Although Switzerland is not an EU member state, its value-added tax (VAT) system was structured in accordance with the sixth EU VAT Directive («Sixth Council Directive on the harmonization of the laws of the Member States relating to turnover taxes») as a non-cumulative, multi-stage tax that provides for deduction of input tax. Thus, Swiss VAT is levied as an indirect tax on most goods and services at the federal level only and applies to each stage of the production and distribution chain. It is designed as a tax owed by the supplier of goods or services (i.e., the tax liability is based on the payment by the recipient of the goods or services).
Any legal entity, establishment, partnership or association without legal capacity, institution, etc. that operates an enterprise (obtains revenues through business or professional activity for a long period, regardless of whether there is an intention to make money) is liable for tax. There is a registration obligation if the taxable turnover in Switzerland exceeds CHF 100,000 per year. All permanent domestic establishments of a Swiss parent company form one taxable entity together with the parent company. All domestic establishments of a foreign parent company are also classed as a taxable entity. On the other hand, the domestic establishments and the foreign parent company are each considered a separate taxable entity.
If the revenues of a taxpayer (turnover from taxable supplies of goods and services) are less than CHF 100,000 per year (or less than CHF 150,000 for sports clubs and non-proﬁt institutions), then the entity is exempt from tax liability. However, any such entity may also waive exemption from tax liability. Upon registration with the Federal Tax Administration, the tax-payer currently still receives a VAT number which is based on the company identiﬁcation number. Here the VAT number is added to the company identiﬁcation number (e.g. CHE-123.456.789 MWST).
A special regulation exists for holding companies. In general the acquisition, holding and selling of shareholdings is a commercial action within the meaning the Swiss VAT law. Shares of capital in companies over 10% are classed as shareholdings, which are held with the intention of long-term investment and have a considerable inﬂuence. The qualiﬁcation of the holding activity as a commercial action means that the holding company can be voluntarily registered due to the waiving of the exemption from tax. The advantage of the registration is that pre-tax which is due within the scope of the holding activities can be claimed, although the sale of shareholdings essentially represents income exempt from tax (normally, however, a pre-tax correction is necessary due to interest income).
VAT is levied on the following types of services: 1) delivery of goods in Switzerland (including Liechtenstein); 2) supply of services in Switzerland (including Liechtenstein); 3) purchase of services (and certain goods deliveries in Switzerland) from enterprises with their registered ofﬁce in another country if the value of goods or services exceeds CHF 10,000 per year; and 4) import of goods.
Certain services provided to foreign recipients (as well as the export of goods and the delivery of goods abroad) are not taxed or are zero-rated with full input tax recovery. The delivery of goods for the purposes of VAT is not limited to goods deliveries as deﬁned by Swiss commercial law. The VAT law provides for several business transactions (such as the maintenance of machinery, rental or lease of goods, trade in electricity, etc.) that are deemed to be supplies of goods for VAT purposes.
The basis for the calculation of the taxable amount for the supply of goods and services is the agreed upon or the collected gross remuneration (in cash or in kind). Input tax, i.e., the tax paid on purchases of goods and services, can be deducted. Consequently, only the value added is taxed (net all-phase principle).
The standard rate is 8 % since January 1, 2011 on all taxable supplies of goods or services. A reduced rate of 3.8 % is applicable for accommodation. A reduced rate of 2.5 % applies on certain categories of goods and services for certain basic needs such as water supply, food and non-alcoholic beverages, cattle, poultry, ﬁsh, cereals and grain, books and newspapers, services of noncommercial radio and TV broadcasts, etc.
The Federal Tax Administration offers further simpliﬁed VAT accounting for small businesses with turnover of below CHF 5.02 million (incl. VAT) and a tax liability of CHF 109,000 (calculated according to the applicable net tax rate) or less per year. These small businesses may opt to submit VAT based on balanced tax rate, which is lower than the standard rate of 8 %, if they, in return, waive the standard procedure for input VAT accounting, which would otherwise be deducted from the VAT levied on turnover (input VAT deduction). This simpliﬁed taxation method must be maintained for at least one year, and VAT returns need to be ﬁled twice a year only (in contrast to the normal quarterly calculations).
The law differentiates between VAT-exempt and VAT-excluded turnover from VAT. No VAT is levied in either case, but a distinction is made regarding the input VAT deduction.
In cases of exclusions, there is no input tax deduction possible for the taxes paid in generating the turnover excluded from VAT. Excluded activities are the healthcare sector, education, culture, sport, social care, most banking and insurance activities, rental and sale of real estate, as well as gambling and lotteries. For most of these categories, however, the taxpayer may opt for taxation voluntarily, except in the case of banking and insurance turnover, as well as the renting of real estate exclusively for private use.
In contrast to activities excluded from VAT, exempt activities allow for an input VAT deduction for all taxes paid in generating the turnover in question (true exemption). An example of an activity exempt from tax is the export of goods.
Business activities abroad are not subject to Swiss VAT. These types of turnover are generally the result of international business models. A typical example is a Swiss trading company that buys products from a foreign manufacturing company and sells them to customers in a third country, shipping the products directly to those customers. Activities involving the supply of goods or services abroad only entitle the taxpayer to deduct input tax, if the turnover does not qualify as VAT exempt.
An enterprise registered for VAT is liable for VAT on all supplies (output tax) and will incur VAT on purchases for the business (input tax). In most cases, input taxes may be deducted from the amount of output taxes due and so do not generally represent an additional burden for a business. VAT is a genuine expense only for the end-consumer or for a business involved in transactions for which no input tax can be recovered (businesses with excluded income such as banks and insurance companies).
In addition to exported goods, certain services – if rendered to a recipient domiciled abroad – are also VAT exempt (with credit). However, the Swiss VAT law includes a list of services that are either taxable where the service provider is domiciled or are subject to special provisions according to the list (e.g., services in connection with real estate, hotel and restaurant services; services in relation to culture, sport and the arts; passenger transport; etc.). Services not included in this list that are provided to a foreign recipient are not subject to Swiss VAT (a catch-all provision – the «place of supply is where the recipient is established» is applied).
However, the VAT exempt nature of such services must be proven by the underlying documents such as invoices, agreements, etc. Under all circumstances, it is very important that the documentation be issued in compliance with the requirements per the Swiss VAT law. The same applies to export shipments, where a customs export certiﬁcate is required for tax exemption.