Switzerland: Tax Connect Flash

Last Updated: 1 March 2018
Article by Mark Cagienard and Fabien Liégeois

Switzerland | Upcoming Amendments to Federal VAT Act

On 2 June 2017, the Swiss Federal Council set the agenda for a partial revision of the Federal Act on VAT. The partial revision makes a number of (rather technical) amendments to the existing Swiss VAT law. We would like to highlight two changes which have a particular impact on foreign enterprises doing business in Switzerland.

► Changes to the Small Businesses Exemption

Under the current law, businesses which achieve less turnover than CHF 100'000 p.a. from taxable supplies in Switzerland are exempt from registering for VAT (with the option to register on a voluntary basis in order to benefit from an input tax deduction). As of 1 January 2018, the global turnover of a business will be relevant for the purpose of determining whether the relevant threshold of CHF 100'000 p.a. is exceeded. This means that a foreign enterprise may incur a Swiss VAT liability already for a minor supply in Switzerland if its global turnover exceeds CHF 100'000.

The idea behind the reform was to remedy distortion of competition by foreign companies established in the Swiss border area and carrying out taxable supplies in Switzerland without incurring any VAT liability. However, the changes are not limited to small businesses; any company carrying out a taxable supply in Switzerland may induce a VAT liability. Particular attention should be paid by foreign enterprises providing electronic services to private customers in Switzerland since such supplies do not fall under the reverse charge procedure. This leads to the consequence that even a single download might potentially trigger a VAT liability in Switzerland for the foreign enterprise.

► Changes to the Small Parcels Exemption

A further potential for distortion of competition was identified with respect to the online retailing of small parcels. For administrative reasons, the Swiss import VAT is not levied at the border for small parcels with a value inferior than CHF 62.50 (supplies subject to ordinary VAT rate of 8%) respectively CHF 200 (supplies subject to reduced VAT rate of 2.5%, e.g. books; "Small Parcels Exemption"). With the rise of large online retailers delivering from abroad, the systematic benefit of the Small Parcels Exemption for Swiss consumers has been perceived as a distortion of competition by domestic businesses. As a result, the Federal Act on VAT will be amended as of 1 January 2019 to the effect that the place of supply for such parcels will be relocated into Switzerland if a foreign enterprise generates a turnover of more than CHF 100'000 p.a. from supplies falling under the Small Parcels Exemption. As a result, the foreign enterprise will become subject to compulsory registration for Swiss VAT and obliged to levy domestic VAT on its supplies of small parcels, while the exemption from import VAT remains unchanged.

► Other Notable Changes

  • As a result of the changes mentioned above, the Swiss Federal Tax Administration ("SFTA") expects approx. 30'000 new taxpayers. With respect to a foreign company, the registration for VAT in Switzerland requires (i) the designation of a Swiss VAT representative and (ii) the providing of sufficient collateral (typically in the form of a guarantee from a Swiss bank) before a VAT number will be issued. In respect of the second condition, the SFTA has announced that as of 1 August 2017 the amount of necessary collateral will be calculated as follows: 3% of the expected taxable supplies on an annual basis (without exports), with a minimum collateral of CHF 2'000 and a maximum collateral of CHF 250'000.
  • The Swiss VAT legislation has been finally amended to include also electronic books and newspapers in the reduced VAT rate (currently 2.5%) from 1 January 2018.
  • In the public voting of 24 September 2017, the Swiss voters rejected a reform of the Swiss pension system which would have been financed through VAT contributions. As a result, the ordinary VAT rate will be reduced as of 1 January 2018 from 8.0% to 7.7% and the special rate (hotels) from 3.8% to 3.7%, while the reduced rate remains at 2.5% unchanged. Taxpayers are left only with little time to amend accounting entries and review contracts. Moreover, the amended rates may already need to be observed before 1 January 2018 since the date of supply is relevant for determining the applicable VAT rate and not the date of the invoice or the payment.
  • Finally, in a public voting of 14 June 2015, the Swiss voters approved with tiny majority a substantial change to the Swiss Act on Radio and Television, according to which the public duties for receipt of radio and television services will no longer be contingent upon the ownership of a respective device, but levied from all households and businesses operating in Switzerland. As it stands, the SFTA will be competent to levy the duties from businesses by relying on the annual global turnover as reported for VAT purposes. The duties will be levied on a progressive scale as follows:

    Turnover in CHF Tarif in CHF
    => 500'000 0
    500'000–1'000'000 400
    1'000'000-5'000'000 1'000
    5'000'000- 20'000'000 2'500
    20'000'000-100'000'000 6'300
    100'000'000-1'000'000'000 15'600
    Over 1'000'000'000 39'000

    Since foreign enterprises will become obliged to register for Swiss VAT based on global turnover irrespective of their actual Swiss turnover, this could mean that a foreign enterprise might end up in the highest bracket even though it barely achieves any Swiss turnover. While there are still some questions to be ironed out, implementation of the new system is expected for the beginning of 2019.

Originally published 24 October 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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