will have to register to Swiss VAT and to invoice Swiss costumer with Swiss VAT. As a result, the customers will no longer have to pay the taxes and fees levied by Customs upon import. Moreover, mail-order companies will have to provide a deposit unlimited in time to the VAT administration to cover any legal claims. This deposit does not generate any interest and can be issued by a bank domiciled in Switzerland, or provided in cash deposit directly to the tax administration.
The partial revision will also bring other changes such as:
- The percentage of share in a company to be considered as a related party will now be 20%;
- New rules will apply to determine when the VAT tax liability starts and ends for incorporated companies, resident companies or permanent establishments in Switzerland;
- Benefits in the field of social insurances will be exempted from VAT;
- Electronic newspapers, magazines and books will be subject to reduced VAT rate (2.5%);
RSM Switzerland would be pleased to provide you with more details on the above should you need more information.
Contact : Daniel Spitz, Head of Tax, Certified tax expert, [email protected], 0041 21 311 00 53