This is what changes in the Swiss VAT Act mean to you
The Federal Council has announced that the partial revision of the Swiss Federal Act on VAT (VAT Act) will come into force on 1 January 2018. The mail-order regulations will follow a year later on 1 January 2019. The Swiss VAT reform triggers some significant changes for businesses operating in Switzerland.
The reform is intended to eliminate VAT-related competitive disadvantages for Swiss companies. One major change is the new calculation of the threshold for mandatory VAT registration. Currently, a foreign company that generates less than CHF 100.000 in turnover per year from taxable supplies in Switzerland is exempt from VAT. This leads to competitive disadvantages for Swiss businesses. According to the partial revision, not only Swiss turnover, but also worldwide turnover will be taken into account to determine whether a company is liable for paying Swiss VAT.
Accordingly, a company will be subject to Swiss VAT if its worldwide turnover exceeds the CHF 100,000 per year threshold. As a consequence, foreign based companies that supply goods to Switzerland will become VAT-liable in Switzerland and will have to register for VAT purposes from the first taxable turnover generated in Switzerland, unless their worldwide taxable turnover is below CHF 100,000 per year.
Switzerland as place of supply
It is worth keeping in mind that foreign companies that exclusively provide services for which the place of supply is deemed to be in Switzerland will in principle remain subject to the reverse-charge mechanism as currently is the case. In other words, they will not have to register for VAT in Switzerland regardless of the amount of turnover generated and VAT compliance is shifted to the Swiss recipient. This rule prevents VAT exposure for non-Swiss resident group entities of MNE.
After registering for Swiss VAT
Once a foreign entity has been registered for Swiss VAT, standard services rendered to Swiss domiciled businesses or individuals will no longer be subject to the acquisition tax due by the Swiss domiciled recipient (i.e. reverse-charge). Instead, it will be subject to Swiss output tax due by the supplying business. This is also a significant change considering that under the current Swiss VAT legislation all supplies carried out by a company where the place of supply is deemed to be in Switzerland for VAT purposes are subject to acquisition tax. Hence, the VAT liability is transferred to the recipient of the supply and the foreign company has no obligation to register in Switzerland – irrespective of turnover.
Mail-order regulations and other changes
The mail-order regulations will come into force one year later. As a result of these regulations, mail-order companies will be liable for tax from 2019 if their annual turnover from small consignments that are import-tax-free is at least CHF 100’000.
Among other changes, the revised Swiss Act will include new rules for imported small value goods and a reduced rate of 2.5% on e-magazines, e-newspapers and e-books. These changes will enter into force on 1 January 2018.
Consequences of changed Swiss VAT rules
The Swiss VAT reform is expected to lead to a significant increase in VAT registration obligations, primarily for foreign based companies, but also for business established in Switzerland. The Federal Council expects that around 30’000 new companies will be subject to Swiss VAT tax. Foreign based companies, which have supplied taxable goods or services but have not yet been subject to VAT in Switzerland, are recommended to do a thorough review of their Swiss tax position to ensure that they are compliant and do not encounter unexpected risks.
AnaïsNäscherAttorney at law, tax adviser Associate
Anaïs Näscher is an associate of our office in Zurich, Switzerland. She is a tax adviser and member of the tax practice group. She specialises in Swiss and international taxation, in particular automatic and spontaneous exchange of information as well as country-by-country reporting (CbCR). She advises on the implementation of complex tax compliance measures for the financial sector (banks, insurance companies and asset managers).T: +41 43 434 67 20 M: +41 79 596 26 27 E: Anais.Naescher@loyensloeff.com