Switzerland: VAT provisions approved, effective beginning 2018

Switzerland: VAT provisions approved, effective 2018

Both chambers of the Swiss Parliament on 30 September 2016 unanimously approved the “small revision” value added tax (VAT) legislation that is expected to be effective 1 January 2018 (when adopted as a VAT Ordinance by the Federal Council).

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The Swiss tax authorities expect approximately 30,000 new taxpayers—for the most part, foreign companies—would be affected by these new VAT provisions.

What are the most important changes?

  • The registration threshold for non-established businesses would be suspended when revenue from domestic and international (worldwide) sales is CHF 100,000 or more.
  • Vendors that benefit from the import tax exemption for business-to-consumer (B2C) sales of products having a “minor value” (i.e., shipment x tax rate < CHF 5) from outside Switzerland into the Swiss territory would have to register and pay Swiss VAT on these supplies if they derive an annual revenue of more than CHF 100,000 from such sales.
  • The option to tax (e.g., for real estate property) would be valid by either displaying the VAT on the invoice or declaring the tax in the VAT return.
  • The tax base for supplies or services would be the market price (determined at arm’s length) as opposed to the agreed consideration, if the vendor owns at least 20% of stock in the recipient, or vice versa. The same rule would applicable for foundations and associations with a close economic, contractual or personal relationship to the vendor / recipient. The rule would not apply to pension funds.
  • The reduced VAT rate of 2.5% would also apply to online media and e-books.
  • The margin taxation, instead of the notional input tax deduction, would be re-introduced for collectibles such as art, antiques, and other similar items.
  • The VAT exemption for acts of sovereign public administration would be transferable to a third party by the competent public administration.
  • The registration threshold for (branches of) public bodies would be set to CHF 100,000 annually for supplies to recipients other than public bodies.
  • There would be no reduction of VAT recovery for charities if it is made transparent to donors that they have no right to claim benefits they may receive (at the discretion of the charity).
  • The supply of electricity, gas, and long-distance heating would be subject to tax at the location where the energy supply is actually used in B2C situations.
  • There would be no input tax credit if purchased goods and services are intended to be used for tax-exempt purposes (codifying the current practice).

KPMG observation

With these changes, there are actions that foreign suppliers in Switzerland need to take including:

  • Verify whether registration is mandatory under new law—If yes, adapt all IT, processes, and customer / supplier master data and, if applicable, end-consumer prices
  • Note that B2C supplies of electronic services to Swiss customers are deemed to take place in Switzerland
  • Note that suppliers with worldwide revenue greater than CHF 100,000 must register

Swiss domiciled companies and branches that are not yet registered need to verify whether registration is mandatory under new law (due to international revenue totals). 

Other changes may include:

  • Adapt master data for e-books and online media products at the special VAT rate
  • Public bodies need to verify if registration of offices / departments / agencies / branches can be cancelled under new law

 

Read a September 2016 blog report prepared by the KPMG member firm in Switzerland

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