Change of VAT practice in favour of charitable organisations

As of January 1, 2021, services provided to charitable organisations are also included in the scope of services in the area of international development cooperation and humanitarian aid for VAT purposes (VAT-sector-info 22, para. 5.3.3).

If the following four conditions are met, the place of supply for VAT purposes is now located abroad and the service is neither subject to domestic tax nor to acquisition tax:

  • The contracting institution pursues a charitable purpose and is exempt from Swiss direct federal tax pursuant to art. 56 let. g DFTA;
  • the service provided to the purchasing institution concerns or covers a specific foreign project and relates to a predefined region or country;
  • the project meets the definition of development cooperation and humanitarian help according to Federal Law on International Development Cooperation and Humanitarian Aid;
  • the project must not directly or indirectly promote or support the entrepreneurial sphere of the founder or a recurring donor (e.g. open up new sales markets, launch products or provide advertising services).

According to previous practice, this special place of supply rule only applied to services provided on behalf of the federal government or to foreign organizations operating under statutory provisions.

Services purchased by charitable organisations for projects in the area of development cooperation and humanitarian aid can now be invoiced by the service provider without VAT (respectively the charitable organisation does not have to pay acquisition tax on services procured from foreign companies).

Affected foundations/aid organisations etc. should therefore check whether the outlined requirements are fulfilled, and where applicable, ensure that invoices for services purchased from Swiss companies arrive without VAT respectively invoices from abroad are no longer taken into account for reporting of acquisition tax.

As the present change is the result of a review of the existing practice by the Swiss VAT Authority, it applies retroactively to tax periods that are not yet legally binding (up to five years back), in case it works in favour of the taxable person. In addition, it therefore needs to be examined whether a correction of already declared acquisition tax is possible and if service providers can issue a corrected invoice without VAT for services invoiced in the past.

If required, we are happy to assist you in checking the requirements and making the appropriate corrections. We look forward to hearing from you.

January 2021 | Authors: Roland Reding, Fredrik Dekker

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