Swiss indirect tax implications for importing CBD products (THC < 1%)
Pursuant to a recent decision of the Swiss Federal Supreme Court, the conditions from an indirect tax perspective for importing Cannabidiol products, i.e. cannabis products containing a low Tetrahydrocannabidiol (THC) but a high CBD-level (CBD products), have partially changed. This article provides a general overview on the Swiss indirect tax implications in case of an import of CBD products into Switzerland.
A. Overview: CBD Products
According to the current regulatory framework in Switzerland, it is in principle permissible to produce, process, sell and purchase CBD products as long as the level of THC, which triggers psychoactive effects, remains below 1%. In contrast to those CBD products, it is not permissible in Switzerland to commercially produce, own, sell or purchase cannabis products which have a THC-level exceeding 1%.
CBD products with less than 1% THC are not subject to the Federal Act on Narcotics and Psychotropic Substances, however, they are still subject to other product specific regulations. CBD is used in a wide range of processed products such as medical products, foodstuff (e.g. hemp tea or hemp seed oil), utility products (incl. cosmetics and e-cigarette liquids), tobacco products and tobacco substitutes or other products containing CBD. Those CBD products have to comply with the rules and regulations applicable to the category of products with which the particular CBD product is associated with. The association of a CBD product to a specific category of products is usually linked to the intended purpose of use. In case that the relevant product is not covered by any specific laws, the product is subject to the Federal Chemicals Act and Federal Act on Product Security (catch-all regulation).
For a detailed overview of the regulatory requirements in Switzerland, please see our previous articles on Switzerland as a European hub for CBD and related products and on Regulatory Framework for CBD Products in Switzerland.
B. Tobacco Tax
According to the Swiss Federal Customs Authority, in principle, all cannabis products which can be used for smoking or can be vaporised are subject to tobacco tax (association based on the intended use (Verwendungszweck)). In contrast, CBD products such as oils and cosmetic products, which are thus clearly not intended for smoking, are not subject to Swiss tobacco taxation. Furthermore, e-cigarettes are under the current tobacco regulations not subject to Swiss tobacco tax.
Under the former practice of the Swiss Federal Customs Authority, products which are not or only partly made of tobacco but are used in the same way as raw tobacco or processed tobacco, even if they do not need to be lit for consumption, were taxed in the same way as the products they replace. In consequence, the Swiss Customs treated taxable cannabis products as substitute products for fine-cut tobacco. The tobacco tax rate for each kilogram of tare weight of fine-cut tobacco is calculated according to the volume (CHF 38 per kilogram) and of ad valorum 25% of the retail price, which triggers a high tobacco tax burden. Furthermore, every manufacturer or importer of taxable cannabis products had to be listed in the so called reverse register by which he deposited an obligation of use (reverse) confirming to comply with the trade regulations. Such registration requires that the applicant is domiciled in Switzerland or has a main branch registered in Switzerland.
In the past it has often been unclear whether dried hemp flowers are subject to tobacco taxes, i.e. whether dried hemp flowers should automatically be considered as a replacement for a tobacco product. In a recent judgement, the Swiss Federal Supreme Court concluded that there is no sufficient legal basis for taxing hemp flowers with the tobacco tax. As a result, the Swiss Federal Customs Authority was required to adjust its practice. According to its new publication, the Swiss Federal Customs Authority states that CBD products that do not contain tobacco are not subject to tobacco tax and thus no entry in the reverse register is necessary.
C. Swiss import VAT
Swiss import VAT is levied on all imports of goods. The standard import VAT rate is 7,7%, similar to the VAT rate applicable to domestic sales transactions. A reduced rate of 2.5% is applicable to goods that qualify as necessities such as food. According to the previous practice of the Swiss Federal Customs Authority, the import of CBD products which are subject to the tobacco tax was subject to the standard rate of 7.7% VAT rate. Given the change of practice mentioned above, hemp flowers are not anymore treated as tobacco substitutes and are thus no longer subject to tobacco tax. In consequence, hemp flowers or CBD products respectively have for Swiss VAT purposes to be assessed based on their own characteristics. Therefore, it should be reviewed for each CBD product whether it would be subject to the reduced import VAT rate of 2.5% instead of 7.7%.
D. Swiss customs
In principle, Swiss customs duties are levied based on the gross weight of the respective good, if the good has not been assigned to any other assessment basis for the purposes of customs clearance. For CBD products, the tariff for importing the respective product depends on the characteristics of the product. Hemp flowers (without seeds) are for example treated as sub-category (“other”) within the tariff number 1211 applicable for plants and parts of plants, of a kind used primarily in perfumery, in pharmacy and further reason. The applicable customs tariff should be reviewed for each product subject to importation taking into account the potentially applicable multilateral or bilateral international agreements.
E. Summary and recommendation
The Swiss indirect tax landscape with its recent developments as well as its low VAT rates provides an attractive environment for domestic and international businesses for engaging in CBD business transactions. While in result of the new practice outlined above both the overall tax burden as well as the administrative burden by abolishing the reverse register obligation for importing CBD products will be lowered, the scope of the new practice of the Swiss Federal Customs Authority remains rather undefined. It needs to be established whether this new approach of the Swiss Federal Customs Authority effectively applies to all CBD products which do not contain tobacco – such as hemp flowers – including for example ready-made-CBD cigarettes. Given the ongoing development of the practice for the importation of CBD products, it is recommendable to review and assess the correct qualification of the product or material from a tobacco tax perspective and to consider seeking confirmation from the Swiss Federal Customs Authority prior to import.
Loyens & Loeff is your ideal partner to advise on the most suitable business structure taking into account the peculiarities of the Swiss legal and tax landscape as well as offering a unique standing in Europe and cross-border business support due to our representation in our home markets Belgium, Luxembourg, the Netherlands and Switzerland.
Although this publication has been compiled with great care, Loyens & Loeff Switzerland LLC and all other entities, partnerships, persons and practices trading under the name ‘Loyens & Loeff’, cannot accept any liability for the consequences of making use of this issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.
Beat BaumgartnerPartner Attorney at law, Swiss certified tax expert
Beat Baumgartner, attorney at law and Swiss certified tax expert, is a partner in our Zurich office. He focuses on Swiss and international taxation, M&A, financing and capital market transactions.T: +41 43 434 67 10 M: +41 79 930 63 52 E: email@example.com
Marco ToniPartner Attorney at law
Marco Toni, attorney at law, is a partner in our Zurich office. He focuses on domestic and international M&A transactions, private equity, corporate governance and general corporate, stock exchange and capital markets laws.T: +41 43 434 67 15 M: +41 79 557 62 15 E: firstname.lastname@example.org
Valérie SchrämliAssociate Attorney at law
Valérie, attorney at law, is an associate in our Zurich office and she focuses on domestic and cross-border M&A, private equity and capital market transactions, corporate governance, general corporate law and contractual matters.T: +41 43 434 67 29 E: email@example.com