Does the phrase "the heralded revolutions are not taking place" also apply to Swiss VAT? Didn't the discussion to revise VAT law begin with the simplifying notion of a uniform VAT rate? On the other hand, there were also efforts to introduce an administratively cumbersome approval procedure for the voluntary taxation of benefits (optional) and the idea to extend the limitation period from 5 to 15 years. All of these issues had to be written off by the National Council's Economic and Social Affairs Commission (WAK-N) in May 2016 to launch a partial revision that had a chance to be approved by the Council of States. Even though there may have been no revolution the rather recent VAT law, which only came into force in 2010, has now been partially revised due to these concessions.
We would like to present the substantial changes of the revised VAT law (hereinafter referred to as "revMWSTG") in comparison to the current legal situation below. Additionally, the Swiss voting public voted for a change in VAT rates, however, these are not an integral part of the partial revision. Nevertheless, their importance is also reflected here.
The following changes are to be presented in this article:
- Definition of closely related persons
- Relocation of the place of delivery of consignments exempt from import tax (small consignments)
- New calculation basis for exemption from tax liability (turnover limit CHF 100,000)
- Simplification of the option
- Reduced rate for electronic newspapers, magazines, and books
- Easing the scope of the notional pre-tax deduction
- Limiting the application of service import tax on deliveries
- The adjustment of VAT rates
ATTENTION: The changes concerning small consignments will only enter into force on 1st January 2019.
1. Definition of closely related persons (Article 3 (h) revMWSTG)
1.1 Currently applicable law
Closely related persons are defined as owners of significant holdings in business partnerships, meaning that foundations and associations are excluded from being closely related persons. A holding is regarded as significant if it comprises at least 10% of the share capital or 10% of the profit If equity investments reach a market value of CHF 1 million, they are also deemed to be significant.
Landing in the "closely related persons" category leads to consequences as soon as someone receives benefits from a company to which a certain connection exists. If the closely related person is employed in the company, from a VAT point of view, they will be considered as the recipient of a salary statement, i. The benefits received are to be settled via the salary statement, provided the benefits concerned are benefits provided by the employer to their employees. However, if the closely related person is not employed and receives benefits from the company, the basis of assessment of these benefits is the value agreed upon by independent third parties. An example of such a benefit would be the use of a company jet by a major shareholder for a private short trip from Zurich to Paris. The use of the jet is taxable at the same price a third party would have had to have paid.
1.2 New from 1st January 2018.
Closely related persons are defined as owners of at least 20% of the share capital as well as newly including foundations and associations, to which a particularly close economic, contractual, or personal relationship exists, meaning, the new definition of closely related persons includes foundations and associations. However, pension funds are still excluded from being regarded as closely related persons from the point of view of Swiss VAT.
This adjustment neutralises the one-sided preference for foundations and associations; in the future, for example, benefits will be subject to Swiss VAT, provided that an association closely linked to a company is likely to use the infrastructure of that particular company for administration and club events free of charge.
2. Relocation of the place of delivery of consignments which are exempt from import tax (Art. 7(3)(b) revMWSTG) - valid from 1st January 2019.
2.1 Currently applicable law
Consignments with a taxable value under CHF 5 are currently qualified as small consignments. These are therefore exempt from import tax. The place of delivery shall be the place where the decisive economic rights to an object are transferred or the transport or dispatch of the item begins. If for example, an object is purchased by a Swiss company in Germany, the place of delivery is in Germany, since, at the time of the purchase and dispatch, the object is to be found in Germany.
2.2 New from 1st January 2019
Fundamentally, consignments with a taxable value of less than CHF 5 continue to be exempt from import tax. In contrast to the current regulation, however, for these small consignments, the place of delivery changes from international (start of dispatch) to national (Switzerland) as soon as a distributor of these small consignments to Switzerland reaches a turnover of more than CHF 100,000 per year. In such cases, the distributor must accordingly tax the sale of these goods in Switzerland and will be subject to VAT.
At present, the current legislation disadvantages domestic suppliers compared to their foreign competitors. Foreign producers and suppliers could under certain conditions, provided that the turnover of CHF 100,000 is not exceeded with small consignments, prevent the offsetting of any VAT. The reform plans to counteract this preferential treatment and strengthen domestic trade.
ATTENTION: This regulation will only come into force from 1st January 2019.
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