PLEASE NOTE: THIS ARTICLE WAS ORIGINALLY SUBMITTED BY REVISUISSE PRICE WATERHOUSE, SWITZERLAND

Your contacts for VAT issues at Price Waterhouse Zurich, Switzerland, are Urs Landolf and Jurg Buchli.

New VAT rates

The current standard VAT rate of 6.5% will be increased to 7.5% on January 1, 1999. Compared to other European countries this is still a very low rate. Furthermore, the reduced rate VAT tariffs of 2% and 3% will be increased to 2,3% and 3,5% respectively. This is the first increase after the introduction of VAT in 1995 and it will lead to necessary changes in VAT payers contracts, systems and invoicing procedures.

The changes effect in particular those companies without straightforward sales transactions, but which continuously render services or supplies over a certain period of time. Services and supplies rendered in 1998 are thus basically subject to the current rate, while those rendered after January 1, 1999 are subject to the new rate. Accounting systems will have to be adopted and be able to run transactions parallel both under the old as well as under the new rules. Companies not entitled to (fully) recover input VAT may, therefore, want to invest in capital goods prior to January 1, 1999.

Financial transactions

The Swiss VAT authorities have recently announced additional rules on services of the finance sector i.e.; the banking industry which will enter into force as of July 1, 1998. According to the VAT Ordinance, certain banking transactions are VAT exempt. In addition, the brokerage of these services is also VAT exempt. The VAT authorities used to have quite a broad view as far as the brokerage definition is concerned. However, the term will now be restricted to transactions where the broker acts in the name of the assignor and concludes contracts on behalf of the latter. Such services remain exempt. All other services are considered finders fees or consultancy fees and newly become subject to VAT. These changes will have the effect that many asset managers, which currently are not subject to VAT, will become taxable. Banks will thus suffer additional VAT cost from suppliers whose services do not qualify anymore as VAT exempt.

There are also stricter rules on the taxability of services rendered to off-shore companies, trusts and foundations. These rules do not only lead to a larger tax base, but also trigger difficult handling problems for the supply of services.

Cross border telecommunication services

Due to the international trends regarding telecommunication services, the EU VAT law has recently been changed drastically. The major objective was to close the gap for non-EU providers which could offer services to companies and individuals within the EU free of any VAT charge. The Swiss VAT practice will introduce similar changes.

However, these changes have not yet been officially announced. They will not only effect telecommunication companies, but also groups of companies maintaining their own intragroup telecommunication networks. Besides administrative implications, there will also be an additional cost factor particularly for banks and other companies and institutions which can not fully recover VAT.

Changes for the year 2000

Before the introduction of the VAT ordinance in 1995, a formal VAT law had been announced. The major goal is to amend certain regulations which are understood as unsystematic, incorrect, unfair, fiscalistic, restrictive to international business, or not in harmony with the VAT practice in the EU. In general, the draft law moves towards EU law, which facilitates international transactions with Switzerland. At present, the draft is being discussed in parliament and is expected to come in force on January 1, 2000.

The content of this article is intended to provide a general guideline to the subject matter. Specialist advice should be sought about your specific circumstances.