With regard to global finance, understanding the nuances of tax implications is essential for maintaining compliance and optimising financial strategies. Switzerland, with its unique position in the global financial market, has specific regulations concerning the VAT that applies to financial services. These regulations can significantly affect how services are rendered to offshore passive investment companies.
Offshore passive investment companies typically operate without substantial business operations at their registered offices. Often described as “letterbox” firms, they do not engage in any actual business activity and are solely involved in holding accounts for fund receipts or owning assets, such as a securities portfolio. The scope of services provided to the company is usually confined to asset administration and management.
The Swiss VAT treatment of financial services provided to such entities hinges specifically on the location of the Ultimate Beneficial Owners (UBOs) of the company. For an offshore passive investment company receiving financial services from a Swiss company, and if the majority of the UBOs are domiciled abroad, the place of supply is considered abroad and no VAT should be charged on financial services provided by the Swiss company.
Conversely, if an offshore passive investment company is predominantly controlled by people domiciled in Switzerland, referred to as “Swiss-owned domiciliary companies abroad”, the services are subject to Swiss VAT. This is because the services are considered to have been provided within Switzerland.
Due to the impact that this can have on a company, it is essential for providers of financial services to assess their client portfolio to determine:
- Whether clients have issued invoices for services to offshore passive investment companies.
- If so, whether the UBOs of these offshore passive investment companies are based outside of Switzerland.
Accurate assessment and compliance with these regulations are vital to avoid unnecessary VAT liabilities and ensure adherence to Swiss tax laws.
For more information, please contact Stefan Smit from our specialist Switzerland team.