THREE POSSIBLE FORMS OF TRANSFER

There are basically three ways to account for the sale of a property for VAT purposes:

1. The basic case provided for by law is the exempt supply in accordance with Art. 21 para. 2 no. 20 of the VAT Act
2. As an alternative, there is in principle the possibility of a transfer as a voluntarily taxed ("opted") supply in accordance with Art. 22 para. 1 of the VAT Act
3. Finally, under certain conditions, the parties may decide to apply the notification procedure in accordance with Art. 38 MWSTG in conjunction with Art. 104 MWSTV. Art. 104 MWSTV.

SALE OF A PROPERTY AS AN EXEMPT SUPPLY (ART. 21 PARA. 2 NO. 20 MWSTG)

The transfer as an exempt supply means that the sales transaction itself does not trigger VAT. As the supply itself is "non-taxable", the (taxable) seller cannot claim input tax deduction on the input taxburdened expenses in connection with the transaction.

If the (taxable) seller has used the property until the sale (in whole or in part) for purposes entitling him to deduct input tax, the sale as a taxexempt supply constitutes a "change of use" (old use: partially or fully entitling to deduct input tax, new use: not entitling to deduct input tax). Ac-cordingly, the seller must make an input tax adjustment due to own use in accordance with Art. 31 of the VAT Act.

• Example 1:

  The taxable company Hans Muster AG in Walchwil holds a property as part of its business assets. The property houses the joinery of Hans Muster AG. In October 2014, Hans Muster AG had the roof of the property recovered. Hans Muster AG claimed the VAT invoiced for this as input tax. On 1 July 2024, Hans Muster AG sells the property to Müller Immo AG. The sale is to take place in accordance with the statutory base case as an exempt supply.

  Hans Muster AG previously used the property extensively for taxable purposes (carpentry). The sale as an exempt supply results in a change of use. Accordingly, Hans Muster AG must correct the input tax deduction in connection with the property. In this case, the input tax deduction in connection with the renovation of the roof is affected. The extent of the correction depends on the current value of the renovation. To determine the current value, the input tax amount is reduced by 5% on a straightline basis for each year that has elapsed for immovable property. The accounting treatment is not rele-vant. Accordingly, Hans Muster AG must correct the originally deducted input tax by 50% (5% * 10 years, the current year of sale is generally not taken into account when deter-mining the current value).

The purchaser acquires the property free of VAT. If the property is used for non-taxable purposes (e.g. as a retirement home), there is no risk of a change of use for the purchaser. On the other hand, the purchaser does not transfer any potential for de-taxation.

• Example 2:

  Hans Muster AG includes the input tax adjustment to be made by it in the sales price. Müller Immo AG initially intended to demolish the business premises and build a modern residential property on the site. It is changing its plans to the effect that shops are now planned on the ground floor and offices on the first floor.

  In the case of the construction of a residential property, Müller Immo AG is interested in minimising the input tax burden in connection with the acquisition of the property. In the case of taxable use (shops and office space can be let/sold on an optin basis), the input tax burden plays a rather minor role, as Müller Immo AG is entitled to deduct input tax. The "hidden" VAT transferred from the input tax correction of Hans Muster AG, on the other hand, results in a definitive additional charge for Müller Immo AG.

If the contracting parties have not made any special agreements and VAT is not shown in the purchase contract, the sale is to be treated as a tax-exempt transaction.

OPTed SALE OF A PROPERTY (ART. 22 PARA. 1 NO. 20 MWSTG)

As a first alternative, the taxable seller of a property has the option of voluntarily subjecting the sale to VAT ("option"). The prerequisite for exercising this option is that the property is not used by the buyer exclusively for residential purposes. If the buyer acquires the property in order to sublet it for residential purposes, the option is possible, as the buyer himself does not intend to use the property exclusively for residential purposes.

The seller can also opt for only part of the sale of the property. When selling developed properties, the seller can claim input tax on the costs directly related to the sale in full or in part (depending on the option).

• Example 3:

  The taxable company Hans Muster AG in Walchwil holds a property as part of its business assets. The property houses Hans Muster AG's joinery workshop. Above it is a penthouse with a view of Lake Zug. In October 2014, Hans Muster AG had all the windows in the property replaced. Hans Muster AG claimed the VAT invoiced for this as in-put tax insofar as the windows of the joinery were affected. On 1 July 2024, Hans Mus-ter AG sold the property to Müller Immo AG.

  Hans Muster has the option of selling the property as a whole on an optin basis, as Mül-ler Immo AG will not use the penthouse flat itself for residential purposes. By opting for VAT for the transfer, Hans Muster AG would not have to make an input tax adjustment in relation to the input tax claimed in connection with the renovation of the windows in the joinery area. Rather, there is a change of use with regard to the penthouse flat, which entitles Hans Muster AG to make a input tax deduction with regard to the input tax not claimed in connection with the renovation of the windows in the penthouse flat area Inso-far as Müller Immo AG continues the previous use of the penthouse flat, its opted trans-fer will result in an additional VAT charge for Müller Immo AG, which will presumably have an impact on the purchase price negotiations.

  There is also the possibility that Hans Muster AG merely opts for the sale of the joinery and transfers the penthouse flat as a taxexempt supply. In this case, Max Muster AG does not have to calculate either an own-consumption correction or a subsequent input tax deduction.

Formally, a sale with an option only requires that the VAT is shown separately in the purchase contract on the purchase price without the value of the land or that the declaration is made in the statement in sections 200/205.

TRANSFER OF THE PROPERTY IN THE NOTIFICATION PROCEDURE (ART. 38 PARA. 2 MWSTG IN CONJUNCTION WITH ART. 104 MWSTV)

When using the notification procedure, VAT is settled with the FTA by notification instead of payment. The notification procedure therefore offers the possibility of processing the transaction without the buyer having to finance the VAT. By using the notification procedure, the buyer assumes the seller's taxable base and the utilisation level entitling to input tax deduction for the transferred assets.

• Example 4:

  The taxable company Hans Muster AG in Walchwil holds a property as part of its busi-ness assets. The property houses Hans Muster AG's joinery workshop. Above it is a penthouse with a view of Lake Zug. In October 2014, Hans Muster AG had all the windows in the property replaced. Hans Muster AG claimed the VAT invoiced for this as in-put tax insofar as the windows of the joinery were affected. On 1 July 2024, Hans Mus-ter AG sells the property to Müller Immo AG. The transfer is handled by means of a noti-fication procedure.

  Müller Immo AG takes the place of Hans Muster AG with regard to the property for VAT purposes, i.e. it takes over a property that was used in the taxable area with regard to the joinery and in the taxexempt area with regard to the penthouse. If it rents the penthouse to a business consultant in the future, it can claim a subsequent input tax deduction for the replacement of the windows in 2014 (50% of the original input VAT paid). The pre-requisite is that she can prove the extent to which VAT was originally invoiced and paid.

In connection with possible changes of use after the transfer in the notification procedure, proof of previous use by the seller is of central importance. It is the buyer's responsibility to provide this proof. He must ensure that he receives all input tax receipts relevant to a change of use, evidence of valueenhancing expenses or extensive renovations over the last 20 years and records of previous input tax corrections.

If the buyer is unable to provide this evidence, they run the risk of input tax corrections being calculated on the basis of the purchase price due to changes in use. In this case, the FTA assumes that the property has been used entirely within the taxable area to date.

• Example 5:

  In example 4, Hans Muster AG is unable to provide any evidence of the history of the property due to a water ingress in its archive.

  If Müller Immo AG continues to use the penthouse for residential purposes, it would have to make an input tax adjustment due to a lack of evidence of the previous use. This is based on the purchase price with Hans Muster AG. If it rents the penthouse to a man-agement consultant in the future, it cannot claim a subsequent input tax deduction.

  Accordingly, the notification procedure should be used with caution in property transactions if there are uncertainties regarding the previous or future use and there are gaps in the documen-tation.

CONCLUSION

Even if the above summary of VAT structuring options in connection with real estate transactions is only an initial overview, it is clear that real estate transactions should also be thoroughly examined in advance from a VAT perspective in order to make optimum use of the structuring options available. We have summarised the various structuring options in simplified form below

e-Commerce in the EU

No thresholds for third countries!

Anyone who provides b2b deliveries (and certain services) in the EU without having a fixed place of business in the EU may be liable to pay tax immediately (i.e. from the first euro of turnover). Special schemes for small businesses usually only apply to companies based in an EU member state.

• Example: A Swiss retailer sells Pokémon trading cards via its webshop from a fulfilment cen-tre in Germany. Customers are private individuals in Germany, Austria and the Netherlands. Turnover amounts to EUR 3,700 p.a. in the first year.
• Solution: The retailer must register in Germany for VAT purposes.

Settling VAT in 27 member states: the One Stop Shop

In the case of b2c deliveries to different member states (so-called distance sales) from an EU ware-house (duty paid goods), the VAT rate of the country in which the warehouse is located initially ap-plies.

• Example: as above.
• Solution: The retailer must pay VAT on his deliveries in Germany. He owes VAT at the rate ap-plicable in Germany for all deliveries, including deliveries to customers in Austria and the Netherlands.

If the turnover from such distance sales exceeds EUR 10,000 per year across the EU, the VAT rate of the country in which the customer is based applies. Until recently, e-commerce traders may have had to register for VAT separately in all member states in order to fulfil their reporting and accounting obligations. Since 2021, it has been possible for them to fulfil their reporting and accounting obliga-tions via a central registration, the so-called One Stop Shop ("OSS").

• Example: as above, but the retailer now has a turnover of EUR 17,000 p.a., of which EUR 6,000 is generated in Austria and EUR 5,000 in the Netherlands.

• Solution: The retailer must pay VAT in Germany on its deliveries to customers in Germany. Here he owes VAT at the VAT rate applicable in Germany. For deliveries to customers in Aus-tria and the Netherlands, he owes VAT at the rate applicable in Austria and the Netherlands re-spectively. The retailer has the option of registering for VAT in Austria and the Netherlands. Alternatively, they can register for the OSS in Germany in order to fulfil their reporting and ac-counting obligations in Austria and the Netherlands. Customers in other member states can later also be registered and invoiced via the OSS.

Delivering goods from a third country to the EU: the Import One Stop Shop

Like distance sales within the EU, distance sales from a third country are also subject to VAT at the VAT rate applicable in the customer's country. Up to a goods value of EUR 150, retailers have the option of processing the corresponding distance sales via the so-called Import One Stop Shop (IOSS).

If the application of the IOSS is waived, a special regulation may apply, according to which the import tax is collected by the freight forwarder directly from the respective customer. Freight forwarders regularly charge their customers additionally for their customs clearance services - so that this proce-dure appears expensive and less transparent from the customer's point of view.

Finally, it is possible for distance sellers to register in the respective member states of their custom-ers and invoice their deliveries to the national tax authorities themselves.

• Example: A Swiss retailer sells Pokémon trading cards from stock in Switzerland to consum-ers in Austria, Germany and the Netherlands via its webshop. The value of the individual con-signments is between EUR 45 and EUR 85. 
• Solution: The retailer can register for the IOSS (for this purpose, he must appoint a repre-sentative based in the EU). Deliveries of goods are exempt from import tax, and national VAT in Austria, Germany and the Netherlands is reported and settled via the IOSS.

  Alternatively, the retailer has the option of applying the "special regulations for the import of consignments with a material value of no more than 150 euros" (as described in the corre-sponding Section 21a of the German VAT Act). In this case, the freight forwarder collects the tax (and any handling surcharges) directly from the customer.

  Thirdly, Swiss traders still have the option of registering for VAT in Austria, Germany and the Netherlands and settling VAT locally.

Platform taxation

Special rules have applied in the EU for several years to distance sales that are initiated or processed via so-called "electronic interfaces", provided that the goods are dispatched within the EU and the seller itself is based in a third country. An electronic interface is, for example, an electronic market-place or an electronic platform that enables the buyer and seller to come into contact, resulting in the delivery of goods to the recipient of the service (e.g. Amazon Marketplace, ebay or Alibaba).

• Example: A Swiss retailer sells Pokémon trading cards from a warehouse in Germany via an online marketplace operated by a third party. The customers are private individuals in Germa-ny, Austria and the Netherlands. 

In cases where an electronic interface is included in the supply chain in this sense, a so-called "supply chain fiction" occurs: While there is actually only a single sales transaction, two supplies are fictitious for VAT purposes by assuming a (first) supply from the trader to the operator of the electronic inter-face and a (second) supply from the operator of the electronic interface to the final purchaser. The fictitious supply from the online trader not established in the Community to the operator of the elec-tronic interface is exempt from VAT. The supply of the electronic interface to the end customer fol-lows the general principles for distance sales.

• Example: as before.
• Solution: This results in a fictitious supply chain, in which a supply from the Swiss retailer to the operator of the online marketplace and from the operator of the online marketplace to the end customer is fictitious. The supply from the Swiss retailer to the operator of the online marketplace is exempt from VAT. The supply from the operator of the online marketplace to the end customer is subject to VAT at the VAT rate applicable in the country in which the end customer is based.

CONCLUSION

Dropshipping and other modern sales channels offer tantalising opportunities to tap into new sources of income. It is essential to consider the (value-added) tax consequences right from the start. If you wait until your business has reached a critical size, you will be chasing your own past failures. With a clever setup, the business can be scaled without major risks and the administra-tive effort can be kept within reasonable limits.