Tax law: How does the VAT work?

In principle, companies have to pay value added tax (VAT) to the state. 

VAT is a consumption tax that was introduced in 1995. The tax is levied on companies that charge it to customers for their products and services. This is mentioned in the receipts (look at the “pre-tax value and value including VAT”!). 

Here are the applicable legal rates:

  • 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? Let’s consider these cases:

  1. The head office of the company is in Switzerland

It will be exempt from VAT if :

  1. The turnover of the taxable services performed in Switzerland or abroad is less than CHF 100’000 per year 
  2. The company is a non-profit or charitable sports association or cultural institution and its turnover from taxable services provided in Switzerland or abroad is less than CHF 150,000 per year.

 

  1. The head office of the company is abroad

It will 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 from doing so if :

  1. Its total turnover from services taxable in Switzerland and abroad is less than CHF 100’000 (or CHF 150’000 for sports associations or public, cultural or non-profit institutions). b. Its total turnover from services taxable in Switzerland and abroad is less than CHF 100’000 (or CHF 150’000 for sports associations or public, cultural or non-profit institutions). c. Its total turnover from services taxable in Switzerland and abroad is less than CHF 100’000 (or CHF 150’000 for sports associations or public, cultural or non-profit institutions). d. Its total turnover from services taxable in Switzerland and abroad is less than CHF 100’000 (or CHF 150’000 for sports associations or public, cultural or non-profit institutions).
  2. 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 reach 100,000 in turnover from taxable services in Switzerland within 12 months, it must register with the register of taxable persons liable for VAT. This must be done at the earliest in the current fiscal period by registering with the Federal Tax Administration (FTA). 

 

The entrepreneur will therefore have to pay the VAT he has invoiced to his customers to the state. This may lead to new tax charges to be considered as a new business. It is therefore important to optimize your liability to this tax by choosing a suitable method of settlement.

A lawyer can accompany the company in these steps and advise it. Lawrence can assist you in optimizing your company’s tax breaks!

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