After last partial revision per 2018, next steps are planned to further modernize the Swiss VAT Act. The process is not expected to be finalized before 2022 and enforced before 2023. Nevertheless, the likely changes should be monitored as those needs to be contemplated when concluding substantial agreement lapsing into or over the timepoint of introduction.
The Federal Finance department opened the consultation on the next partial revision of the Swiss VAT Act dated 19 June 2020. The consultation is open till 12 October 2020.
The proposed changes encompass some systematic changes, i.e. for international suppliers doing business in Switzerland.
Main fields of proposed changes
In very brief, the following areas shall be modernized for companies:
- Internet platforms offering distant selling shall become the fronting tax subject towards the Swiss Federal Tax Administration (SFTA) for their sellers. The sellers shall have joint and several liability should the platform not comply with the new VAT Act.
- International platforms and distant sellers delivering small consignment goods and as such become obliged to VAT registration but fail to do so, will be confronted with countermeasures. Those are arresting of the supplied goods, publication of non-compliant suppliers and destruction of the goods.
- Reverse charge system for all supply of goods and services of international suppliers to Swiss VAT registered businesses with tax point in Switzerland. The aim of the SFTA is to ensure the consistency of the VAT substrate and to limit the number of international companies being obliged to VAT register.
- CO2 emission certificates and other such certificates shall fall into a mandatory notification procedure.
- Simplification for the travel industry with taxation of place of origin and according to the explanatory notes a new understanding of travel services. Travel services shall comprise also accommodation, passenger transportation and restaurant services that are sold in own name. This would mean that international Tour Operators do not become obliged to VAT register in Switzerland anymore, when they sell Swiss domestic travel. As already today, they cannot reclaim any embedded input VAT.
- SFTA receiving more discretion when to apply fiscal representation and to make alternatively increased use of international official assistance.
- VAT payers can apply for annual VAT declaration unless the turnover made of taxable supplies exceeds CHF 5’005’000 p.a.
- VAT payers with annual VAT declaration will have to arrange quarterly down payments.
- Feminine Hygiene products shall benefit from the reduced VAT rate of 2.5%
Of course, there are aspects which need clarification as for example the rules for annual input VAT refund for no longer Swiss VAT registered international businesses. Also currently unsolved is the complexity arising for international companies doing business in Switzerland that do not have to VAT register anymore. Those must consider annual VAT refund claims instead, which is a cashflow disadvantage and linked to a cumbersome process. Furthermore, international businesses not operating from a jurisdiction with reciprocal rights will have to waive exemption from VAT registration.
Swiss businesses that are VAT registered must consider how to deal effectively with the systematic change of taxation. The accountability for VAT compliance when doing business with international providers shifts from the supplier via reverse charge to VAT registered Swiss businesses.
As discussed in the introduction, there is currently no ultimate need for any immediate measures. The parliament will legifify the drafted partial revision of the Swiss VAT Act likely till 2022. Hence the new rules won’t be enacted before 2023 or even 2024. We recommend that businesses consider the likely impacts in general so that expectations can be managed when concluding long term contracts.