The Swiss VAT system is mostly in accordance with the European VAT Directive; however there are some important differences that need to be addressed, especially when it comes to foreign suppliers of goods and services. Therefore, it is strongly recommended for them to have extensive knowledge regarding the Swiss VAT legislation, before starting any commercial activities in Switzerland.
The VAT regime has been constantly a subject of changes throughout the years. Some changes were motivated by the political climate, but many of the recent changes enforced starting with 2016 are made in order to equal the tax treatment of Swiss legal entities and their foreign competitors. For example, some of the VAT changes eliminate competitive disadvantages faced by Swiss suppliers, by implementing tighter rules for VAT registration in case of foreign suppliers.
When is it necessary to register for VAT?
Switzerland’s current VAT legislation contains a threshold that applies to Swiss – based legal entities and to companies that are established outside of the country. A legal entity or an individual that supplies goods and services becomes liable for VAT registration if they exceed the threshold of 100,000 CHF annually. What is particular to this provision is that only supplies taking place in Switzerland are assessed in case of foreign suppliers in order to establish whether a company is liable for VAT in Switzerland. For example, a company established outside of Switzerland can have a large turnover in other jurisdiction, but it becomes liable for VAT in Switzerland only if the turnover resulted in supplies taking place in Switzerland exceeds the registration threshold.
Asides from the registration threshold, the Swiss VAT Act moves the liability to pay VAT to Swiss recipients by imposing a reverse – change mechanism on certain supplies made by foreign companies. This is usually the case of supply of goods that are not a subject to the Swiss import VAT, such as the local purchase and sale of goods, or the work on immovable and movable goods that is considered a supply of goods according to the Swiss VAT Act. Under the Swiss VAT Act, not only entrepreneurs are obliged to apply the reverse – change mechanism, but also individuals. Foreign suppliers could offer their goods and services to Swiss private individuals without having to charge the 8% VAT, but this is not possible anymore. The reverse – change mechanism was created as a way to cope with foreign suppliers that started to compete with local companies, by offering much lower prices.
As a result, the changes implemented starting with January 2016 stated that the local reverse – change mechanism does no longer apply on the local supplies of goods made by companies established abroad. Foreign companies that supply goods within Switzerland and exceed the registration threshold are obliged to collect and pay VAT to the federal tax authority. These new rules don’t apply to foreign suppliers of gas and electricity for B2B customers, as they are still a subject of the reverse – change mechanism.
Electronically rendered services
Companies established outside of Switzerland that are supplying goods to Swiss B2C recipients must be aware of the existing VAT obligations in Switzerland. Most of the services offered by foreign suppliers to Swiss recipients are subject to the reverse – change mechanism. Individuals also have the obligation to apply this mechanism if they receive services provided by foreign suppliers that are not registered for VAT in Switzerland and the sum of the services received exceeds 100,000 CHF.
Foreign companies that supply e – services and telecommunication services must register in Switzerland and charge local VAT if the turnover originated from services provided in Switzerland exceed the registration threshold.
If a foreign e – service supplier is registered for VAT in Switzerland, it has the obligation to charge Swiss VAT on all services supplied, regardless if they are B2B or B2C customers.
In addition to all these measures, the standard VAT rate for e – papers and e – books was reduced to 2.5%, just like in the case of newspapers, books, magazines and journals on paper.