Switzerland Tax News

Date29 Sep 2017

Switzerland reforms VAT for overseas firms

The Swiss parliament has formally agreed reforms to the country’s value-added tax (VAT) regime, these will make overseas firms obligated to impose VAT on all purchases and services. The aim is to safeguard Swiss firms from lower-priced competitors abroad.

At present, online purchases from abroad that attract less than CHF5 ($5.15) in VAT are exempt. This now equates to an upper limit of CHF200.00 worth of books of CHF62.50 of goods that are not subsidised from a favourable tax status.

With this new VAT reform, all firms with turnover of over CHF100,000.00 will require to impose Swiss VAT for Swiss customers. Currently, the Swiss VAT rate is 8% for most goods and 2.5% for certain items like books. This move will affect the appeal of buying books from foreign multi-nationals like Amazon, whose prices are inexpensive compared with high-priced Switzerland.

So far, a date for the law to come into force has no be announced.

But it is not all gloom for online shoppers through. Electronic publications will be subjected to a lower VAT rate of 2.5% – replacing the current 8% – as in the case for hard copy equivalents.

Foreign bricks-and-mortar firms, particularly those near the Swiss border and in the building trade, will also be targeted by the reforms. A VAT rate of 8% up to a limit of CHF800.00 will have to be paid by Swiss client using their services. This will apply to firms with a global turnover of over CHF100,000.00 with the aim of protecting Swiss small and medium enterprises from lower-priced competitors across the border.

According to the government around 30,000 companies, particularly Swiss-based firms who mainly do business abroad, will be subject to VAT. This extra VAT is anticipated to bring in an additional CH70 million in annual revenue, with the Swiss government preparing to hire an additional 38 staff for the administration.

The VAT consequences for Swiss businesses for ‘Distance Selling’ from 2019

From the 1st January, 2019 based on a partial revision of the current Swiss VAT Law (VAT-L), foreign domiciled businesses/person selling into Switzerland will be treated the same as businesses domiciled in Switzerland.

The current position

If a foreign domiciled distance selling business/person delivers goods into Switzerland, usually Swiss import VAT is owed. The person, for example the freight forwarder, in control of customs clearance charges the Swiss import VAT due to the recipient of the goods.

Due to low materiality and handling costs, the Swiss Federal Customs Administration (SFCA) does not insist on the collection of import VAT for the shipments with the import VAT amount of CHF 5.00 (approx. €4.30) or less (low value goods, or LVG).

As of 1st January, 2019

If a ‘distance selling’ business generates the annual turnover from LVG-shipments of at least CHF 100,000.00 (approx. €86,000.00), then its supplies will be reflected as ‘domestic’ supplies and the business therefore becomes taxable in Switzerland. The tax obligation arises the moment the given turnover threshold is reached.

The import of the goods is carried out by the ‘distance selling’ business in its own name from the start of the tax obligation and can consequently subtract the import VAT as input VAT accordingly (the ‘distance selling’ business acts as importer of record).

A ‘distance selling’ business can already freely apply for the simplified import procedure, which allows a foreign domiciled business/person to act as importer of record before the annual LVG-turnover threshold of CHF 100,000.00.

Each person meeting the conditions for the mandatory VAT registration must register individually with the SFCA.

The foreign domiciled business/person has to retain a Swiss fiscal tax representative, as well as apply for a bank guarantee provided for an unlimited period with a Swiss domiciled bank or make a cash deposit on the SFCA’s bank account.

But if a (domestic or foreign) business/person is already Swiss VAT registered, due to other supplies inland and such a business also provides LVG ‘distance selling’ from abroad into Switzerland. Then those LVG supplies will still be reflected as turnover generated abroad, so long as the annual threshold of CHF 100,000.00 from such supplies is not reached.

Actions you should consider

  • You have to choose whether the foreign domiciled ‘distance selling’ business/person is required to be Swiss VAT registered, as of 1st January, 2019 based on LVG deliveries to Switzerland, start monitoring the respective annual CHF 100,000.00 LVG turnovers as from 1st January, 2018;
  • Most services rendered to Swiss recipients will become subject to 8% VAT once a business/person is Swiss VAT registered; and
  • You should think through the opportunity for voluntary Swiss VAT registration prior to 1st January, 2019 based on the ‘simplified import procedure’ application;
  • Once Swiss VAT registered, the ‘distance selling’ business /person, should amend the internal pricing definitions, system set-up allowing for the correct issuance of invoices and connected declaration/payment of Swiss VAT (and customs duty, if applicable).
  • We advise businesses or people who may be affected by this change in Swiss VAT legislation, to make contact with their respective VAT advisers, or maybe we can help you, to ensure you are VAT compliant with this new legislation.

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