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Value-added tax
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Interesting market

Switzerland is an attractive sales market where higher prices can be achieved than in surrounding countries. Market access is open for trade but restricted for service providers. Deliveries and services from service providers, trades, online trading, mail order or direct sales are subject to Swiss value added tax (VAT) if the actual or fictitious place of service is in Switzerland.

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Cross-border cooperation

Germany is Switzerland's most important partner, also because of the large German-speaking area in Switzerland. 64% of the Swiss population lives in the German-speaking area, 20% in the French-speaking area, 9% in the Italian-speaking area and 0,5% in the Romansh-speaking area. The economically strong cities and cantons are in German-speaking Switzerland. Because of this geographical and cultural proximity, but especially because of the political and economic weight of the EU, its member states are by far Switzerland's most important partners. Despite all the goodwill towards cross-border cooperation, protectionism is strongly present on all sides. You protect your local economy from competition from neighboring countries.

No protection against double taxation with sales tax - sales tax

Anyone who lives in one country and receives income from another country has two tax authorities that could claim taxation on this income. The risk of double taxation is reduced or even eliminated through appropriate agreements. There are no such agreements worldwide for sales taxes / VAT / VAT. Even within the EU, double taxation of sales and the loss of input taxes can occur without this disadvantage being eliminated due to international agreements. This also applies to Switzerland. Since sales tax, as the name suggests, is calculated based on sales and not on margin or profit, the potential damage from an incorrect assessment is very high.

Sales tax is based on very formal requirements in many areas. Anyone who cannot produce the required documents or issues incorrect invoices due to ignorance must pay taxes, even though these would not actually be due according to the substantive provisions of the law. At the same time, there is a very high risk of damaging your customers and thus losing them through mistakes in dealing with sales tax. 

The VAT and place of delivery

In the commercial movement of goods between Switzerland and the EU, the “destination country principle” applies, meaning that commercial goods are generally only subject to sales tax in the country of destination. Depending on the agreements, the turnover in the country of origin is either not taxable or taxable, but tax-exempt if the documentation obligations are met. The basic rule that also applies to the provision of services between companies in the EU and Switzerland is that services provided to companies are taxable for the company where the client is based. It is different if the service is made to non-entrepreneurs. The service can then be controlled where the contractor is based.

Deliveries and services within Switzerland are subject to Swiss VAT. That sounds easier than it turns out when determining the location. In sales tax law, the place of delivery or service is not determined geographically, but rather, as in the example mentioned, based on legal dictions and fictions.

When delivering goods from foreign companies to recipients in Switzerland, regardless of the destination principle, a distinction is initially made based on what has been agreed between the contracting parties. In B2B business, the VAT place of delivery is determined by the Incoterms. Mechanical and plant engineers as well as craftsmen usually owe a delivery or service.

This also applies to preparatory work abroad (e.g. production of components) carried out at the site of final assembly. Special rules apply to mail order companies, especially in the rapidly growing online trade. Service providers can be subject to Swiss VAT on their services even if they have never set foot on Swiss soil. It must be checked in each individual case and, if necessary, determined by using appropriate Incoterms as to where the delivery or service is located.

For example, if a German craftsman carries out taxable services in Switzerland, then the service is carried out there and not in Germany. In Germany, there is therefore no tax-free transaction with corresponding documentation requirements. No, the turnover is not taxable in Germany and therefore does not appear in the German sales tax return. The craftsman still retains the input tax deduction in Germany.

In addition to the formal requirements, the biggest problem with sales tax is determining the legal place of delivery or service. This fictitious location alone determines whether any sales tax law applies and, if so, which one. This is illustrated by the following example:

Sales tax law Germany - Switzerland

A German general importer for e-bikes finds a customer in Switzerland. A larger load of bicycles is already on the way by sea from Shanghai to Rotterdam, where they will be unloaded and then distributed to customers in Europe. The two contractual partners have the following options, among others:

 

  • The transfer of ownership occurs immediately, i.e. on the high seas outside the 3 mile zone. In this case, no sales tax law in the world is responsible. The sale of e-bikes is not subject to VAT anywhere. When we arrive in Rotterdam, the bikes belong to the Swiss. He can import these into the EU, does the reporting and bears the import taxes such as customs and import VAT. If he brings the bicycles to Switzerland, he can have the import VAT refunded if he submits a timely application to the Dutch authorities and presents the entrepreneur's certificate. If he misses the deadline, the import VAT is lost. Nevertheless, he pays the local VAT of currently 7,7% when importing into Switzerland. If the Swiss entrepreneur also had sales in the Netherlands, he would not have to apply for a refund of the import VAT in a time-limited manner, but could offset it as part of the regular sales tax return or have it paid out. With the appropriate shipping documents, the Swiss customer could also take the e-bikes in transit through Europe to Switzerland duty-free and only complete the import there.

 

  • If the transfer of ownership takes place at the customs-free port of Rotterdam, the delivery is subject to VAT law in the Netherlands.

 

  • If the transfer of ownership takes place en route in France or Germany, the German intermediary would have to take over the import into the EU. The respective national sales tax law is relevant for the sale. The Swiss customer must then reclaim the VAT using the time-limited application process in the relevant country.

 

  • Last but not least, delivery could also be made FREE of charge and therefore in Switzerland. The supplier then has to register in Switzerland, handles the import and issues the invoice with Swiss VAT. 

 

The countries mentioned also have different approaches to the question of whether a fiscal representative should be appointed or not. First and foremost, the Incoterms determine the place of delivery. However, if the actual handling differs, the principle of “substance over form” applies.

Provision of services in Switzerland

Due to the bilateral contracts, self-employed service providers from the EU, including German craftsmen, are allowed to work in Switzerland for 90 days per calendar year without authorization. However, you must register with the cantonal labor market authority before entering the country. The limit of 90 days / calendar year applies in the sense of a double limit separately for the company and for each person employed.

Registration must be made exclusively online at least 8 days before the start of work. If German service providers become active in Switzerland, they or their posted employees must register if they work in Switzerland for more than 8 days within a calendar year. Excluded from this are activities in the main and secondary construction trades, as well as cleaning trades, security services, etc. In this case, the report must be made before the start of the activity from the first day. Registration is also required for the import of goods worth more than 1 CHF. When working in Switzerland, strict care must be taken to ensure that the working conditions applicable there are adhered to for the duration of the assignment in Switzerland. This also includes the payment of the proportional Christmas bonus in summer.

VAT deposits

In some sectors in Switzerland - although this varies from canton to canton - deposits are required for orders worth more than 2.000 CHF, which must be paid before starting work. The deposits are managed centrally. The deposit can also be provided through a bank guarantee or surety insurance from an institute subject to the Swiss Financial Market Supervisory Authority FinMa. The amount of the deposit is specified in the respective GAV (general employment contract). The deposit serves to secure claims

 

  • Control and procedural costs
  • Contractual penalties
  • training costs
  • Contributions to enforcement costs

 

The exams are carried out very restrictively. A statement on the utilization of the deposit must generally be made within 10 days. If necessary, a lawsuit can be filed with the Swiss labor court (Art. 343 OR). If the deposit has been utilized, a new deposit must be made before the activity can be started/continued.

Employers or posting companies that have provided a deposit in favor of the ZPK can submit a written application to the ZPK for the release of this deposit if the employer located within the scope of the GAV has definitely (legally and factually) ceased its activities; if the sending company operating within the scope of the GAV meets the following cumulative requirements no later than six months after completion of the assignment (according to Art. 18a.1.3 GAV):

 

  1. a) The enforcement costs contributions (Art. 17 GAV) have been duly paid.
  2. b) All control procedures have been completed.

 

Anyone who claims to be self-employed must carry the following documents with them when entering the country: (Art. 1a Para. 5 EntsG)

 

  • Registration confirmation/copy
  • Social insurance certificate A 1 (formerly E 101) as well 
  • Copy of the work contract with the client in Switzerland
  • alternatively, a written confirmation from the client

 

The taking of tools and materials must be documented upon entry and exit. If something is missing when you leave the country, it will be subject to import VAT.

Complex customs clearance

Customs clearance for temporary imports of tools, exhibition stands, etc. is complex. Used tools and hand-held machines may be imported freely provided a list is included and stamped by customs. (Check with customs beforehand). Consumables such as nails, screws, welding materials, etc. must be declared and taxed separately. Furthermore, Switzerland requires that 8% of the value of the tools and goods carried be deposited in cash or in the ZAZ account. The deposit will be refunded upon return if customs are still open at the time. Otherwise the amount will be forfeited without replacement.

This means that foreign service providers' access to the Swiss market is surrounded by numerous hurdles and ultimately severely restricted. If you want to build a sustainable market position, you can hardly avoid founding a company based in Switzerland.

Acquisition tax

If a foreign company that is not registered in Switzerland imports material into Switzerland in order to carry out work with it, the customs authority charges an import tax on the total value of the service. If no material is required for this work or the material is provided by the domestic recipient of the service, he or she may owe the so-called purchase tax under certain circumstances. The import of data carriers without market value with the services and rights contained therein are also subject to the purchase tax.

Purchase tax may also be due for the purchase of certain services from foreign companies. However, this only applies to services whose recipient is an entrepreneur registered in Switzerland. The same applies if a benefit recipient who is not registered as a taxable person receives such benefits for a total of more than CHF 10 within a calendar year. Examples in which the purchase tax, which ultimately represents a reverse charge procedure, are:

 

  • Services in the field of advertising
  • Services from consultants, asset managers, trustees, lawyers, etc.
  • Management services
  • Data processing services
  • Staff leasing
  • Assignment and granting of intangible rights
Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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