Amendment to VAT regulations and reduced VAT rates as of January, 1 2018

As of 1 January 2018 an amendment to the VAT legislation will become effective.

The amendment concerns in particular foreign companies without residency in Switzerland. According to the current legislation a foreign company generating a taxable revenue of less than CHF 100’000 is exempted from VAT liability.

Beginning January 1, 2018, the worldwide revenue will be considered for the determination of the threshold of CHF 100’000. In consequence, a foreign company can become liable for Swiss VAT generating only CHF 1 of taxable revenue, if any supply of goods or services will be performed in Switzerland. If that is the case, a VAT registration is mandatory at the time such services will be rendered.

In addition, electronic newspapers, magazines and eBooks will be treated identical to printed equivalents with respect to the VAT rate. Due to that, the reduced VAT rate will be applicable on these products as well.

Examples for Swiss VAT liability of foreign companies without permanent establishment in Switzerland (domestic services):

• A domestic delivery is given if a foreign company delivers a machine from outside Switzerland to a domestic client and the machine is mounted in Switzerland by own personnel of the foreign company. This also applies if the mounting is carried out by a third party contractor of the foreign company.
• Place of business is in Switzerland if a foreign company provides electronic or telecommunication services to end-consumers in Switzerland (B2C). Unlike on most types of supplies of services, reverse-charge-procedure is not applicable in this specific situation because of the missing VAT liability of the end-consumer. Electronic services are for example downloadable contents or online access to databases (e.g. eBooks, magazines, apps, music, etc.).
• A foreign company rents out movable objects to clients in Switzerland. The objects are located in Switzerland at the beginning of the rental contract. Since a rent is considered as a supply for VAT purposes, such a transaction is considered a domestic supply.
• Domestic passenger transport services by bus, airplane or train on the territory of Switzerland are considered a domestic service. Cross-border flights are completely tax exempted.

One year later, as of 1 January 2019 the small shipments regulation (e-commerce rule) will enter into force. According to that, a company is liable to Swiss VAT, if imports of small goods to Switzerland are exceeding the total annual value of CHF 100’000.

Small shipments are shipments of goods on which import VAT does not exceed CHF 5 per shipment. This regulation affects mainly e-commerce companies with a large number of end-consumers (e.g. Amazon, etc.).

On 1 January 2018 other changes of the VAT legislation will be effective (examples):

• The deduction of fictitious input tax is now possible on the purchase of operational equipment and unused goods as well. The previous restriction to used movable objects for resale is no longer applicable.
• Collector’s items such as art objects, antiques and the like are now subject to a margin taxation.
• Foundations and associations with close economic, contractual or personal relationship to the founder, beneficiary or associate are now regarded as affiliated parties. Any transactions between such parties must comply with the dealing at arms’ length principle. Pension fund institutions are never considered as affiliated parties.
• The possibilities to apply for the VAT refund procedure for non-resident companies have been extended.

On January 1, 2018 the VAT rates will be reduced as follows:

Examples:

• Unbilled services performed in 2017 are still subject to the old VAT rate and must be invoiced at 8% or 3.8% (the reduced VAT rate remains unchanged).

• Advance payment invoices issued in 2017 for supply of services or goods to be provided or delivered in 2018 must be invoiced at the new rate of 7.7%.

• A subscription is sold on 01.11.2017 for a period of one year. The subscription fee for November and December 2017 is subject to the current VAT rate of 8%, while the subscription fee for the period January to October 2018 will be charged at the new VAT rate of 7.7%. The two VAT rates appear on the invoice.