From 1 January 2018 there has been a change in how the threshold for compulsory VAT registration in Switzerland is calculated. This is expected to catch an additional 30,000 foreign businesses. Our Kreston associates in Switzerland believe that many businesses making supplies into their country will be unaware of the issue.
The change will virtually eliminate the threshold. While the turnover threshold of CHF100,000 per annum will remain in force, the global turnover will have to be included in the calculation basis, effectively resulting in an obligation for any non-established business with a total turnover of more than CHF100,000 annually to register for Swiss VAT from the first taxable turnover generated in Switzerland.
The supply of services by businesses outside of Switzerland for which VAT is accounted for by the customer under the ‘reverse charge’ mechanism will continue to be excluded from the turnover threshold. However, once registered in Switzerland the system obliges non-established entities to charge VAT there on any supply in Switzerland, including the services that would previously have been subject to the reverse charge. This is not the same as the EU system for (general rule) reverse charge services which, subsequent to a registration in a particular country, continues to recognise the establishment from which a supply is made rather than the presence of a local registration.
The change to the registration threshold calculation is thus expected to have an impact not only on foreign businesses operating at a low turnover in Switzerland, but also on businesses regularly selling services to Swiss recipients, as well as making occasional supplies of goods for example in the Swiss territory.
This change will also have an effect on businesses established in Switzerland but with turnover from activities outside of Switzerland on the basis that the threshold for Swiss businesses will also include the global turnover of the company.
Change for non-established entities supplying low-value goods to Swiss customers
Another amendment impacting foreign businesses is a CHF100,000 threshold which will be introduced for non-established entities supplying low-value goods (tax below CHF 5 per shipment) to Swiss customers. Low-value imports have previously not triggered an obligation for suppliers based abroad to register for Swiss VAT.
This will mean that businesses established outside of Switzerland supplying low-value goods at a total of CHF100,000 or more per annum to Swiss customers will be required to register for Swiss VAT. They will have to import the goods and charge Swiss VAT on the sale to the Swiss customers. The purpose of this is to ensure that non-established online suppliers compete on equal terms with suppliers established in Switzerland.
The revised Swiss VAT Law is expected to lead to a significant increase in VAT registration obligations, primarily for entities based outside of Switzerland. Businesses operating in Switzerland should clarify their obligations under the revised VAT Law with us and our VAT specialist associates in Switzerland to ensure that they are compliant and do not encounter unexpected exposures.
A summary of the provisions
The partial amendment of the Swiss VAT law came into force on 1 January 2018. This results in the following changes in VAT liability for foreign companies:
A VAT liability for foreign companies:
o which supply goods to Switzerland; or
o provide end users with telecommunication and electronic services.
A VAT registration requirement will no longer be calculated based on the turnover generated in Switzerland, but rather on the turnover generated worldwide. Accordingly, if a company generates less than CHF 100,000 from services of this kind in Switzerland, and at least CHF 100,000 in turnover around the world, it will from 1 January 2018 be liable for VAT in Switzerland from the first franc of turnover.
Low-value shipments will still be exempt from tax upon import. However, under the new VAT legislation, (online) retailers that generate over CHF 100,000 per year in turnover in Switzerland through the supply of goods will be liable to VAT. In other words, they must charge Swiss VAT on the goods supplied.
If you are making supplies to Switzerland or are considering doing so in future do contact us to consider your VAT situation. With the support of our Kreston associates in Switzerland we will be happy to explain the issues you face, any solutions there may be and the responsibilities that lie ahead.
Please feel free to contact me here, or call +44 (0)330 124 1399, to learn more.
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