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.

VAT and Customs

We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”).

As a result, the following VAT rates will apply from January 1, 2024:

We would like to take this opportunity to remind you that at the end of 2022, the Swiss people ap-proved an increase in VAT rates with effect from January 1, 2024. The background to the increase is the financing of the “AHV” (“Alters- und Hinterlassenenversicherung”, “Old-age and survivors' insur-ance”) place of work principle, according to which the country of employment can tax income from employment if the work is actually physically performed in that country. If certain working days in cross-border employment relationships are no longer physically performed at the employer's registered office in the country of activity, but in the home office in the country of residence, this can lead to a different allocation of the right to tax salaries.

For the example of an an international weekly resident with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

Another exception to taxation at the place of work can be found in the taxation of international weekly residentFor example, a new consultation agreement on the application of Art. 15 para. 4 DTA Germany was concluded with Germany on 6 April 2023. According to this agreement, the provisions of this article will also apply to "senior executives" with residence and family domicile abroad and place of work in Switzerland, this means that Switzerland may tax the Swiss working days based on the place of work principle. However, each individual working day performed in the home office at the foreign place of residence is subject to tax abroad and must be exempt from tax in Switzerland accordingly. If the home office activity abroad reaches a certain level, it must be examined whether the foreign country of residence has the exclusive right to tax the employment income as a result of the application of the so-called "assembler's clause" in accordance with Art. 15 para. 2 of the respective DTA. This special provision applies if the employee spends a total of less than 183 calendar days in Switzerland (working days including weekends and holidays) and the remuneration is not paid by an employer in Switzerland or a permanent establishment of the foreign employer located there. If the conditions are met cumulatively, Switzerland loses its right of taxation as the place of work.

So far New Standard rate 7.70% 8.10% Reduced rate 2.50% 2.60% Special rate for accommodation services 3.70% 3.80% of cross-border commuters. As in the area of social security, various special consultation agreements and regulations with countries bordering Switzerland had to be observed from a tax perspective due to the COVID-19 pandemic until recently. Although these have since ceased to apply, the increase in home office work as a result of the pandemic has provided an important impetus. Against this backdrop and the fact that employees increasingly want to work from their place of residence, various new regulations have recently been concluded with neighboring countries in the area of taxation of cross-border commuters.

Individual taxes in regards Direct Federal Tax There will be no significant changes to taxes for private individuals in 2024. Various deductions will be adjusted slightly upwards due to inflation:

Higher interest on arrears and remuneration Anyone who pays direct federal tax in advance will now receive a refund interest rate of 1.25% (2023: 0%). However, anyone who misses the payment deadline must now pay 4.75% interest on arrears (2023: 4%).

Introduction of equalization and compensation interest at cantonal and municipal tax level We would also like to draw your attention to the fact that certain cantons are reintroducing equaliza-tion interest as of 2024. For example, the canton of Zug is introducing equalization interest of 2%. In principle, this interest will apply to all outstanding amounts against the respective tax administration as at 1.1.2024. The right to establish deviating rules at the different cantonal levels is reserved. We therefore recommend that you contact your tax authority to clarify your situation with regard to any unpaid tax debts as at 1.1.2024. Both individuals and legal entities are affected by equalization interest. Due to the renewed introduction of equalization interest, the cantons will introduce compensatory interest as a counterpart.

Changes in the canton of Zurich Since 2016, the canton of Zurich has dropped a total of 13 places in terms of profit tax rates com-pared to other cantons. Current tax burden data shows that the canton of Zurich now has the highest ordinary profit and capital tax burdens in the country. In response to this, the Department of Finance has taken measures to make the canton more attractive again. The plan is to ease the burden on companies slightly, while shareholders will be asked to pay more. Specifically, a reduction in the sim-ple profit tax rate from 7 to 6 percent is planned. This would reduce the overall tax burden from 19.7% to 18.2% (direct federal tax, state and municipal taxes in the city of Zurich, calculated on pre-tax prof-it). In addition, the taxation of dividends from qualified participations is to be increased from 50% to 60%. Although these changes are planned, their implementation is not scheduled until 2025.