What is VAT?
VAT, or Value Added Tax, is an indirect tax on consumption that is applied to most goods and services supplied by businesses. Unlike other taxes, VAT is collected at every stage of the production and distribution chain, from production to the final sale to the consumer. Businesses collect VAT on their sales and remit it to the tax authorities, after deducting the VAT they have paid on goods and services purchased in the course of their business activities.
Who is liable for VAT?
In Switzerland, VAT applies to most businesses that supply goods or services in the course of their business activities. More specifically, the following are liable for VAT in Switzerland:
- Businesses achieving an annual turnover exceeding CHF 100,000. Businesses whose turnover exceeds this threshold are required to register with the Swiss tax authorities and to charge VAT on their sales.
- Foreign businesses that supply goods or services in Switzerland and are not established in the country, but achieve a turnover exceeding CHF 100,000. These businesses must also register with the Swiss tax authorities and charge VAT on their sales in Switzerland.
- It should be noted that certain activities are exempt from VAT in Switzerland, such as financial services, medical and social services, as well as cultural and educational activities. However, businesses that carry out exempt activities may choose to register voluntarily for VAT in order to recover the VAT paid on their purchases.
When setting up my company, am I obliged to register for VAT?
No, unless certain criteria are met:
- Exceeding an annual turnover of more than CHF 100,000.
- Making a projection over the first 3 months of activity and using this as a basis for turnover. If for the next three quarters this basis exceeds CHF 100,000 in turnover, you must register with the FTA.
- You may also register for VAT on a voluntary basis.
What Swiss VAT rates are in force as of 2024?
Since 1 January 2024, VAT rates in Switzerland are as follows:
Standard rate 8,1 %
It applies to most goods and services, including everyday consumer goods such as clothing, electronic devices, catering services, IT services, etc.
Special rate 3,8 %
The special rate for accommodation services applies to overnight accommodation with breakfast, even if this is invoiced separately.
Reduced rate 2,6 %
This rate applies to certain goods and services considered essential, such as basic foodstuffs, prescription medicines, newspapers and magazines, as well as public transport.
VAT exemption 0,0 %
In Switzerland, certain products and services benefit from an exemption from Value Added Tax (VAT). This exemption applies in particular to insurance and reinsurance transactions, financial transactions, medical services, educational services, the sale and leasing of building land, real estate transactions, as well as postal and telecommunication services of Swiss Post. Social and cultural services provided by non-profit organisations are also exempt. Swiss companies that export goods may also benefit from this VAT exemption, enabling them to remain competitive on international markets.
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VAT calculation methods and reporting modes
To manage your VAT in Switzerland properly, it is essential not to confuse the VAT calculation method (which defines the amount to be paid) with the VAT reporting mode (which defines when you must pay). This choice has a direct impact on the complexity of your accounting and on your available cash flow.
1. The two calculation methods (the "How much")
The method determines how the net amount you must pay to the Federal Tax Administration (FTA) is calculated:
Effective VAT return
The effective method: This is the standard method. You charge effective VAT to your customers, but deduct the VAT you have paid on your own business purchases (input tax). You only pay the difference to the FTA. Advantage: Ideal if you have many investments or expenses (purchase of goods, rent, IT costs).
Net Tax Rate (NTR)
The Net Tax Rate (NTR): This simplified method is reserved for SMEs. You do not deduct input tax. The tax due is determined by multiplying the total taxable turnover by the NTR applicable to the relevant sector or activity. Taxable persons who meet the following two conditions may in principle prepare their returns using the NTR:
- the annual turnover from taxable supplies (including VAT) does not exceed CHF 5.024 million
- the tax due does not exceed CHF 108,000 per year.
Advantage: Ultra-simple administrative management and only two returns per year (semi-annually).
Flat rates (TaF)
Public authorities and related sectors (private schools and hospitals, public transport companies, etc.), as well as associations and foundations, may apply the flat-rate method, regardless of the amount of their turnover. However, returns using the NTR are not permitted.
2. The two reporting modes (the "When")
The reporting mode defines the event that triggers your tax liability in your invoicing software:
Agreed consideration
According to agreed consideration (default): VAT is due as soon as you issue the invoice. Even if the customer pays you in 30 or 60 days, VAT must be declared for the period in which the invoice was issued. This is the standard mode for businesses keeping full accounts (debtors/creditors).
Received consideration
According to received consideration (on request): VAT is due only when you receive the money. As long as the invoice is not paid, you have nothing to declare.
Advantage: A huge benefit for your cash flow, as you never pre-finance VAT for your customers. This mode requires a written request to the FTA.