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Insights Value Added Tax Guidelines: Switzerland (& Liechtenstein)

Value Added Tax Guidelines: Switzerland (& Liechtenstein)

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published on 30 March 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. VAT Scope, VAT Rates and VAT Exemptions

Every person, institution, association without legal capacity, establishment etc. that operates a business is subject to Value Added Tax. A business is operated by anyone who:
  • Independently carries out a professional or commercial activity targeting the sustained generation of income from services
  • Operates externally under their own name
  • Acquires, holds or sells a stake of at least 10 percent in a relevant company
 
Companies with a turnover from taxable services and supply of goods of less than CHF 100,000 per year world­wide are exempt from the tax liability. 
 
Since 1 January 2019, mail order companies are tax liable when the total amount of supplies of goods with an insignificant import tax amount (CHF 5) from abroad to Swiss territory exceeds CHF 100,000 in a year, as the place of delivery changes and is located in Switzerland for all supply of goods the following month. 
 
Taxable turnover includes domestic delivery of goods for consideration and domestic provision of services for consideration. It is to be mentioned, that the term domestic includes the Swiss territory, the Principality of Liechtenstein, the German city of Büsingen and the Swiss part of the airport Basel-Mülhausen-Freiburg. For deliveries, the Swiss cities of Samnaun and Sampuoir are not part of the domestic territory.

Definition of a delivery of goods:
  • A Good is a movable or immovable object as well as electricity, gas, heat/cold, etc.
  • If the buyer is empowered to dispose of a good economically (use it, consume it, and place it on the market). A transfer of possession makes no difference to a transfer of ownership.
  • The handover of a good on which work has been done even if the good has not been changed through this work 
  • Leaving of an object for a usage like letting or leasing.
 
Definition of a service:
  • Every action that does not qualify as a delivery of goods.
  • The leaving of intangible assets.
  • To refrain from an action or tolerate a condition.
 
Supplies provided abroad (exempt supplies) and VAT exempt supplies are not subject to domestic VAT. The VAT paid in respect of intermediate consumption (input VAT) can be deducted from the taxable turnover.
 
The legislator has granted relief from Value Added Tax to various social and cultural supplies, monetary trans­actions and real estate transactions. No input VAT may be claimed on such supplies provided in Switzerland. In practice, however, this means that the paid VAT is added to the price of exempt supplies and passed on to the consumers (“taxe occulte” or disguised tax), which is why this is referred to as artificial tax relief.
 
Since 1 January 2018, the normal VAT rate is 7,7 percent, the reduced VAT rate is 2,5 percent and the special rate is 3,7 percent. 

 

2. VAT registration

If an entrepreneur fulfils the conditions for VAT liability, it must automatically register in writing with the Swiss Federal Tax Administration (FTA) within 30 days from the date on which its tax liability takes effect. A value added tax number is then allocated which identifies the company as a taxpayer in the business world.
 
To notify the end of the tax liability, the taxpayer must deregister with the FTA in writing within 30 days from the date on which business operations end or at the latest on the final liquidation date. For foreign entrepre­neurs tax liability ends at the end of the calendar year in which the last taxable service has been provided. 
 
VAT can be reported in four different ways: 
  1. Value Added Tax must generally be reported in accordance with the effective method. The tax payable equals the domestic, acquisition and import tax that is due minus the input tax credit.
  2. VAT-liable companies with a turnover of less than CHF 5,005 Million per year and a maximum tax liability of CHF 103,000 per year can report the VAT in accordance with the applicable net tax rate method.
    The FTA prepared estimates of the input tax component and adopted net tax rates for all business sectors.
  3. The flat tax rate method may be applied by public authorities and related institutions such as hospitals and schools as well as by licensed transport undertakings, associations and foundations.
  4. The notification procedure (which is always part of numbers 1-3) is used in the case of company reorgani­zations as well as other transfers of all or part of the assets to another taxable entity (incorporation, liqui­dation). If the Value Added Tax due on the sales price is more than CHF 10,000 or the assets are sold to a closely related person, the taxpayer has to report the taxable turnover within 30 days.
 
Companies domiciled abroad which perform domestic supply of goods or services in Switzerland and hence post a taxable turnover of more than CHF 100,000 worldwide are subject to VAT. Such companies need a tax representative in Switzerland to handle their compulsory entry in the Value Added Tax register.
 
Rödl & Partner Switzerland also provides VAT compliance services for foreign companies which are obliged to register for VAT in Switzerland.

 

3. Requirements for VAT return

Value Added Tax is charged per tax period (calendar year) and usually has to be reported on a quarterly basis, or semi-annually if the net tax rate is applied. The tax return must be submitted using the official form within 60 days of the end of each quarter.
 
The VAT-liable company also has to prepare turnover and input tax reconciliation every year to show that the internally recognized turnover and input tax match its tax returns. A correction based on this annual VAT reconciliation has to be submitted within 240 days of the end of the calendar year.
 

4. Deduction of input VAT

Registered taxpayers can use their quarterly returns to deduct the domestic tax charged to them by other par­ties liable to VAT as well as the acquisition and import taxes as input VAT, if these were used for business purposes.
 
Since 1 January 2018, the taxable person may deduct notional input tax, if he acquires an individualizable moveable good within Switzerland in the course of a business activity entitling him to make an input tax deduction and the VAT on acquisition of the good has not been openly passed on to him nor the notification procedure was used. No notional input tax may be deducted in respect of goods subject to margin taxation (collector’s item) or were exempt from VAT on import.
 
No input VAT may be deducted for supplies performed in Switzerland that are exempt from Value Added Tax if these were not registered for voluntary VAT. If a supply is performed abroad and may be registered for voluntary VAT, the input VAT can be deducted.

If the taxpayer uses a supply for both business and private purposes, or the supply is used both for activities eligible for and not eligible for the deduction of input VAT, the input VAT deduction must be corrected to reflect this ratio. 
 
As the idea of Value Added Tax is to tax a supply at the level of the consumer, the input tax deduction must be corrected for supplies that are subsequently used for purposes that do not qualify for input tax deduction.

 

5. Invoicing

There are formal invoicing requirements to be fulfilled:
  • If different VAT rates must be applied to an invoice, the allocation of the different VAT rates to the amounts must be given.
  • For invoices in foreign currency (all currencies are accepted), the individual items and total amount must be given in the relevant currency. Only the total for the invoice can also be given in CHF. 
 

6. Penalty regime

Whoso
  • fails to declare all income, declares too much in exempt turnover, fails to declare all expenses for acquisition tax or declares too much in expenses for the input VAT deduction;
  • activates an illegal refund or unfair tax abatement;
  • intentionally provides a wrong description of the facts;
  • intentionally or negligently does not declare or wrongly declares the import of goods;
  • provides the wrong information during an audit; or
  • violates the procedural obligations
shall be liable to a fine.
 
If a breach is reported by the taxpayer itself before it becomes known to the tax administration, the offence is not prosecuted.
 
Tax fraud is committed by anyone who uses wrong or untrue documents for deception in order to evade tax. Tax fraud is governed by the sanctions for Direct Federal Tax and can be punished by up to three years in prison.
 

7. Others

Closely related legal entities, partnerships and natural persons with their registered office or a permanent establishment in Switzerland can apply for group taxation. 


Switzerland
(& Liechteinstein)

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