VAT between the UK and Switzerland
Switzerland is a large trading partner and export market for the UK, but its neutral political status outside of the European Union and its reputation as a tax haven can cause VAT confusion for business carried out between the 2 countries. This post outlines the main issues as they apply to a small UK business.
The UK comprises England, Wales, Scotland, Northern Ireland, and (generally for VAT purposes) the Isle of Man but not the Channel Islands.
Unlike some low-tax countries, Switzerland does have a system of VAT, which is charged at a rate of either 2.4%, 3.6% or 7.6%. Due to its 4 official languages, it may be referred to as Mwst (Mehrwertsteuer), TVA (Taxe sur la valeur ajoutée), IVA (Imposta sul valore aggiunto) or TPV (Taglia sin la Plivalur).
Exporting goods to Switzerland
Most goods exported to Switzerland can be zero-rated for UK VAT purposes, as long as documentary evidence of the export is kept. Any extra charges made for freight, shipping, postage or delivery are also zero-rated.
Even where VAT is not being charged, the net value of the sale must still be reported on the UK VAT return, in box 6. It should not be included on the EC Sales List, nor on an Intrastat return if the business is required to make one.
If the UK business accounts for VAT on the Flat Rate Scheme, it must include the value of the export in the turnover on which the Flat Rate VAT is paid. This may mean that the business is better off not being on the Flat Rate Scheme.
Importing goods from Switzerland
Swiss VAT should not be charged on goods that are exported from Switzerland into the UK. Instead, UK VAT at the standard rate is normally paid on import, and a UK VAT-registered business can reclaim that same amount from HMRC by including it as input VAT in box 4 of their regular VAT return, subject to the normal rules about recovering input tax. Any Swiss VAT that is charged cannot be recovered in the same way.
There is no requirement for a VAT-registered business to account for VAT on imports into the UK from Switzerland in the same way as from other EU states.
VAT on services
UK VAT may need to be charged on services performed in Switzerland, depending on the nature of the service supplied. This is a complex area, but broadly, assuming the supplier belongs in the UK and the customer belongs in Switzerland, UK VAT will need to be charged on most services unless one of the following exceptions applies:
- UK VAT does not need to be charged on services relating to land or property situated in Switzerland. This includes estate agency, conveyancing, architects, surveying, construction, property maintenance, hotel accommodation, defined exhibition stands, and property management services.
- UK VAT does not need to be charged on most services related to a live event or physical activity carried out in Switzerland. This includes cultural, artistic, sporting, scientific, educational, training, entertainment, exhibition and valuation services.
- UK VAT does not need to be charged on passenger transport carried out in Switzerland.
- UK VAT does not need to be charged on most ‘intellectual’ services supplied to a customer who belongs in Switzerland. This includes copyright, royalties, licences, advertising, consultants, engineers, lawyers, accountants, banking and insurance. If the service relates to land or property situated in the UK, VAT still needs to be charged.
In all cases, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the wording on the invoice.
Additional services rules
The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.
If a VAT-registered UK business receives a service from a Swiss supplier, and the place of the service according to the above rules is in the UK, the UK business may need to ‘reverse charge’ that service (see section 16, VAT Notice 741). If the UK business is not registered for VAT, and the service is ‘intangible’ or ‘intellectual’, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.
Any service which is not subject to UK VAT under the above rules may be within the scope of Swiss VAT. A UK business providing a service within the scope of Swiss VAT should consider whether it needs to register for VAT in Switzerland, and then charge and account for it, according to Swiss tax law. This is beyond the scope of this post, but basically registration is required if turnover subject to Swiss VAT is over CHF 75,000 (around £40,000) per year.
Reclaiming Swiss VAT
Swiss VAT cannot be reclaimed on a UK VAT return, but it may be possible to reclaim it by using a local fiscal representative.