An amended VAT brochure about aviation published on the 3rd of July 2018 by the Swiss tax administration highlights several changes concerning VAT registration in case of cross border activities with ties to Switzerland. This may affect foreign or Swiss parties to lease and purchase agreements mainly if the aircraft is located in Switzerland at some stage.
Foreign companies are liable to Swiss VAT and have to register with the Swiss VAT authorities if they supply goods to Switzerland and their non-exempted turnover exceeds CHF 100’000 per year. As per 1.1.2018, two main changes were introduced:
- This threshold is calculated on a worldwide basis (i.e. not only on the turnover taxable in Switzerland).
- The acquisition tax (i.e. VAT paid by the Swiss resident recipient in case of a non-registered foreign supplier, often referred to as “reverse charge-system”) was narrowed down to immoveable goods. Services rendered by foreign non registered suppliers to Swiss residents remain subject to acquisition tax.
One of the main purposes of the change of law as per the beginning of this year was to ensure that foreign craftsmen working on Swiss real estate would be subject to VAT in the same way as their competitors domiciled in Switzerland. In the course of this widely discussed change, commentators have somewhat lost sight of the fact that without acquisition tax for moveable goods many foreign suppliers of moveable goods may now become liable to Swiss VAT.
There are several scenarios, where the acquisition tax does not apply anymore and thus it is no longer possible to factually shift the VAT handling to the Swiss receiver but the foreign supplier performing deliveries to Switzerland has to register as Swiss VAT taxpayer. This change has a particular impact on the aviation industry for several reasons. First, because a lease is considered a supply of goods (as opposed to a supply of service), secondly because there are often foreign suppliers involved and thirdly because the sums at stake are almost always above the threshold.
The following situations may be of special interest for foreign suppliers:
- A foreign company without Swiss VAT registration that leases an aircraft located in Switzerland to a foreign lessee may become subject to Swiss VAT if the delivery takes place on Swiss ground. Several exemptions may apply, for example if the lessee is an international airline, or if the aircraft is mainly used outside the Swiss customs territory. However, there is not always an exemption applicable, for example for smaller aircraft or helicopters which are not predominantly used outside of Switzerland.
Before 2018 such cases could be subject to acquisition tax paid by the lessee; but this is not possible anymore.
- The same issue arises in case of a sale of the aircraft whereby the aircraft is not exported after delivery or if the necessary export documentation is not provided by the purchaser.
- Another example is the case of a lease of an aircraft delivered to a lessee outside of Switzerland and subsequently import of the aircraft into Switzerland by the lessee. Import VAT (levied on the market value of the aircraft) is fully refundable to the lessee if the aircraft is used for his commercial purposes. At the end of the lease, part of the originally refunded import VAT has to be paid back to the tax authority. There is however an exemption if the aircraft is exported out of Switzerland immediately after the termination of the lease or if it is bought by the lessee. If none of these exemptions apply, the foreign lessor may become liable to Swiss VAT.
Before 2018 such scenario would have triggered acquisition tax in the hands of the new owner of the aircraft.
In the above cases the tax liability is shifted from the lessee to the lessor who is often domiciled outside Switzerland and may as a consequence have to register as Swiss VAT taxpayer.
There are also changes for suppliers resident in Switzerland. For example, the sale or leasing of an aircraft located abroad by a Swiss resident person to a purchaser or lessee resident abroad, results in a Swiss VAT liability for this Swiss resident person if the threshold of CHF 100’000 is exceeded. Even if the Swiss resident supplier does not pay VAT, because he has no turnover subject to VAT, he has to mandatorily register with the Swiss VAT authority.