Swiss VAT Pitfalls for Foreign Companies

We recently came across a couple of situations that could have adverse and costly VAT consequences for foreign companies operating in Switzerland and would like to make you aware of potential pitfalls with respect to the VAT treatment of two types of supplies:

• Supply of goods with the installation of equipment in Switzerland (sales and rentals). In certain cases, this type of transaction leads to a VAT registration obligation, while in other cases, registration can be avoided. Mismanaging importation can result in irrecoverable import VAT. Impacted industries are medtech, medical imaging, HVAC, machinery and robotics, furnishing of hotels, etc.
• B2C e-services provided to Swiss customers, including the sale of e-books. There is basically no threshold for the VAT registration obligation, which arises with the first sale to a Swiss non-VAT-registered customer (B2C transaction). A peculiarity of the Swiss VAT regime: Once a foreign supplier is registered for Swiss VAT due to B2C sales, both B2C and B2B sales are subject to VAT!

Supplies with Installation in Switzerland

Switzerland, not being a member state of the EU, has slightly different VAT rules regarding supplies with installation or assembly that are carried out by foreign suppliers in Switzerland.

Supplies with installation are always considered supplies of goods in Switzerland. Even a mere installation or assembly service without the physical delivery of tangible goods qualifies as a supply of goods for Swiss VAT purposes. The place of supply and VAT liability rules, however, depend on the extent of the installation.

Assembly and installation are considered ancillary to the transport in the following cases:

• Sale of equipment which the seller must assemble and install at the purchaser's premises, but without any adaptation to the layout of the space; and
• Sale of a machine ready for use, transported in parts and assembled on site, or transported already assembled for the recipient and only connected to the electricity network and subject to on-site testing.

In these cases, there is no mandatory VAT registration for the foreign supplier based on published administrative practice of the Swiss VAT administration.

On the contrary, assembly and installation are not considered ancillary to the transport in the following cases:

• Rental of an exhibition stand, including assembly;
• Sale of a machine made operational and adapted to the particulars of the recipient's premises (e.g., integration into an existing production line);
• Sale of equipment that the seller or a third party commissioned by the seller has to adapt to the recipient's premises or install permanently (e.g., built-in equipment); and
• Installation of software, including the handling of hard disks, etc.

In cases of customized adaptation and installation of equipment at the customer's premises, the foreign supplier is basically obliged to register for Swiss VAT. The distinction between a simple installation not leading to VAT registration and a customized or complex installation leading to mandatory VAT registration of the supplier is not straightforward. To avoid potential issues, the taxpayer can voluntarily register by means of a subordination license or, alternatively, can request a binding opinion (ruling) from the tax administration on its VAT registration obligations.

The mere installation or assembly service provided without a supply of goods (typically by a subcontractor) qualifies as a supply of goods for Swiss VAT purposes. Since this supply cannot be considered ancillary to the transport, it leads to a VAT registration obligation for the provider.

Special rules apply to rentals or leasing accompanied by installation. The administrative practice of the VAT authorities does not distinguish between major and minor installations - all such supplies lead to a VAT registration requirement.

The Customs rules define the correct importer of record (IOR) in each case. In general, only the correct IOR is entitled to deduct import VAT as input tax. A worst case scenario arises when the Swiss customer acts as the IOR when it is not and then is denied a deduction of the import VAT as input tax, which can result in a final VAT burden in some cases.

B2C E-services to Swiss Customers

The provision of e-services to non-VAT-registered customers established in Switzerland (B2C transactions) leads to mandatory VAT registration of the foreign supplier. There is no registration threshold - the VAT liability starts with the first supply. B2B e-services are basically subject to the reverse charge by the Swiss recipient. The burden of proof of the VAT registration of the customers is on the service provider.

Once registered due to the B2C supplies, the supplier has to charge VAT on all services to Swiss customers in both B2B and B2C transactions. The reverse charge is no longer applicable.

BDO Insight

The regularization of the past usually takes place by means of a self-disclosure, retroactive VAT registration and the filing of VAT returns for the past periods, and payment of VAT due. The statute of limitations in Switzerland is five years plus the current year.

If a foreign company retroactively registers for VAT, the tax administration can waive the subsequent collection of VAT on the transactions carried out in the Swiss territory if the company proves that the recipients of the services reverse-charged the services. The retroactive registration of a foreign company is fully waived if it can be shown that the company exclusively supplied services that were reverse charged by the recipients.