VAT liability of a foreign company in Switzerland
May 2021
Important change in Swiss VAT law for foreign companies. Are you prepared?
Companies that generate less corresponding turnover are exempt from VAT liability, although this exemption may be waived in accordance with Art. 11 MWSTG (voluntary tax liability). The waiver of the exemption from the tax liability can be declared at the earliest at the beginning of the current tax period (Art. 14 para. 4 MWSTG). The advantage here is, among other things, the possibility of being able to claim the input tax deduction in Switzerland.
Companies domiciled abroad also remain exempt from tax, irrespective of the amount of turnover, if they only provide services in Switzerland that are exempt from tax under Art. 23 MWSTG and/or services that are subject to purchase tax, provided that these do not involve electronic services or telecommunications services to non-taxable persons in Switzerland (Art. 10 Para. 2 lit. b No. 2 MWSTG).
If a company has a service commissioned to it carried out in whole or in part by third parties or subcontractors, it is still deemed to be the service provider vis-à-vis its customer (contractual partner) with the corresponding tax consequences regarding the place of performance and tax liability in Switzerland (cf. MI 06, para. 3.1).
In the case of foreign companies, the tax liability begins with the first provision of a service in Switzerland (Art. 14 Para. 1 lit. b MWSTG) if, at the time of commencement, it can be assumed on the basis of the circumstances that the relevant turnover limit will be reached (Art. 9a Para. 1 MWSTV).
Thus, the obligatory tax liability is triggered with the first provision of a service in Switzerland if the worldwide annual turnover is more than CHF 100,000. For example, in order to assess whether a mandatory tax liability already exists as of 01.01.18, it is decisive whether the foreign company provided services in Switzerland in 2017 and whether the taxable worldwide annual turnover amounted to CHF 100,000 or more (Art. 166a VAT Ordinance). If this is the case, a registration as a taxable person must be made without being requested to do so.
taxability of services
Taxable are the services provided in Switzerland by taxable persons for consideration, unless the law provides for an exception (Art. 18 para. 1 VAT Act). This results in the need to determine the place of supply of a service. For this purpose, a distinction must first be made between supplies and services.
A service is any performance that is not a supply (Art. 3 lit. e MWSTG). Subject to Art. 8 para. 2 VAT Act, it is deemed to be provided where the recipient of the service has his place of business [...] (Art. 8 para. 1 VAT Act, recipient location principle).
A supply, which under Swiss law also exists in particular if an item is delivered on which work has been carried out, even if the item has not been changed as a result (Art. 3(d)(2) VAT Act), is deemed to have been made where the item is located at the time of delivery (Art. 7(1)(a) VAT Act). This includes, for example, repair, commissioning, assembly, service and maintenance work as well as calibrations, functional checks and the like.
The place of supply is deemed to be the place in accordance with Art. 7 Para. 1 MWSTG at which:
(a) the goods are at the time when the person concerned obtains the right to dispose of them economically or when they are delivered or made available for use or enjoyment;
(b) the transport or dispatch of the goods to the customer or, on his or her behalf, to a third party begins.
The mere dispatch of machines from Germany to Switzerland without subsequently assembling, installing, maintaining or repairing them at the service recipient's premises in Switzerland would in principle not trigger the tax liability in Switzerland for the German company (dispatch delivery; cf. Art. 7 para. 1 let. b MWSTG). Such deliveries are subject to import tax.
The decisive factor for assessing whether, for example, any assembly, installation, commissioning, maintenance, repair, etc. is part of the purchase of the machine is exclusively the (purchase) contract(s) concluded between the service provider and the service recipient; it is irrelevant whether these services are invoiced separately.
Adjustment of the FTA practice since December 2018 with regard to work supplies
The place of supply is also the place where transport or dispatch begins if the goods transported or dispatched to the recipient are assembled or installed at the recipient's premises by the supplier or by a third party commissioned by the supplier, provided that the assembly/installation qualifies as an ancillary service within the meaning of Article 19(4) of the VAT Act ( VAT info tax object). It does not matter whether the assembly/installation is invoiced separately or not.
Assembly/installation shall be deemed to be an ancillary service to the transport/dispatch delivery in the following cases in particular:
- Sale of a piece of furniture which is assembled and set up by the seller at the buyer's premises, but which is not individually adapted to the spatial conditions;
- Sale of a machine manufactured ready for operation, which is disassembled into finished individual parts or already assembled and transported to the recipient, assembled at the recipient's premises or merely connected to the power supply and subjected to a test run;
- Sale of curtains including hanging in the apartment (without individual adjustments or installation of curtain rails, blinds or similar).
Assembly/installation shall not be deemed to be an ancillary service to the transport/dispatch delivery, in particular in the following cases:
- Rental of a marquee or an exhibition stand, including assembly ( Section 8.3);
- Sale of a machine which is made ready for operation at the recipient's premises and individually adapted to the conditions on site (e.g. integration into an existing production plant);
- Sale of a piece of furniture or another object which is individually adapted to the spatial conditions or permanently installed by the seller or his agent at the recipient's premises (e.g. built-in cupboard, built-in kitchen, curtain including hanging in the apartment with individual adaptations on site);
- Sale of a ceiling lamp or lighting system including assembly / installation;
- Installation of software at the customer's site (editing of the hard disk or similar).
If the assembly/installation is not regarded as an ancillary service to the transport/dispatch delivery, it shall be deemed to be a delivery under a contract for work and services, as was previously the case (Section 3).
If it has been contractually agreed between the service recipient and the service provider that the machine will be purchased and subsequently assembled and maintained by the service provider or persons commissioned by him, the entire service is taxable in Switzerland, even if this is agreed in separate contracts, provided that the German company reaches the worldwide turnover limit of CHF 100,000. If the tax liability is given on the basis of the above, the German company must be entered in the register of taxable persons in Switzerland and account to the FTA for the services provided in Switzerland.
In the event of a transfer of these services under a contract for work and services to a third party, the contractual partner is still deemed to be the service provider vis-à-vis the service recipient in Switzerland. If the third party reaches the worldwide turnover limit of CHF 100,000 within one year, it must also register in the register of taxable persons, as it also makes domestic supplies under a contract for work and services with such an order to assemble and install machinery in Switzerland.
A detailed assessment of whether or not your services qualify for VAT registration in Switzerland can only be determined individually in each case. Our specialists will be happy to assist you in this process and support you in all matters relating to VAT.
Please get in touch with us - we will be happy to help you.
Sources:
MWSTG = Federal Act of 12 June 2009 on Value Added Tax; SR 641.20
MWSTV = Value Added Tax Ordinance of 27 November 2009; SR 641.201
MI 06 = MWST-Info 06: Place of supply of services
Disclaimer: This publication is provided to users for information purposes only. In case of disagreement, one has to refer to the cited sources, relevant laws and publications alone. This letter contains a strong summary assessment by the authors. For an individual clarification of the respective facts, please contact us or the relevant authorities directly.
Honold Treuhand AG
Status May 2021