You have just created your company or start-up and it is based in Switzerland or abroad? You have questions about the tax consequences and in particular about your liability to the value added tax (VAT)? Don’t worry! This short article will explain everything you need to know about VAT and its application to businesses.
First of all, a little reminder: the value added tax is based on the principle that the consumer (a natural or legal person) must make a financial contribution to the State. In Switzerland, this tax was introduced in 1995 and is collected from the companies. The companies must include the VAT in the price of their products and/or services by mentioning it in the customer’s invoice.
There are three legal rates applicable according to the category of goods or services sold:
– Standard rate: 7. 7% (cars, watches, jewellery, clothing, alcohol, services)
– Special rate: 3. 7% (nights in hotel, breakfast included)
– Reduced rate: 2. 5% (Food, books, newspapers, medication, everyday objects)
How do I know if my business is subject to VAT? In principle, every company is subject to it, but it is necessary to consider certain cases and study the case of your company:
- The head office of the company is in Switzerland.
It will be exempt from VAT if:
- The turnover from taxable benefits in Switzerland or abroad is less than CHF 100,000 per year.
- The company is a sports association, a cultural institution, non-profitmaking or of public utility and its turnover on taxable benefits in Switzerland or abroad is less than CHF 150,000 per year.
- The head office of the company is abroad.
The company have to pay VAT to the State as soon as the turnover from services provided in Switzerland is equal to or greater than 1 franc. However, it will be exempted if:
– Its total turnover on taxable benefits in Switzerland and abroad is less than CHF 100,000 (or CHF 150,000 for sports associations or public, cultural or non-profit institutions);
– The company’s services in Switzerland are tax-exempt.
In principle, all new businesses are subject to VAT from the start of their activity. If its financial forecasts predict that it will achieve CHF 100,000 in turnover from taxable services provided in Switzerland within 12 months, it must register at the register of self-employed persons or companies subject to VAT. This must be done as early as possible in the current tax period by an announcement to the Federal Tax Administration (FTA).
The entrepreneur will therefore have to transfer the VAT he charged to his customers to the State. This may lead to new tax burdens that a new business must consider. It is therefore important to optimise your liability to the VAT by choosing a suitable settlement method.
Law-rence calculates the VAT according to your business!