With some of the highest spending power in the world, Switzerland is a lucrative marketplace for UK retailers. In 2017, more than 15,000 UK businesses exported goods to Switzerland, and online retail offers even more companies the opportunity to expand into the Swiss market. If your e-commerce business has enjoyed success selling to Switzerland, planning ahead will ensure this success continues post-Brexit.
Brexit commentators have often suggested that the relationship between Switzerland and the EU is one that the UK should look to replicate. Switzerland is not a member of the EU or the European Economic Area (EEA), but is part of the single market. This allows goods, capital, services and people to move freely between Switzerland and other member states. Alongside Iceland, Liechtenstein and Norway, Switzerland is also a member of The European Free Trade Association (EFTA), which promotes free trade and economic integration between members.
Relations between Switzerland and the EU are governed by a number of bilateral agreements. These agreements cover a variety of topics, including trade and customs. Switzerland has a free trade agreement with the EU as well as EEA and EFTA members, meaning no tariffs are in place. Simultaneously, Switzerland is not in a customs union with the EU, which allows it to conduct tariff-free trade with countries outside the EU, like China and Indonesia.
The Swiss approach allows easy trade with the EU, EEA and EFTA, without the restrictions and tariffs that EU membership can bring. This made a Swiss-style Brexit a desirable option for many. But with the transition period set to end on 31st December 2020, and no deal yet in place, a similar trading relationship between the UK and the EU seems increasingly unlikely.
The consequence of a no deal Brexit
If no deal is agreed, the United Kingdom will no longer be part of the European internal market or customs union. Overnight, the UK would no longer benefit from the EU’s free trade agreements with more than 70 other countries. For businesses selling goods outside of the UK, this could mean additional taxes, tariffs and duties, as well as longer shipping times caused by increased border checks. Higher tariffs and slower freight across borders will impact both profit and customer service for UK retailers. In areas of online retail with a high return rate, this could mean that exporting to other countries is no longer financially viable.
In the event that the transition period ends with no deal in place, the UK will take on third country status. A third country is any country outside the EU and not part of the single market or customs union. After 31st December, this would mean that if no trade agreement is in place between the UK and another World Trade Organisation (WTO) member, UK businesses would have to trade with that country under WTO rules. The WTO operates a Most Favoured Nation (MFN) policy, which means that the UK will have to offer the same trading terms to all WTO members. Unless a trade agreement is in place, the UK will be unable to offer better trading terms to an individual country.
Fortunately for UK e-commerce businesses selling to Switzerland, the UK and Swiss governments have signed a continuity agreement based on the EU’s existing free trade deal with Switzerland. This is designed to allow the UK and Switzerland to continue to trade as they have been, safeguarding existing rights and obligations after the end of the transition period. Although taxes, tariffs and duties may still increase, the existence of a trade agreement between the UK and Switzerland offers some reassurance to retailers selling to Switzerland.
How selling to Switzerland may change
If you sell online to Swiss customers, it is likely that in future packages will need to go through customs on arrival in Switzerland. With paperwork to complete and potential delays to shipping, this could affect delivery costs and timescales. It’s important to consider whether as a business you will absorb these additional costs, or increase delivery charges for Swiss customers. You should also consider how to incentivise customers in Switzerland to continue buying from your business despite potentially longer waits for their orders.
Volatility in currency markets and increasing exchange rates could also impact UK businesses selling to Switzerland. Finding a reliable currency exchange and international payment service provider could help you keep costs down. They offer more attractive exchange rates, and often charge no transfer fees. When the value of the British pound drops, UK goods and exports become cheaper for overseas customers. So a volatile currency market can in fact make shopping online with UK retailers more attractive.
If a no-deal Brexit goes ahead, UK businesses will no longer have to collect VAT from sales to customers in the EU, which means prices may be lower. Selling to Switzerland is different as it is not a member of the EU. For UK e-commerce businesses trading with Switzerland, VAT applies to all imports, at a normal tax rate of 7.7%. The ‘destination country principle’ applies to VAT in Switzerland, which means that exported goods are exempt from local tax in the UK, but subject to VAT in Switzerland. In effect, VAT is an import tax when selling to Switzerland.
Brexit could have a positive impact on e-commerce, as the UK government is unlikely to demand the same high standards as the EU for products sold in the UK. This could potentially make it easier for overseas retailers to sell products in the UK. It’s also expected that the UK government will lower tariffs for trade with no-EU countries, making import and export cheaper.
Prepare for a no-deal Brexit with Asendia
To ensure your online business continues to succeed post-Brexit, it’s important to put processes in place to make selling to Switzerland as efficient as possible. Investing in this now will ensure that you can mitigate the impact of customs changes and increased shipping times.
e-PAQ by Asendia offers a range of packet and parcel services for online retailers, so you can easily pack and ship products to customers worldwide. With our help, your business can navigate the post-Brexit landscape and continue to deliver to the Swiss market long into the future.