VAT liability of mail-order companies in Switzerland
The so called "Mail Order Regulation" has entered into force on 1 January 2019 and aims to treat foreign companies engaged in mail-order business (i.e. online retailers selling goods cross-border to B2B and B2C customers in Switzerland) on an equal footing with companies domiciled in Switzerland.
[This article essentially quotes statements/graphics of the Federal Tax Administration on its website.]
Regulation until 31 December 2018
The unequal treatment in the past resulted from the fact that, for economic reasons, no import VAT is levied on imports of goods into Switzerland if the tax amount is CHF 5 or less (so-called small consignments). In addition, the delivery of goods is not subject to domestic VAT. The Swiss buyer can therefore purchase small consignments from abroad without paying VAT, whereas the same consignment is subject to domestic VAT when purchased from a domestic mail-order company or retailer registered in the VAT register.
The legal situation until end of 2018 is illustrated in the graphic below:
Regulation since 1 January 2019
If a mail-order company generates at least CHF 100,000 per year from small consignments that it transports or dispatches from abroad to Switzerland, regardless whether the buyer is a business or not (B2B and B2C), its supplies are now regarded as domestic supplies, i.e. the place of supply is deemed to be in Switzerland. As a result, the mail-order company becomes VAT liable in Switzerland. The VAT liability arises when the turnover limit of CHF 100,000 is exceeded. From the date of entry in the VAT register, not only small consignments sent by the mail-order company are regarded as domestic supplies, but also all other consignments for which the amount of import VAT exceeds CHF 5. As a result, all shipments to Switzerland by a taxable mail-order company are subject to domestic VAT.
However, if the VAT amount is CHF 5 or less, import VAT is still not levied:
In order to enable customs declarants to decide whether import tax is charged to the buyer or to the mail-order company, the Federal Tax Administration (FTA) provides a list of companies registered as mail-order companies for VAT on its website. Taxable mail-order companies and customs declarants are responsible for correct processing and transfer of the tax. If a buyer ends up being charged with domestic VAT by the mail-order company and import VAT by the customs declarant, neither the FTA nor the Federal Customs Authorities (FCA) refund the tax. Thus, the introduced Mail Order Regulation requires careful coordination of the mail-order company with its customs declarants, particularly in postal traffic, as the seller and the customs declarant (Swiss Post) have no direct contractual relationship.
Timing of VAT registration
If a mail-order company achieved in Switzerland a turnover of at least CHF 100,000 from small consignments in 2018 and it is assumed that such deliveries will also be carried out in 2019, the VAT liability started on 1 January 2019. In all other cases, the obligation to register begins in the following month after the turnover limit of CHF 100,000 has been exceeded. By means of a so-called "declaration of subjection for abroad" mail-order companies can voluntarily submit to tax liability even before reaching the turnover threshold, which may make it easier to plan the changeover. A foreign company needs to appoint a fiscal representative resident or domiciled in Switzerland when registering for VAT. Furthermore, a security in cash or by means of a bank guarantee at a bank domiciled in Switzerland has to be provided.
Initial experience with the new regulation
In practice the introduced Mail Order Regulation is in many cases associated with practical implementation hurdles, whereby the (correct) implementation in the IT systems is only one of them. Until end of January 2019 around 60 mail-order businesses registered for VAT in Switzerland. But given the obstacles it came not as a surprise that a global player in the mail-order business decided end of 2018 to discontinue shipments to Switzerland instead of facing the challenges of the new regime.
T+R AG, Switzerland