Switzerland - VAT Reform Approved by the Federal Council

September 11, 2024

In a VAT news article published a few months ago, we explained the proposed amendments to the VAT Act and their effects on digital platforms. Now, the Swiss Federal Council has enacted these amendments, bringing the Swiss VAT framework closer to modern trends and more suitable for the challenges of the digital economy.

As expected, the amendments will take effect on January 1, 2025.

Key Amendments to the VAT Act

Adopted VAT amendments include simplifying tax compliance for taxpayers registered for the VAT flat rate scheme. This includes eliminating the obligation to record input tax, which may come as administrative relief for SME businesses.

One of the most significant amendments refers to the definition of digital platforms and their obligation to collect and remit VAT, putting them in the position of a deemed supplier. All digital platforms related to the supply of goods and services must provide all VAT-related information to the Swiss Federal Tax Authority (SFTA) upon the SFTA's request.

Also, the place of supply rules for remote services, such as online training, have been amended, so they will now be taxed based on the recipient’s location. In addition, place of supply rules for on-site cultural, artistic, educational, scientific, sporting, and recreational services have also been changed. According to the new regulations, the place where performance occurs is the place of supply for these services.

The place of supply of services related to travel agencies and similar services provided by the same travel agency also changed. Now, the palace of supply is where the person operating the travel agency has a head office or a permanent establishment, domicile, or the place from which activity is carried away.

Furthermore, adopted VAT amendments include a list of VAT-exempt medical and educational services.

Conclusion

It was clear that previously proposed amendments would be adopted and that changes to the Swiss VAT framework were inevitable. All digital platforms operating in Switzerland had enough time to assess the proposed amendments and determine if they affected them.

However, now that it is obvious that new rules will apply in 2025, digital platforms and other affected parties that did not prepare and make needed changes must make adjustments to comply with VAT rules.

Source: The Federal Council of Switzerland, VATabout

What are the key changes introduced in Switzerland's VAT reform effective January 1, 2025?

The reform simplifies tax compliance for small and medium-sized enterprises (SMEs) by eliminating the obligation to record input tax for those registered under the VAT flat rate scheme. It also redefines the role of digital platforms, designating them as deemed suppliers responsible for collecting and remitting VAT. Additionally, the place of supply rules for remote services and certain on-site services have been updated to align with the recipient's location.

How does the reform affect digital platforms operating in Switzerland?

Digital platforms facilitating the supply of goods and services are now considered deemed suppliers, making them responsible for VAT collection and remittance. They are also required to provide VAT-related information to the Swiss Federal Tax Authority upon request.

What are the new place of supply rules for remote services?

The place of supply for remote services, such as online training, is now determined by the recipient's location, ensuring that these services are taxed where they are consumed.

How does the reform impact SMEs using the VAT flat rate scheme?

SMEs registered under the VAT flat rate scheme benefit from simplified compliance, as they are no longer required to record input tax, reducing administrative burdens.

Are there changes to VAT exemptions for medical and educational services?

Yes, the reform includes a list of VAT-exempt medical and educational services, clarifying which services are exempt from VAT.

What should businesses do to comply with the new VAT rules?

Businesses, especially digital platforms and SMEs, should review and adjust their operations to align with the new VAT obligations effective from January 1, 2025. Consulting with tax professionals is advisable to ensure full compliance.

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