Value Added Tax in Switzerland

VAT : The value added tax in Switzerland

The tax system in Switzerland requires the payment of value added tax since January 1, 1995. This system limits unfair competition between economic operators in the consumption of goods and services.

In general, VAT applies to all taxable activities such as supplies, services, self-supply, import activities, and services coming from abroad but carried out in Switzerland.

Delivery activities include all transfers of goods or services to a third party. They also include the transfer of a business management, the production of material goods in favor of a third party, the provision of work in favor of a third party even without changing the appearance of the objects on which the investigations are carried out, such as repairs, checks, controls or adjustments. Rentals and fuel supply such as electricity, gas, or the supply of heat, cold or pressure are an integral part of delivery activities.

Services include all activities where efforts are made to obtain a proof of completion or proof of conduct of a transaction such as copyrights, trademarks and patents.

Self-employment is the acquisition of material goods or services for a personal investment that will earn money in the future. For example, the expansion of a personal business, which is a source of income, is included in this group, as is the improvement of private premises, if they are subsequently rented or sold, which is a source of income.

VAT also applies to imports

The Value Added Tax also applies to imports except for the introduction of small quantities of products for which the amount of the tax is less than CHF 5 and for products introduced by customs clearance or duty free. Imports of products in transit, intended for subsequent export, also remain exempt from VAT, as do imports of products originally manufactured in Switzerland.

Services from abroad include activities carried out in Switzerland by a foreigner, i.e. not from Switzerland, and investments by foreigners in Switzerland of over CHF 10,000.

Four categorizations of Value Added Tax are described by the Swiss tax system, namely:

  • The standard rate,
  • The rate for the accommodation sector,
  • The reduced rate and,
  • The flat rate.

The standard rate is 8%, but some industries benefit from a rate below this average.

Operators working in the accommodation sector benefit from a 3.8% VAT rate.

Operators involved in the supply of water and foodstuffs, agriculture and livestock both upstream (production of seeds) and downstream (sale of production), health, communication and information (newspapers, magazines, radio and television broadcasts) and institutions involved in cultural and sports activities benefit from a VAT rate of 2%.

Some businesses may use the flat rate VAT application. However, they must have a turnover of less than CHF 5,020,000 including taxes and a tax liability of less than CHF 109,000. The Federal Tax Administration is responsible for validating the adoption of the VAT flat rate and for setting the rate to be applied. Generally speaking, the calculation is made by multiplying the gross turnover by the tax liability rate or the fixed flat rate. This system facilitates the task of the AFC even if it remains exclusive to certain sectors of activity.

Article 21 of the Value Added Tax Act, as applied by ordinance, sets out the branches of activity outside the VAT tax base. Globally, they include the health sector, social security, education, culture, insurance, money market, sales and rental. In the latter case, the taxpayer may apply for voluntary taxation.

In addition, exchanges of goods and services in favor of beneficiaries residing abroad are also exempt from VAT, such as exports and supplies of services abroad. If the costs of the services originally included VAT, the supplier can claim it back.

VAT liability in Switzerland

Taxable activities in Switzerland remain subject to VAT. The VAT is calculated on the basis of the turnover of the accounting at the end of the fiscal year and in some cases, on the nature of the activities. It does not take into account the legal forms of incorporation. It remains the same for private individuals as for legal entities.

Non-payment or suspension of payment of VAT removes any right of enjoyment of the privileges offered to taxpayers.

The payment of VAT is mandatory when the annual turnover reaches CHF 100’000. However, non-profit associations including sports and cultural associations and public utility institutions with a turnover of less than CHF 150’000 do not pay any tax.

Nevertheless, the rate differs from one activity to another. Indeed, economic operators in the field of agriculture, horticulture, forestry and livestock remain exempt from VAT under certain conditions. Therefore, the revenues from the sales of their own productions will constitute their exclusive income. The supply of milk as a raw material to the processing industries also remains exempt from VAT.

Any operator may terminate the tax exemption if the income-generating activity is sustainable and if there are prospects for a sustained increase in turnover. According to these two principles, the application for liability can be made at the beginning of the year without waiting for the results of the accounting at the end of the year.

Procedures for registering as a taxpayer

The Swiss tax system requires a declarative system. The legal or natural person is requested to make a declaration of income of their activities as soon as they consider that their activities are classified as taxable including rentals, sales, trade and supply of services as long as these activities are undertaken in the Swiss territory.

The calculation of the VAT is based on the annual turnover. All operators are obliged to pay them from the year in which their accounts exceed the predefined turnover threshold.

Pour l’assujettissement volontaire, le paiement de TVA prend effet à compter de la date de demande sans tenir en compte des revenus antérieurs.

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