5 minute read 10 Dec 2021
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Import duties on industrial products to be abolished in Switzerland

Authors
Ashish Sinha

Associate Partner Indirect Tax / Global Trade | Switzerland

Business driven approach. Multicultural background. Loves travelling and learning about diverse cultures. Supports sustainable technology for a better working world.

Jonathan Baumeler

Senior Manager Indirect Tax / Global Trade | Switzerland

Technology enthusiast. Helps clients realise the benefits of Trade automation and analytics. Supporter of sustainability and conservation of natural heritage. Loves spending time in the mountains.

Marcel Blöchlinger

Senior Consultant | Indirect Tax and Global Trade | EY Switzerland

Trade enthusiast. Helps clients to realize sustainable and cost-efficient solutions. Multiculturally agile person and passionate traveler. Supports technology to improve sustainable development.

5 minute read 10 Dec 2021
Related topics Tax

Following adoption of the bill after final vote on 1 October 2021 to abolish import duties on industrial goods, what has changed and where are the opportunities and risks?

In brief
  • What will the changes to import procedures and tariff classification be?
  • How will compliance requirements be affected? 
  • What should businesses do to prepare?

In December 2017, the Federal Council announced various policies against high prices in Switzerland which, among other things, included the abolishment of import duties on industrial goods. The elimination of tariffs intended in particular to lower the burden on companies (e.g., cheaper foreign materials for production) as well as consumers (e.g., more affordable consumer goods, such as cars, textiles, shoes, etc.) and strengthen the competitiveness of Switzerland as a whole.

Overall economic benefit

360m

Net additional customs revenues, in CHF p.a.

According to calculations by the Federal Government, the loss of customs revenue of around CHF 500 million p.a. on average would be outweighed by the positive overall economic effect of the policy (CHF 860 million p.a. on average). Furthermore, the loss of revenue is expected to be partially compensated for by higher economic and commercial activities.

After a broad debate, the bill to abolish industrial tariffs was eventually accepted by both chambers of the parliament in the final vote on 1 October 2021. According to the Federal Council Dispatch dated 27 November 2019, the amendment of the customs tariff act (reduction of tariffs to zero and reduction of customs tariff codes) was intended to enter into force on 1 January 2022 but postponements of the voting (due Covid, among other things) led to a delayed parliamentary debate. Since the 100-day deadline for calling a referendum does not end until 20 January 2022, the elimination of industrial tariffs will not be possible before January 2022. In the event that no referendum is launched, it can be assumed that the Federal Council will set the date for the abolishment of import duties by February 2022. In consideration of the lead time required for involved parties to plan and arrange the (technical) implementation, as well as the fact that the 2022 Federal Budget has already been approved, the tariff elimination could be expected by 1 January 2024. Regarding the tariff elimination, the Swiss customs tariff is also to be reduced from currently 6172 tariff codes to 4592 tariff codes.

With the proposed measures entering into force, customs duties on all industrial goods (customs tariff chapters 25 to 97) will be zero – except for a few industrially produced agricultural products in customs tariff chapters 35 and 38 (e.g., albumin, dextrin or acid oils). Besides saving on duties, the abolishment of tariffs can also present opportunities for companies through simplified and less time-consuming customs processes; certain special customs procedures (e.g., temporary importation, inward processing) would no longer be needed to achieve duty exemptions upon importation. Another simplification is the intended reduction in the number of customs tariff codes, which will enter into force along with the customs duty elimination (presumably January 2024). The tariff classification of products will therefore be simplified and will enable companies as well as the customs administration to classify products in a timelier manner. The prospective changes and its simplifications are visualized in the following example.

The above example should demonstrate that when importing leather shoes there are differences in duty rate levels depending on the pair weight and the size of the shoes. If seeking to import goods duty-free under the Switzerland-China free trade agreement, a valid Chinese preferential proof of origin needs to be presented. If the document is invalid (e.g., formal error), customs duties may be levied depending on the case. A provisional customs declaration for the subsequent presentation of a valid proof of origin is still possible but subject to a specific time period and fees. The new Swiss customs tariff, on the contrary, requires less information (including, for example, that the pair weight is of no importance) for tariff classifications and consists of fewer tariff codes, which simplifies the tariff classifications significantly. Furthermore, imports into Switzerland do not require a proof of origin for every case (also see example 2) since the goods concerned can also be imported duty exempt without providing origin-related documents.

Duty-free imports of industrial products and the amendment of the Swiss customs tariff will simplify import clearance for companies, but it will not make the matter less complex. When foreign-sourced products/materials in Switzerland are used for processing or resale, the companies concerned will still have to provide proof that the rules of origin of the applicable free trade agreements were satisfied. Should this not be possible then no preferential origin certificate can be issued for the product that is then exported to a free trade partner country; that product can therefore not benefit from reduced customs duty rates abroad, either. For this reason, origin certificates should still be declared even for duty-free imports to ensure the audit trail regarding free trade agreements and origin-relevant topics.

The example above provides a simplified view of the audit trail within the EU and Switzerland.

The example above provides a simplified view of the audit trail within the EU and Switzerland.

In the first scenario, a Swiss manufacturer/processor imports industrially produced goods with an EU proof of origin under the framework of the Switzerland-EU free trade agreement. Customs duties would no longer be levied due to the abolishment of tariffs; however, a proof of origin is still needed for further steps. Subsequently, the imported materials are used to manufacture a final product. The manufacturer / producer can provide evidence of the preferential origin of the imported materials from the EU which allows him to issue a proof of preferential origin assuming the rules outlined in the free trade agreement with the EU are met. The final product can be imported into Austria by the customer duty-free due to the proof of origin.

In the second scenario, a Swiss reseller sources goods without a preferential EU proof of origin from a supplier abroad. Since industrial tariffs would no longer apply, the Swiss reseller does not have to pay any customs duties. Subsequently, the Swiss reseller sells the goods to a customer in Austria. Since there is no proof of origin from the supplier, the Swiss reseller cannot issue a proof of origin and the customer in Austria has to pay applicable customs duties upon importation.

The examples illustrate why preferential proofs of origin are still needed even though industrial tariffs are to be abolished. Without said proofs, the rules of origin outlined in a free trade agreement may not be met in certain circumstances and a proof of origin cannot be issued for customers. Therefore, retailers and companies whose products are destined for final consumption in Switzerland will particularly benefit from the tariff elimination. Whether proofs of origin still have to be declared for import clearance or whether there will be an alternative option is currently not known but it is fairly likely due to the Swiss customs administration’s ongoing transformation program “DaziT” and the planned revision of the customs act.

The amendment of the Swiss customs tariff with its vast reduction of Swiss tariff codes also require early preparation. Despite simpler tariff classification, tariff codes are still the core element of customs clearance and provide essential information regarding applicable license requirements, rules of origin as well as export controls. Thus, it is important that internal master data are updated accordingly to prevent unexpected events and risks.

Swiss companies should prepare early to ensure compliance but also benefit from the changes to customs duties and tariffs.
Ashish Sinha
Associate Partner, Indirect Taxes and Global Trade | EY Switzerland

The elimination of almost all customs duties on industrial goods and the amendment of Swiss tariff codes are rather comprehensive and require sound planning. Swiss companies should therefore prepare early to ensure compliance as well as to benefit from the changes. In this regard Swiss companies should consider taking the following steps:

  • Quantify the impact in terms of potential duty savings and compliance
  • Fully update existing master data (e.g., tariff codes, origin calculation) and prepare for the new structure
  • Update origin compliance procedures
  • Prepare assessments of third-party providers to ensure accurate declaration of imports
  • Explore new sourcing options and partner countries without existing FTAs to optimize the supply chain (e.g., for pre-materials)
  • Assess possible domestic processing for (intermediate) manufacturing due to duty reduction
  • Evaluate current customs procedures for optimization

Despite lower administrative burdens and costs due to the abolishment of industrial tariffs, companies should also bear in mind new developments in the context of cross-border taxes. The European Union is currently planning to introduce so-called “Green Taxes” (taxes on products in connection with plastic or CO2 emissions, for example) to motivate companies towards more sustainability and environmental awareness when producing or sourcing goods. It is conceivable that Switzerland may also follow suit and soon replace the eliminated tariffs with a new incentive tax.

Summary

The bill to abolish industrial tariffs in Switzerland was accepted by Parliament in the final vote on 1 October 2021. The main arguments for the duty abolishment were cost reductions for consumers and the economy as well as lower administrative burdens. If no referendum is launched against the amendment of the customs tariff act, the changes could already enter into force in January 2024. The Swiss customs tariff is also to be simplified to create further synergies. However, no simplifications are planned regarding compliance requirements in the use of free trade agreements (FTA) are intended.

About this article

Authors
Ashish Sinha

Associate Partner Indirect Tax / Global Trade | Switzerland

Business driven approach. Multicultural background. Loves travelling and learning about diverse cultures. Supports sustainable technology for a better working world.

Jonathan Baumeler

Senior Manager Indirect Tax / Global Trade | Switzerland

Technology enthusiast. Helps clients realise the benefits of Trade automation and analytics. Supporter of sustainability and conservation of natural heritage. Loves spending time in the mountains.

Marcel Blöchlinger

Senior Consultant | Indirect Tax and Global Trade | EY Switzerland

Trade enthusiast. Helps clients to realize sustainable and cost-efficient solutions. Multiculturally agile person and passionate traveler. Supports technology to improve sustainable development.

Related topics Tax