Foreign companies performing supplies of goods in Switzerland – including installation, construction and similar work – will likely need to re-evaluate their Swiss VAT obligations. The rules on the VAT liability of foreign companies will change as of 1 January 2015. For some of them, the reverse-charge mechanism will no longer apply and a VAT registration might become mandatory.
The rationale behind VAT amendments
The Swiss government has just adopted amendments to rules on VAT liability of foreign businesses, which are not registered for Swiss VAT and which perform supplies in Switzerland. The new stipulations will become effective as of 1 January 2015 and are thought to bring back the level-playing field to sectors such as construction, repairs and assembly work.
Currently, foreign businesses which are not VAT registered in Switzerland and perform there installation, assembly, construction and similar work can benefit from the reverse-charge mechanism. This means that the supplier does not charge the VAT due on the invoice. Instead, VAT needs to be self-assessed, declared and paid (with a set off against input VAT if possible) by the recipient of the supply. In practice, however, many recipients, including non VAT registered businesses and private individuals, do not declare nor pay any VAT. As a result, the supplies made by foreign businesses effectively cost less compared to these made by Swiss companies which are obliged to charge VAT on their invoices.
Restrictions to reverse-charge procedure
The new rules should partly eliminate the discrimination of Swiss businesses. As of the beginning of 2015, foreign companies whose revenues from the supplies of goods (incl. construction and similar work) effected in Switzerland exceed CHF 100,000 p.a. will be liable to register for VAT in Switzerland and charge Swiss VAT on the invoices to their clients. If the annual threshold is not exceeded, the business might still opt to register for VAT on a voluntary basis, or – as is the case today – remain unregistered and benefit from the reverse-charge procedure.
The threshold of CHF 100,000 will explicitly not apply to the services provided by foreign businesses not registered for Swiss VAT (except for B2C electronic services). The reverse-charge procedure will thus remain applicable regardless of the turnover achieved by the concerned entities. It is however worth mentioning that the Swiss definition of services is much tighter than e.g. the EU’s one and, for example, does not include pure installation or maintenance work or leasing supplies.
Special cases unclear
Even though the new rules will likely increase the number of Swiss VAT registrants, it remains to be seen how the Swiss Federal Tax Authority will handle some special cases concerning foreign businesses. This is especially true for certain “one-off” transactions (e.g. sale of aircraft), which – for the moment – do not result in a Swiss VAT registration liability according to the practice of the FTA.
Further changes to come
The Swiss VAT law is set to be significantly amended as of 2017. According to the projects available, the annual VAT registration threshold of CHF 100,000 will then not only apply to turnover generated in Switzerland, but to the overall worldwide turnover of a company. As a result, foreign companies will become even more likely to be liable to VAT register in Switzerland.
- Article “Bundesrat präzisiert Mehrwertsteuerpflicht von ausländischen Unternehmen” (in German)
- Indirect Tax services at KPMG