Swiss VAT: how does it work?
Do you own a company on Swiss territory, or are you a foreign company providing services in Switzerland? To understand how VAT works and whether you are subject to it, our guide will help you. Do you have questions about the rates that are applied? Which companies are liable? What are the thresholds above which you are obliged to pay this tax? How do you draw up VAT statements and thus meet all your accounting obligations? To understand this, let's take stock of the situation together.
What VAT rate is applied in Switzerland?
In Switzerland, value-added tax (VAT) is subject to different percentage rates.
Thus, the standard VAT rate is 7.7%. However, there is a special 3.7% rate for hotels, and a reduced 2.5% rate on certain everyday goods, such as food, non-alcoholic beverages, books, newspapers, and medicines.
In this respect, Switzerland is one of the European countries with the lowest VAT rates.
Which companies are subject to VAT?
In principle, all companies< are subject to VAT, regardless of their legal form: thus, Public Limited Companies, Limited Liability Companies, Sole Proprietorships, Limited Partnerships, and General Partnerships are all subject to VAT.
However, if your registered office is located in Switzerland, and your turnover from taxable services is less than CHF 100'000.- per year (or CHF 150'000.- for non-profit sports or cultural associations, and charitable institutions), then you are exempt from VAT liability. Also, institutions under public law a less than CHF 100'000.- turnover is also exempt from VAT.
Also, some companies provide services that are excluded from the scope of the tax and are therefore not liable to pay this value-added tax. This is the case, for example, for businesses providing medical treatment or training services. If the turnover thresholds mentioned above are not met, a business may nevertheless decide to become a voluntary VAT payer.
If your registered office is abroad, but you have permanent establishments in Switzerland, the conditions for VAT liability are the same as for companies with a registered office in Switzerland. In this respect, the turnover threshold is decisive. If you reach the specified turnover threshold (corresponding to the type of services you provide), then you will be liable for VAT. Furthermore, it is important to note that if your registered office is not located in Switzerland, but you have several establishments located in Switzerland, then these are considered as one independent tax subject.
When does VAT liability begin?
A distinction is made here between the start of compulsory on the one hand and the voluntary coverage on the other since they are not subject to the same procedures.
Start of the voluntary VAT liability
Voluntary VAT liability is in fact requested by companies whose VAT payable on taxable turnover is less than the VAT or input tax that the entrepreneur would be able to recover on his purchases, overheads, and investments in the VAT statements (we will dwell on that a little below). In this case, and even if the turnover threshold is not reached, thus exempting you in principle from paying VAT, you can apply to be subject to it. This is a purely voluntary declaration, made on the sole initiative of the company. Although this is an additional administrative burden, requiring you to set up the accounting program to account for value-added tax, to record value-added tax during book entry, to complete value-added tax returns, or to handle correspondence with the Federal Tax Administration (FTA), this voluntary declaration can also have significant economic and tax advantages.
If your registered office is in Switzerland, VAT liability begins at the start of your business activity. For foreign companies, this liability begins the first time a service is provided on Swiss territory. In this sense, if the business is not required to pay VAT because of the turnover threshold not being met, it is quite possible, at the request of the business, to register it in the register of VAT taxable persons:
Companies with their registered office in Switzerland can make this voluntary declaration of registration in the VAT register, at the beginning of the current tax period at the earliest;
Foreign companies may make this voluntary registration at the earliest when the first provision of a service in Switzerland is established. It should also be noted that to be valid, the registration must take place during the same tax period.
Beginning of compulsory liability
The compulsory VAT liability begins in several cases:
When you start your business activity
When you take over an existing business activity
When you open a new branch
However, please note: if your company was previously exempt from VAT liability because it had not reached the turnover threshold, it will become liable to VAT as of the end of the financial year in which the relevant turnover threshold was reached.
Furthermore, if, when setting up your entrepreneurial activity, it is assumed that the applicable turnover limit will be reached in the course of the financial year, then you will be obliged to register with the FTA as a taxable entity for VAT purposes. You will then receive your VAT registration number.
If you are a foreign company, and you are performing services in Switzerland for the first time, then you will start to be liable for VAT as soon as it is assumed that the relevant turnover threshold is likely to be reached within the next twelve months.
What to do if you meet the conditions for VAT liability?
If a company is required to pay VAT, it must register with the Federal Tax Administration (FTA) spontaneously within 30 days of the start of its liability to pay VAT.
If you would like to find out whether you are liable for VAT, you can fill out an online questionnaire offered by the FTA.
To manage VAT, several forms are available on the AFC's website: registration, deregistration, statement of account, request for a deadline extension, etc. Since it can sometimes be difficult to figure it all out, some companies choose to entrust the VAT management to an external player. Accordingly, the use of online software will enable you to draw up VAT statements accompanied by professional teams. How does it work? Just photograph your documents and the team of professional accountants will do the rest: monthly accounting, VAT statements, annual closing, and tax declaration are then taken care of. To free your mind and avoid tax errors that can sometimes cost a company a lot of money, this is an asset that can quickly become indispensable to you!
The VAT statement
How do I make a VAT statement?
When you own a company, VAT must be rigorously kept. Indeed, at the accounting level, it is necessary to regularly carry out VAT statements, which enables taxpayers to declare their turnover to the AFC (Tax Administration of Contributions), by deducting the VAT invoiced by the various suppliers (input tax): this way, these statements make it possible to determine the net amount to be paid, or to be recovered.
Two methods are then available to you to achieve this:
You can choose to carry out actual statements. Here you declare your turnover according to the rates provided for by law and the amount of input tax. In this case, you will draw up a VAT statement every three months.
The second method is the net tax debt rates: with this method, you report your turnover and the VAT that has been invoiced to your customers every six months. You multiply this figure by the net tax debt rate set by the Tax Administration (AFC). The input tax will then be deducted on a flat-rate basis and will not have to be determined.
How do I pay the tax?
Within 60 days after the end of the settlement period, submit the settlement form to the AFC. This is the administration you will then pay the tax. It is also when you will settle your tax debt.
If you have a credit balance, the tax office will refund the amount within 60 days of receiving your statement. Also note that if the balance in favor of the reporting company is refunded after the 60th day following the day on which the settlement was made, interest at the current rate will be credited for the period from the 61st day to the day of the refund.
Which settlement period?
The period in which tax and input tax must be reported depends on the method of settlement of your choice. It can be a quarterly period (effective settlement method), a half-yearly period (settlement using the tax liability rate), or a yearly period when you acquire services from companies that have their headquarters abroad.
Of course, VAT statement accuracy depends directly on the accuracy with which your activity is accounted for. If you are subject to VAT, it is, therefore, essential to be rigorous in the keeping of the accounting books: this is what will enable you to accurately calculate the tax due as well as the amount of deductible input tax.
Furthermore, it is essential to specify that you are required to keep all the accounting books, supporting documents, business papers, and any other accounting documents for a 10-year period: in the event of an audit, you will then be able to provide the inspection body with proof of your statements.