Switzerland Fact-File Part 3:
Individual Business International Taxation

3.1 Switzerland Individual Business International Tax Liability

Taxes Incurred in Foreign Countries

Individuals based in Switzerland can incur tax in a foreign country on various types of activity and income, both active (from trading), and passive (from investment and rental income). Such income must be declared in Switzerland by a resident individual, although if there is a double taxation agreement in place, the tax can usually be reclaimed from one side or the other.

Value added tax may also be a consideration, depending on the turnover level (the Swiss threshold, since January 2010, is CHF100,000). While Switzerland is not a member of the European Union, it is a member of the Economic Free Trade Association (EFTA) and the signing of the Free Trade Agreement in 1972 formed the basis of economic relations between Switzerland and the European Union countries, meaning that it therefore largely complies with European VAT legislation, as defined under the Sixth VAT Directive (2006/112/EC), which are likely to affect individuals exporting their services. Under new EU rules coming into force between 2010 and 2015 business to business (B2B) supplies of services will be subject to VAT in the country in which the consumer is located, rather than the supplier's country of residence, with the business consumer required to account for VAT using the reverse charge mechanism (whereby they act as both the supplier and the consumer, charging themselves the VAT where appropriate, and then claiming it back). However, changes relating to telecoms, broadcasting and electronic services are being delayed until January 1, 2015. For business to private consumer (B2C) supplies of services, the place of taxation with regard to VAT will remain as the supplier's location.

Tax Reporting Abroad

As well as filing tax returns in one’s country of tax residency, it is sometimes necessary for an individual or entity deriving income from a foreign source to file a tax return in the country where the income originates. This would enable any double taxation issues to be resolved under the terms of a double taxation treaty, where one might exist. The foreign tax return may be required by the country of residence to refund any overpaid tax.