Posted by Zsolt Tenczer, pwc Zurich
Attractiveness of a tax location depends not only on low tax rates. Legal certainty and fair legitimate expectations also play a crucial role. For this purpose, enterprises could verify the tax implications of a restructuring or a specific transaction via binding rulings, issued by the tax authority. In Switzerland, this possibility is given on all levels of federal and cantonal authorities and for all kinds of taxes. Therefore it is not surprising that Switzerland, as a business location, has become highly attractive – and not only because of the high quality of life.
With regards to Value Added Tax, there are further advantages that are still fairly unknown abroad:
Tax liability arises at the beginning of the business activity so that a business can register before the revenues start to flow in, this way it can already enjoy full recovery of input VAT. In contrast with the EU, pure holding companies can also register for VAT. Acquiring, holding and selling shares qualify as a business activity and the input VAT can be recovered for such entities in Switzerland.
For most of the VAT exempt activities, without credit of input VAT, the option to choose taxation would also be available. This would be specifically advantageous in those cases, where the contracting party is also VAT-registered and can recover this additionally invoiced VAT. Making use of this optional taxation can be made very flexible. Taxation can be opted separately for each contractual relationship, the pre-approval of the Federal Tax Administration is not required; generally, using the option could be made simply by stating the tax on the issued invoices. However, the option to choose taxation is not possible in the case of finance and insurance transactions, as well as for properties used exclusively for private purposes.
If option to tax is available for a VAT exempt supply without credit of input VAT, performed for a Swiss established customer, the input VAT would also be deductible when the supply is provided to a customer established outside of Switzerland.
Compared to the situation in the EU and numerous other countries, Switzerland is also a paradise regarding administrative requirements. There are only a few formal requirements and this significantly limits the risk of the businesses.
As a last point, the comparably low VAT rates should be also not forgotten. Currently the standard rate is 8%, furthermore there is a special rate of 3.8% and a reduced rate of 2.5%.
Following the future changes in the taxation of B2C transactions that will become effective from 1.1.2015 within the EU, Switzerland will also become, not at least because of its VAT system, a very favourable business location.