With construction trade is meant a variety of activities in connection with the planning or changing of buildings, as well as infrastructural work on buildings. Generally, due to the wide range of activities which the construction trade is comprised of, not all activities will be performed by foreign companies -or at least not frequently. Experience shows that the usual way foreign companies -i.e. companies with their place of business or branch outside the Swiss tax territory- are involved in construction projects within Switzerland is by suppling construction work or related services (e.g. architecture, engineering, supervision), including acting as main contractor.
Article 3 letter d No. 2 Swiss VAT Act determines that a supply of goods exists in case of the delivery of a good on which work has been performed, even if the good is not changed by the work, but only tested, calibrated, regulated, checked for its function or has been treated in another way.
Article 3 letter d No. 3 Swiss VAT Act determines that the transfer of property for use or exploitation is considered to a supply of goods.
Article 7 Par. 1 letter a Swiss VAT Act determines that the place of supply of goods is the place where the good is located at the time of transfer of the right to dispose of the good, of its delivery or of its being made available for use or exploitation.
Article 8 Par. 2 letter f Swiss VAT Act determines that the place of supply of services in connection with immovable property is the place where the property is situated.
- main contractor: a foreign company that commits itself to act as main contractor for the construction of a building or work on immovable property, will be liable for Swiss VAT when the immovable property is located within the Swiss tax territory and the conditions for compulsory VAT liability are fulfilled. This will apply regardless the fact that subcontractors will actually perform the construction work or that the principal who commissioned the main contractor has its residence abroad. The relevant turnover that must be taken into account in the scope of the threshold of CHF 100’000 (global turnover) does not merely includes charges for goods, but for purposes of Swiss VAT also work that in everyday language use is rather felt as the supply of services (e.g. installation work), as well as advance payments. Often it can be seen that foreign companies register too late, which can cause severe problems from the perspective of VAT filing (i.e. VAT liability).
- contract for work: basically, a contract for work is a contract whereby the contractor commits himself to carry out work in exchange for a consideration payable by the customer. Such contract concerns the construction of goods or work on goods. In case of the performance of construction work, based on a contract for work, the contractor has to have the right to dispose of the goods that are the subject of the contract (i.e. the goods to be processed or delivered). For purposes of VAT the supply is considered to take place at the moment the finished work is handed over and accepted (normally after inspection) by the customer.
From a Swiss VAT perspective the aforementioned implies that a foreign company that fulfills the requirements for Swiss VAT liability and -based on a contract for work- performs construction work in Switzerland, will make a supply of goods in Switzerland (“domestic supply”) once the work is finished and accepted by the customer. Invoices (including advance payments or invoices for finished stages/milestones) issued for that work will be with Swiss VAT and will cover charges for the supply of goods and their installation.
Foreign companies that perform construction work in Switzerland, but do not fulfill the requirements for Swiss VAT liability will not (be allowed to) charge Swiss VAT, and will not be able to recover Swiss input VAT (also not in the scope of the regulation for refund of Swiss VAT to foreign companies) -due to their domestic supplies in Switzerland. Namely, the terminology ‘domestic supplies’ also covers activities that are performed in Switzerland by a foreign company that does not meet the requirements for Swiss VAT liability.
- construction work: some examples of construction work that can be mentioned are: supply (including installation) of glasshouses for agricultural purposes, supply (including installation) of waste recycling system, renovation project of a residential home, supply (including installation) of a hydro-electric power plant.
- installation work: some examples that can be mentioned are dry construction work, plumbing work, electrical work or assembly of goods. For purposes of Swiss VAT these activities are treated as a supply of goods, and are subject to Swiss VAT when -simply put- they take place within Switzerland. A foreign company that performs these activities (or similar or mentioned under the next bullet) in Switzerland should verify the requirements for Swiss VAT liability.
- plastering/flooring/painting: other examples are the plastering of buildings, the supply and installation of flooring, painting of buildings. For purposes of Swiss VAT these activities are treated as a supply of goods, and are subject to Swiss VAT when they take place within Switzerland.
- import of goods: a foreign company that meets the requirements for Swiss VAT liability and -in the scope of an engagement for the construction or delivery of goods in Switzerland- installs goods that are coming from abroad, will at import of those goods have to act as importer for purposes of Swiss VAT/customs.
Regularly it can be seen that a foreign company sends the goods to Switzerland and have the Swiss customer act as importer, often under the (incorrect) assumption that then only the charges for the installation of those goods would have to be taken into account for determining whether the conditions for Swiss VAT liability have been fulfilled.
- reverse charging: the Swiss VAT system applies only a limited reverse charge regulation. Often, foreign companies assume that a reverse charge apply when they make supplies of goods (with installation) or when they perform installation work on sites in Switzerland. However, at least since the threshold for Swiss VAT liability is determined by the global turnover (no longer only the Swiss turnover), likely every foreign company that makes supplies of goods (with installation) in Switzerland will have to register for purposes of Swiss VAT. In that case the Swiss VAT liability will only extend to the Swiss turnover that is subject (according to the Swiss VAT regulations) to Swiss VAT. The threshold of CHF 100’000 is only to determine whether a company must register for purposes of Swiss VAT.
- garden design: the supply of landscape design in connection with real estate located within Switzerland falls within the ambit of Swiss VAT. Thus, a foreign company that supplies such services must verify whether it will fulfill the conditions for Swiss VAT liability. The aforementioned also applies when a foreign company uses a subcontractor, and recharges the customer the services supplied by the subcontractor.
- rental of equipment: a foreign company that rents a machine (e.g. shovel) that is located in Zwitserland will be charged Swiss VAT -insofar the lessor is registered for purposes of Swiss VAT. For purposes of Swiss VAT the rental of movable property is treated as a supply of goods (Article 3 letter d Nr. 3 Swiss VAT Act), with place of supply the place where the good is located at the beginning of the lease, or the place where the transport of the leased object begins. Basically, a foreign company that has been charged Swiss VAT for the rental of equipment can claim refund, provided the conditions for application of the regulation for refund of Swiss VAT to foreign companies have been fulfilled (o.a. no domestic supplies within the period for which refund is claimed).
- supervision of construction work: a foreign company that provides supervision of construction work will have to verify the conditions for Swiss VAT liability, when these services are rendered in connection with immovable property located within the Swiss tax territory.
- architecture/engineering: the supply of services in the field of architecture or engineering is subject to Swiss VAT when these services are rendered in connection with immovable property located within the Swiss tax territory.
- consultancy: the fact that a foreign company is liable for purpose of Swiss VAT in connection with construction activities within the Swiss tax territory, does not mean that all purchased services bear Swiss input VAT. For example, when a foreign company uses the consultancy services of lawyers (e.g. work permits, contracts), accountants (e.g. VAT filing), administration offices (e.g. social security reporting), i.e. services of a nature other than in connection with the particular immovable property, Swiss bases suppliers of these services should invoice the foreign company (on the address of its foreign place of business) without Swiss VAT.
- staff: when, based on a contract for the supply of staff, a foreign company uses staff from another company, then for purposes of Swiss VAT the VAT liability of that supply of staff is determined by the place where the recipient (the foreign company) has its place of business or fixed establishment. Thus, supply of staff by a Swiss based contractor to a foreign company -even when in the scope of construction work on immovable property located within the Swiss tax territory- is not subject to Swiss VAT when invoiced to the foreign business address of the foreign company.
- cleaning: for purposes of Swiss VAT the cleaning of immovable property is treated as work on goods and consequently as a supply of goods (Article 3 letter d sub 2 Swiss VAT Act). Therefore, the cleaning of immovable property located within the Swiss territory is subject to Swiss VAT, regardless where the recipient of the invoice has its place of business or fixed establishment.
- disposal of goods: for purposes of Swiss VAT the disposal of goods is treated as a service, taxable according to the standard rule (i.e. the place where the recipient of the service has its place of business or its permanent establishment). Consequently, a foreign company that sends goods to a Swiss company that will scrap the goods for the foreign company, will receive an invoice without Swiss VAT. If nevertheless Swiss VAT has been charged, the foreign company will not be entitled to refund in the scope of the regulation for refund of Swiss VAT to foreign companies, but instead will have to claim directly from the Swiss company a repayment of the irregularly charged VAT amount.
- Swiss social security regulations: EU based companies that in the scope of their construction activities within Switzerland need to send employees to Switzerland are well advised to consult the information published by the Swiss authorities (a.o. information platform, staff secondments, working hours for employees, self-employed staff, calculation of wages).