All countries in the EU and Switzerland, are part of the VAT legislation requirements. And many other countries around the world have similar VAT systems. According to Swiss legislation, foreign companies need to be registered for VAT, but some companies can be part of an exception in case of services that they provide.
As a great example of VAT exemption procedure, can be mentioned one of our client’s company which is legally exempted from VAT. The main company’s activity is to provide academic advice, support through external collaborators to students wishing to study medicine, dentistry or physiotherapy at some of the best universities in Europe.
Partner universities of the company are exclusively those abroad, none in Switzerland. In this case, the company falls under VAT registration exemption since the services in the field of teaching and education or similar services, are deemed to be rendered at the place where these activities are carried out.
To understand more how the process of VAT exemption works in Switzerland. Here is a detailed description of cases in which educational institutions can be excluded from VAT.
According to the VAT Act - the following services in the field of education are exempt from tax:
a. The services in the field of teaching, education, training and professional retraining, including the teaching provided by private teachers or at private schools;
b. Courses, lectures and other events of a scientific or educational nature; lecturing activities are exempt from tax, regardless of whether the fee is paid to the person teaching or to his employer;
c. Examinations conducted in the field of education. Education is the provision of knowledge and skills in specific areas defined by the requirements of a professional profile. It includes, for example, vocational training and any taster apprenticeships and preliminary courses preceding it, university and technical college studies and other studies at public and private schools.
Other events of a scientific or educational nature are occasions that do not fall under any of the above categories of educational services, such as symposia, congresses, workshops, etc. Such services are educational if the primary objective pursued is the transfer or new development of knowledge to the participants or with the participants. A service is considered to be scientific if its primary purpose is to acquire new knowledge in a specific field with a specialized audience and to evaluate it.
Services are considered educational only in the case of the above-listed elements and if the scientific or educational element is included in the business activity.
What is the difference between educational and consulting services?
A taxable consulting service exists if the three conditions listed below are cumulatively fulfilled:
If the service (contract) - is individually tailored to the client;
If it's based on a prior analysis of the relevant situation at the client (company);
If it's capable of implementing concrete proposals for solving the problem;
Consulting services are considered to be provided at the place where the recipient has the registered office of its economic activity. Often, a service includes both elements of training and elements of consulting;
The assessment of whether such a service qualifies as educational or consulting is made based on the concluded contract. If the primary objective pursued by the contracting parties is consulting, the total consideration is taxable. If the primary objective pursued by the contracting parties is an educational service, then the total remuneration is exempt from VAT.
VAT exemption also depends on the factor, whether service is provided, the personal conversation, as well as the direct exchange between the service provider and the service recipient, is of central importance. Such consulting services are generally taxable. The place of performance is determined by the place of the performance principle. If the service provider (M-AG) is domiciled in Switzerland, these consulting services are subject to VAT.
Important note: Vocational and academic counselling for young people under the age of 18 is exempt from VAT; if the student/client is demonstrably resident abroad, the fee is not subject to VAT.
Online preparation course
Here is an example:
1. Company advises students so that they can choose the European University that best suits their needs. Academic and career counselling does not fall under the tax exemption - thus, the counselling service is generally subject to VAT. However, if the student/client is demonstrably resident abroad, the fee is not subject to VAT.
2. Company’s professors prepare students in such a way that they can successfully pass the entrance exams. To consider online courses educational services for VAT purposes, the course must have a certain level of interactivity. Despite the physical distance, there must be an exchange between the teachers or the teaching institution and the learner. This exchange can take place on an ongoing basis or a limited basis, such as once at the beginning of the course.
Also, the primary objective of the course must be the transfer of knowledge. Such interactive educational services are deemed to be provided at the place of activity of the educational institution and thus in Switzerland. If an educational service is provided here - i.e. the course is primarily dedicated to consolidating and refreshing knowledge of the examination material, and the course is designed interactively - this is an educational service exempt from VAT.
3. Company organizes the entrance examination in cooperation with the partner universities. The tax exemption only covers the provision of educational examinations. This includes the following activities: - Activity of examination experts (taking oral examinations and correcting written examinations); - Supervision of examinations; - Development of examination tasks in connection with the activity as an examination expert or the supervision of examinations. The sole preparation of examination papers is subject to tax at the standard rate (VAT 7.7%), as is the preparation of courses. The place of supply of services is determined by the principle of the place of the recipient - i.e. the recipient is liable to VAT. If these services are provided exclusively at foreign universities, no VAT is due either.
4. Enrollment at the university, recognition of credits and tests, required translations, legalizations and much more. In the case of such consultations and support services, there is no educational service. They are taxable services, the place of which is determined by the principle of the place of receipt. Thus, if the service is provided exclusively to students residing abroad, the corresponding fee is not subject to VAT.
5. Assistance in finding private accommodation or a campus abroad, orientation and accompaniment at the university, assistance in getting to the city, assistance in setting up a bank account and health insurance, as well as all other needs associated with a stay in a foreign city. If only assistance is provided here and not an agency relationship is arranged, the fee is not subject to VAT as in point 4 above.
6. Through the tutors of the Company, as well as the online platform and individual or group lessons with teachers on-site. These are probably both non-taxable services (educational services) and taxable consulting or organizational services. The same applies as under point 4 - provided that all services are provided abroad to foreign recipients, these services are not subject to VAT.
To sum up, all the information listed above, if the services described below are all provided abroad to foreign customers, they are not subject to VAT in Switzerland.