Revised rules on tax at source to enter into force on 1 January 2021

On 15 December 2016, parliament finally passed amendments to the rules on taxation at source in the form of the federal act on the revision of taxation of earned income at source. On 11 April 2018, the Swiss Federal Council passed the Federal Department of Finance’s fully amended ordinance on taxation at source. Both sets of rules enter into force on 1 January 2021.

The ordinance on taxation at source concretises the new law. It contains hardly any surprises compared against the consultation, concluded in December 2017. Anyone subject to tax at source who is resident in Switzerland must, as previously (in most cantons), file a tax return if their income exceeds the threshold of CHF 120,000 (retrospective ordinary assessment). Anyone else in Switzerland with a lower income can apply to do so voluntarily.

Application in cases of quasi-residence

People resident abroad can only apply to file a tax return if they are quasi-resident in other words if 90 per cent of their global income is taxed in Switzerland. Recent court rulings relativise this figure of 90 per cent, which also means the procedure changes for people with quasi-resident status applying to file a return. They must make the application before the prescribed deadline (31 March of the following year). However, the decision is made on the basis of the tax return submitted.

The most important changes in brief

» Tariffs

Tariff D (secondary employment) is being abolished as part of the tax at source procedure on data privacy grounds. This means that all employers of a person subject to tax at source who has more than one position as an employee have to levy tax at source at the regular tariff. The regular tariff is converted to 100 per cent of the income, or 180 hours per month.  The abolition of tariff D also entails the disappearance of tariff O for German cross-border commuters.

However, tariff D will not disappear completely, but will now be used in special cases: for the refund of AHV/AVS contributions (at least one year) if an employee emigrates permanently to a country with which Switzerland does not have a social insurance agreement. In other words this tariff (D) will no longer be used by employers; only by the social security authorities. Employers will likewise not be using the new G and Q tariffs. The persons subject to tax at source drawing replacement income from the insurer, set down in section 2 of tariff D, will now be handled under tariff G. Replacement income is benefits paid directly to the person taxable at source rather than via the employer. In the same situation Tariff Q relates to Germans who have cross-border commuter status.

» Greater onus on employees

The onus is explicitly placed on employees, who must now report new circumstances (e.g. changes in marital status, the birth of children, partner taking up/leaving employment, etc.) to their employer. This is absolutely necessary for the employer to be able to calculate and levy the correct tax at source. Nevertheless, employers will have to inform their employees of this and make them aware of this obligation.

» Further concretisation anticipated

The revised legislation also entails amendments to other ordinances, including the ordinance on expatriates (ExpaV/Oexpa), most of them editorial in nature.

The actual implementation of retrospective ordinary assessments is left very open, with the cantons given considerable room for manoeuvre when it comes to applying these rules. The anticipated circular should create clarity in this respect, as well as containing numerous concrete details of uniform calculation methods for all cantons. Only this way can the amended rules on taxation at source really simplify life for employers.

Contact Us

Brigitte Zulauf
TLS Partner
Leader Corporate Support Services Switzerland, Zurich
+41 58 792 47 50
brigitte.zulauf@ch.pwc.com

QI Account Management System Open for QI Certifications

On 4 May 2018, the Internal Revenue Service (“IRS”) updated the QI account management system and is now officially accepting QI, Withholding Partnerships (“WP”), and Withholding Trusts (“WT”) Certifications. Additionally, the IRS has announced that all QIs, WPs, and WTs must select the Periodic Review year of their certification before 1 September 2018. Please note that this deadline is also applicable for QIs, WPs, and WTs that have selected 2017 as their Periodic Review year.

Details to QI/WP/WT Periodic Review Waiver Applications

The IRS included details about Periodic Review waiver applications in its announcements, stating that all QIs, WPs, and WTs that wish to apply for a waiver must select 2015 as their Periodic Review year, complete Parts I – III of the certification, and submit its waiver application before the 1 September 2018 deadline. If the waiver application is accepted by the IRS, the QI, WP, or WT is not required to perform the Periodic Review. The acceptance or denial of a waiver application will be communicated by the IRS. If a waiver application is denied with less than six months remaining (including extensions) for the QI/WP/WT certification, then the QI, WP, or WT will be granted an additional six-month extension from the date of the waiver application denial, allowing for sufficient time to conduct the Periodic Review and resubmit a certification. Please note that if a QI/WP/WT has had its waiver application denied, the Periodic Review year is 2015. If such a QI/WP/WT wishes to select another year for the Periodic Review, the IRS FI team should be contacted at lbi.fi.qiwpissues@irs.gov. Once the Periodic Review is conducted post waiver denial, the resubmitted certification should include Parts IV and VI (if applicable).

Additional Information

The IRS has updated its certification and Periodic Reviews FAQs. Please refer to this link for access to the current FAQs.

Additionally, QIs, WPs, and WTs should consult Publication 5262 (the QI User Guide) before beginning their certifications, if needed. Publication 5262 can be accessed under this link.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Australia lowers Managed Investment Trusts (MITs) withholding tax for Swiss investors

Current Situation

Swiss investors currently investing into Australian Managed Investment Trusts (MITs) have not been able to benefit from the reduced 15% withholding tax rate despite Switzerland having implemented the automatic exchange of information with Australia, the reason was that the Australian government had not updated the list of eligible countries yet.

Update of list of countries with beneficial withholding tax rates

The Australian government has now announced that it will update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15 per cent, instead of the default rate of 30 per cent, on certain distributions from Australian MITs. Listed countries are those which have established the legal relationship enabling them to share taxpayer information with Australia. The update will add the 56 jurisdictions that have entered into information sharing agreements since 2012.

Effective from 1 January 2019

The updated list will be effective from 1 January 2019. This measure supports the operation of the MIT withholding tax system by providing the reduced withholding tax rate only to residents of countries that enter into effective information sharing agreements with Australia.

Take away

Swiss investors investing in Australian MITs should ensure that they will benefit from the reduced tax rates. For certain structure the investment through an MIT might become an attractive alternative given the lower withholding tax rate.

We are happy to review your Australian investment structure to ensure they are as tax efficient as possible.

Contacts

Victor Meyer
+41 58 792 43 40
victor.meyer@ch.pwc.com

Benjamin De Zordi
+41 58 792 43 17
benjamin.de.zordi@ch.pwc.com

Regula Haefelin
+41 58 792 25 24
regula.haefelin@ch.pwc.com

Silvan Amberg, CFA, CAIA
+41 58 792 44 59
silvan.amberg@ch.pwc.com

New Era in China ushering in new business opportunities

In his keynote speech at the opening ceremony of the Boao Forum for Asia 2018 (BFA) on April 10, President Xi Jinping described economic globalisation as an irreversible trend, and noted that China would continue on its course of opening-up. This is positive news for enterprise, as extended opening-up will bolster investor confidence globally, while leading to a wide range of new business opportunities.

Against the backdrop of the 40th anniversary of China’s reform and opening-up, President Xi announced steps would be taken to widen market access significantly, create a more attractive investment environment, strengthen protection of intellectual property rights (IPR) and expand imports.

The Government Work Report released earlier this year had touched on most of these measures, but the current trade environment has given them new significance. Measures for enhancing alignment with international economic and trading rules, along with increasing transparency were specified, being regarded as particularly important for China’s development at this stage.

Measures on China’s further opening up and business implications include:

1. Further opening up in the financial sector

The People’s Bank of China unveiled policy details as well as a timeline on 11 April, with policies focusing on expanding market access and lifting ownership restrictions. This series of deeper financial opening-up measures are beneficial to both China and the global financial industry, as it will create new opportunities for domestic and foreign players in the areas of market competition, channels, products and services, customer experience, and operations.

2. Further opening up in the auto sector

The market entry restrictions for the auto industry would be phased out over the next five years. Gradually lifting the market entry barriers for new energy vehicles, as well as commercial and passenger vehicles will help home-grown brands optimise their production capacity structure and ramp up investments in research & development and production operations, thereby improving their competitive edge in international markets.

3. Taking the initiative to expand imports

The reduction of auto and anti-cancer drug tariffs will allow foreign models to be introduced to the country at a lower price. This may bring pressure to Chinese domestic enterprises initially, but it also motivates the Chinese enterprises to enhance their capabilities and adjust to the competitiveness of the international market.

4. Creating a more attractive investment environment

It can be anticipated that in the future, China will create a more fair and stable tax and business environment for taxpayers by focusing on both “reducing tax burdens” and “facilitating tax compliance”. The evolving tax and business environment are crucial for enhancing a country’s soft competitive power.

5. Strengthening the protection of intellectual property rights

In addition to actions taken at the national level, enterprises need to strengthen the protection of their IPR, investing more in enhancing their awareness and ability to innovate, and continually attract and cultivate innovative talent. By doing so, together with the government, they could effectively push IPR progress to a higher level.

6. Benefitting from the Belt and Road Initiative (BRI)

Future BRI projects will also likely pay closer attention to effects on the environment and seek to minimise environmental impacts in order to achieve the goal of “shared benefits” for all. The BRI is also not just about Chinese outbound projects, but also concerns foreign investment into China.

Read full article

Federal Tax Authorities published circular No 37A

On 4 May 2018, the federal tax authorities have published a new circular regarding the tax treatment of participation instruments for employers (circular No 37A). The circular enters into force with immediate effect.

What is it about?

Whereas the circular No 37 mainly provides guidance on the definition and individual income tax treatment of participation instruments in national and international cases, the new circular No 37A focuses on the corporate tax impact for employers resulting from participation instruments, i.e. tax deductibility of corresponding expense.

Learn more about the circular No 37A

What does this mean for employers?

The cost in connection with employee participation programs are generally tax deductible for corporate tax purposes as long as this is adequately reflected in the books. The new circular provides various examples in this respect. However, the devil lies in the detail.

We recommend you to assess the potential impact of the new guidance on your plans and processes to avoid / mitigate any tax exposure. If you have any questions regarding the circular contact Remo Schmid.

How much VAT will you pay for 1 franc of turnover in Switzerland?

Be it a necessary evil or smart compliance, VAT is a key topic – and now also concerns companies without a business location in Switzerland, from their very first franc of turnover in Switzerland.

You operate a shuttle company headquartered abroad and drive passengers to a Swiss airport. Or you are a kitchen manufacturer in the EU and equip houses in Switzerland with the latest designs. Or you are responsible for catering at an event on the Swiss side of the border. These examples have one thing in common: since 1 January 2018 all these companies have been subject to the partially revised Swiss Federal Act on Value Added Tax (VAT Act) – with far-reaching consequences.

New VAT provisions for all companies without a business location in Switzerland

If your company does not have a business location in Switzerland, the revised VAT Act introduces changes to the VAT registration obligation. Your company may be subject to Swiss VAT even if it is not established in Switzerland. The key question is whether your services have a connection to Switzerland. In principle, this is the case if your company generates turnover in Switzerland. This means that Switzerland represents a place of supply for VAT – which you will have to pay.

From the very first franc

Your tax liability in Switzerland is not determined by your turnover in Switzerland, but by your global turnover. If you generate less than CHF 100,000 from your services in Switzerland, but at least CHF 100,000 internationally, from 2018 onwards you are subject to VAT in Switzerland from the very first franc of turnover.

Low-value consignments remain exempt from tax on importation. However, under the new VAT legislation, (online) retailers that generate over CHF 100,000 of turnover per year in Switzerland through the supply of goods will be liable for VAT from 1 January 2019 onwards. In other words, you must charge Swiss VAT on services of this type.

From now on: proceed step by step

You no doubt wish to continue your business operations in Switzerland. To do so, you need an intelligent solution that avoids excessive costs and tedious complexity. We recommend proceeding as follows – if possible very soon, because the revised VAT Act has been in force since the beginning of the year.

  1. Register for Swiss VAT to receive your Swiss VAT number.
  2. Appoint a reliable fiscal representative to deal with the Swiss tax authorities on your behalf.
  3. Register for the electronic filing of quarterly Swiss VAT declarations.
  4. Submit the required quarterly VAT declarations.
  5. Keep an overview of all your correspondence with the tax authorities – including your replies.

Clever solution with Smart VAT

We have developed an online solution that is both simple and fast, and exclusively designed for businesses like yours: Smart VAT. This platform offers a number of advantages at the same time: Your VAT registration only takes a few moments. You can then continue your business activities in Switzerland without any interruptions – and with peace of mind, because you are acting fully in compliance with the law. And last but not least, Smart VAT is as simple and user friendly as online banking. And remember: registration for Smart VAT is free of charge. You simply pay a minimum annual fee for fiscal representation.

Find out more about Smart VAT here.

Contact

Julia Sailer
Director, VAT compliance services leader
+41 58 792 44 57
julia.sailer@ch.pwc.com

Swiss bond trading report 2018

Regulation of bond trading: Setting the scene

The following chapter will provide an overview of the key regulatory requirements for trading professionally in securities in the form of a bond in Switzerland.

A bond in the form of a «security» in the sense of Art. 2 para. 1 lit. b FinfraG/FMIA is offered at uniform conditions to multiple parties. Securities are, in other words, standardised, certificated and uncertificated financial instruments suitable for mass trading. They are thus either offered publicly in a similar structure and denomination or placed with more than 20 clients, unless they are being created specifically for individual counterparties.

A security in the form of a bond can trigger multiple legal consequences when being traded. These consequences are:

  • Persons professionally trading in securities will potentially have to apply for a licence as a securities dealer (the Swiss equivalent of an investment firm or broker/dealer).
  • Facilities allowing for the multilateral trading of securities require a licence as a stock exchange or multilateral trading facility (MTF).
  • Facilities allowing for the bilateral trading of securities must be operated by a duly licensed operator (the Swiss bilateral version of an OTF,which replaces the Systematic Internaliser in the EU).
  • The public offering of securities requires a prospectus. The listing of securities on a trading venue (stock exchange and MTF) also requires the filing of a listing application and the creation of an accompanying prospectus.

Read the full report

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

EMEA PE Webcast Series – Episode Four – VAT consequences of a corporate tax permanent establishment

Tuesday, 17 April 2018, 3.00 – 3.45 pm CET

After a short break, we are pleased to inform you that we will resume the PE Webcast Series, with Episode 4 – VAT consequences of a corporate tax permanent establishment.

In this webcast specialists from our international tax and VAT practice will compare the objectives and concepts of a corporate tax permanent establishment with a VAT fixed establishment (FE).

We will walk through practical examples to demonstrate the interaction of these rules, outlining the VAT consequences of creating a corporate tax PE, as well as the corporate tax position if you have a VAT FE.  As part of the discussion we will highlight trends in the application of PE and FE rules by tax authorities, leading in some cases to a blurring of the concepts.

You will have the chance to raise questions directly to our specialists.

Speakers for episode four will include:

  • Monica Cohen-Dumani – Partner, International Tax Services, EMEA ITS Leader – PwC Switzerland
  • Ine Lejeune – Partner Tax Policy, Dispute Resolution & Litigation – Law Square
  • Herman van Kesteren – Partner Indirect Taxes – PwC Netherlands

Registration Link

Complete the required registration fields and select “Submit”.
Once you have registered, you will receive the WebEx access details. The WebEx will be recorded and you will receive a link to the recording via e-mail after the event using the same details. There will be time for questions and answers with your speakers during the WebEx. Questions can also be sent in advance of the
WebEx session to the following email address: grasiele.neves@ch.pwc.com

We do hope that you will join us online!

Best regards,
Monica Cohen-Dumani

Contact

Monica Cohen-Dumani
Partner, EMEA ITS Central Cluster Leader
+41 58 792 97 18
monica.cohen.dumani@ch.pwc.com

Grasiele Teixeira Neves
International tax services
+41 58 792 98 25
grasiele.neves@ch.pwc.com

QI and CRS Updates

IRS opens QI portal for the Responsible Officer Certification and published new FAQs

On 4 April 2018, the Internal Revenue Service (“IRS”) has opened the QI portal and published new FAQs regarding the upcoming QI Responsible Officer certification. A new section titled “Periodic Certification” has been added to the existing FAQs.

Please refer to the following link for access to the updated FAQs.

Additionally, the IRS has updated the QI User Guide and made it available on its website (see “Publication 5262”). You can find the updated QI User Guide here.

OECD news regarding CRS

On 5 April 2018, the Organisation for Economic Co-operation and Development (“OECD”) published an updated list of all activated CRS agreements on its website.

Please refer to the following link for access to the updated list.

There are now more than 2700 bilateral agreements in place.

Additionally, the OECD published an updated version of the CRS Implementation Handbook, which can be accessed under the following link.

The Implementation Handbook is a guidance for governments to refer to in terms of their implementation of CRS rules into their local legislation and guidance, as well as a practical overview of CRS for the financial sector and the wider public.

We will continue to keep you updated as we follow and analyze these updates over the next few days. In the meantime, we are happy to answer any of your QI- and CRS-related questions.

Contact

Bruno Hollenstein
Partner, Operational Tax
+41 58 792 43 72
bruno.hollenstein@ch.pwc.com

Restrictions related to the sale, distribution, or marketing of CFD and Binary Options to EU-domiciled retail investors also for Swiss-based financial market participants coming soon

The European regulator ESMA has announced that soon restrictions related to the sale, distribution, or marketing of CFD and Binary Options to retail investors domiciled in the EU will become effective. The prohibitions will also apply  to Swiss based financial market participants engaging in such activities purely on a cross-border basis. The restrictions will become effective one month in case of Binary Options respectively two months in case of CFD after their publication in the Official Journal and will last for three months, but might be prolonged thereafter. Affected market participants have thus some limited time to prepare.

Restrictions applicable to contracts for difference (CFD)

Affected by the restrictions are contracts for differences (CFD), meaning any derivative other than an option, future, swap, or forward rate agreement, the purpose of which is to give the holder a short or long exposure to fluctuations in the price, level, or value of the underlying that must be settled in cash or may be settled in cash at the option of one party other than by reason of default or another termination event. Warrants and turbo certificates are not affected.

The restrictions will consist of the following measures:

  • Leverage limits: leverage limits will apply on the opening of CFD positions. The following initial margin requirements will apply:
    • 3,33% if the underlying is composed of any two of the following currencies: USD, EUR, JPY, GBP, CAD, or CHF.
    • 5% when the underlying is one of the key mentioned international indices, a currency pair of at least one of the currencies mentioned above, or gold.
    • 10% when the underlying is another commodity or another equity index.
    • 50% if the underlying is a cryptocurrency.
    • 20% if the underlying is a stock not listed above.
  • Margin close-out rules per account: margin close-out rules per account and not per position apply if the sum of the funds in the CFD trading account and the unrealised net profits of all CFD positions connected to that account fall to less than half of all initial margins of these CFD-positions. Margin close-out rules of 50% per position are still applicable.
  • Negative balance protection on a per account basis: negative balance protection on a per account basis limits a retail investor’s aggregate liability for all CFDs connected to a CFD trading account with a CFD provider to the funds in the CFD trading account.
  • Restrictions of incentives of CFD trading: no monetary benefits can be provided to retail investors other than the proof of a CFD. These restrictions will apply to all existing and prospective clients.
  • Risk warning: appropriate risk warnings must be included in all communication and publications containing the percentage of retail investors that lost money over the preceding twelve months.

Restrictions applicable to Binary Options

Restrictions will also apply to Binary Options, meaning any cash settled derivative in which the payment at close-out or expiry of a predetermined fixed monetary amount or zero depends on whether one or more specified events in relation to the underlying occur at, or prior to the derivative’s expiry. There will be a three-month prohibition on the marketing, distribution, or sale of Binary Options to retail investors domiciled in the EU.

Contact Us

Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com