Do tax authorities assess taxes, duties, or other impositions in connection with any of the following events and, if so, at what rates and under what circumstances?
Sales Tax / VAT
Switzerland levies no sales tax but Value Added Tax (hereinafter Swiss VAT) at a standard rate of currently 8% on taxable supplies. A sale or lease of an aircraft delivered in Switzerland or positioned from Swiss customs territory to the place of delivery is subject to Swiss VAT unless an exemption applies.
The delivery (sale or lease) of an aircraft to an airline that carries on commercially air transport and charter business and whose turnovers from international flights exceed those from domestic traffic, including refurbishment, maintenance and servicing of aircraft are generally Swiss VAT exempt.
A sale of an aircraft in Switzerland for export is, as a rule, Swiss VAT-exempt, but the seller must prove such export which usually requires Swiss customs export clearance.
Another Swiss VAT-exemption may apply under certain circumstances if a foreign registered aircraft is positioned to and delivered in Switzerland for a sale or lease transaction between foreign parties. Thus, Switzerland is often used as a place of delivery of foreign aircrafts.
There is no specific use tax in Switzerland; however, flights in, to and within Switzerland are subject to Swiss import regulations (see further below).
Note, however, although Switzerland is not a member of the European Union (hereinafter EU), the EU-Aviation Emissions Directive applies to all flights from/to Switzerland that start or land within the territory of the EU.
Finance (mortgage tax, promissory note tax, conditional sale tax, tax on loan payments and tax on interest)
Mortgage tax – No, but mortgage registration fees apply.
Promissory note tax – No.
Conditional sale tax – No, but Swiss VAT may apply if considered as a taxable supply (see further above).
Taxes on loan payments and taxes on interest:
- Swiss withholding tax on interest: interests paid by a Swiss resident borrower are in principle not subject to Swiss federal withholding taxes of 35% unless a debt is qualified as a bond, debenture or bank deposit for Swiss withholding tax purposes. Furthermore, non-Swiss resident recipients of interest on loans secured by mortgage are not subject to federal and cantonal withholding taxes, unless the loan is secured by Swiss real estate.
- Swiss withholding tax on profit distribution: a Swiss federal withholding tax of 35% is imposed on profit distribution of a Swiss company. Swiss residents can apply for a full refund of withholding tax if certain conditions are met. Non-Swiss-residents may obtain full or partial refund, according to the applicable tax treaty provisions.
- Swiss corporation tax: for companies domiciled in Switzerland or with a permanent establishment in Switzerland corporation tax will be levied on Swiss net profits including interest on loans and profit on lease rentals. The current federal corporate income tax rate is 8.5%. The cantonal corporate income tax rates vary considerably between approx. 4.5% and 21.0%. In Switzerland, which is different to many other countries, all taxes due by corporate taxpayers are deductible. The effective tax income tax rates are: federal corporate income tax: approx. 7.8%; cantonal corporate income tax: approx. 4.3% and 17.4%.
For tax considerations, distinctions between finance, dry and wet leases (ACMI) have to be made:
- Finance lease: the Swiss VAT Act explicitly names only the sale and lease-back to be Swiss VAT-exempt without credit. However, provided certain conditions are met, alternative finance lease transaction can be Swiss VAT-exempt without input Swiss VAT credit, subject however, to a written confirmation of the competent Swiss VAT Administration. By carefully drafting a lease agreement, a finance lease can qualify as taxable supply subject to Swiss VAT with input VAT credit, therewith avoiding the input VAT, including but not limited to Swiss import VAT, if any, to become a final cost. In cross border finance leases, provided that the leased aircraft will be predominantly used outside Swiss customs territory, the Swiss resident lessor may apply the 0% Swiss VAT rate and is still eligible to reclaim any input VAT, including Swiss VAT on the import, if any.
- Dry lease: a dry lease is a supply potentially subject to Swiss VAT at 8% (please see further above for details and exemptions).
- Wet lease (ACMI-leases): a wet lease of an aircraft does not qualify as a supply of goods but a transportation service rendered at the place where it was used. The place of such service is governed by the place of enjoyment rules, taking into account the effective use of the aircraft. However, cross-border flights originating from or ending on Swiss territory are Swiss VAT-exempt at 0%.
For Swiss corporation taxes and withholding taxes for a Swiss domiciled lessor or lessee, please see further above.
For Swiss withholding tax on interest and profit distribution see further above.
Although located in the heart of Europe, Switzerland is not a member of the EU and import into Switzerland has to be dealt with separately from the EU import.
Swiss import: the import of an aircraft into Switzerland is subject to Swiss import VAT of currently 8% and custom duties. The party liable to declare and thus to pay Swiss import VAT and customs duties is primarily the party taking the goods across the border (carrier) or arranging for them to be taken across the border (importer, recipient, shipper, client). The Swiss customs authorities thereby generally apply a substance over form approach and Swiss import VAT and custom duties applies if a Swiss resident has factual control of an aircraft (irrespective of the aircraft’s nationality) flying into Switzerland, unless the Swiss resident meets all requirements stating an exemption in specific circumstances. The Swiss VAT Act grants an exemption if the Swiss recipient is engaged in commercial air transport business.
Temporary admission (hereinafter Swiss TA): an aircraft as a foreign good is entitled to the benefits of the Istanbul Convention and the reliefs provided by the Swiss customs law regarding the temporary admission of such foreign good in Switzerland, provided, however, that all of the following conditions are met:
- General Requirements for Swiss TA: (a) the aircraft remains under the supervision of the Swiss Custom Authorities at all times during its stay in Switzerland; (b) the aircraft is owned by a non-Swiss resident entity or person; (c) the person or entity that has the right to use the aircraft or has the factual control of the aircraft is not resident in Switzerland; and
- For commercial use: (a) no domestic flights are allowed; and (b) the aircraft has to leave Switzerland, thus terminate the temporary admission, within 1 to 2 days; or
- Private use: the aircraft may remain in Switzerland for a period not exceeding six months in every period of twelve months.
- If any of these conditions are not met there is a substantial risk that the aircraft will be subject to Swiss import VAT based on its actual value and to custom duties as of the first flight into Switzerland.
Export of a Swiss imported aircraft from Switzerland usually does not trigger any taxes, provided that all non-Swiss maintenance incurred since the import have been accounted for Swiss VAT. However, a Swiss seller (if an aircraft is sold for export) or a Swiss owner (it an aircraft definitely leaves Switzerland in course of a temporary admission procedure) must obtain a proof of export out of Switzerland or it will be liable to pay Swiss VAT at the current rate of 8%.
None; however, registration fees for aircraft registration, mortgage registration and Swiss transport licenses etc. apply.
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DISCLAIMER: The above information should not be relied upon by the reader for legal advice as it is intended merely to serve as preliminary guide to the laws and regulations governing the taxation of aviation and aircraft in Switzerland. The information intends to provide summary-level information about certain tax issues affecting general aviation and aircraft finance. Since these materials are general in nature, readers are encouraged to obtain legal and tax advice from their own professional legal and tax counsel based on specific facts and circumstances regarding their acquisition and/or use of aviation and aircraft.