VAT reporting: effective or balanced tax rate?


All companies that are required to pay value added tax, have to report their VAT. However, they also have to choose the method they will use : The effective method or balanced tax rate based reporting. The bookkeeping requirements change depending on the method they choose.

What are the differences?

The balanced tax rate method

Many small businesses opt for the balanced tax rate method for their value added tax reports because it minimizes the administrative complexity: On the one hand, they have to submit value added tax rates only every semester – instead of quarterly, which is the frequency the effective method mandates. On the other hand, the use of the balanced tax rate also makes the determination of the advance tax redundant.

The effective method

Effective value added tax reporting requires companies to declare the generated revenues along with the accrued advance tax. Companies that choose the effective reporting method have to submit their tax reports to the Swiss Internal Revenue Service (ESTV) on a quarterly basis and they have 60 days to do so after the end of each quarter. The same deadline applies to the payment due dates.

How to calculate the balanced tax rate method

For companies filing their VAT reports on the basis of balance tax rates (SSS) the tax owed is determined as follows: The total sales (which include the value added tax billed to customers) are multiplied by the balance tax rate (ref. Art. 37 MWSTG). This reduced VAT rate has to be approved by the Swiss Internal Revenue Service (ESTV) and depends on the company’s sector. The advantage of this VAT reporting method is obvious: A lump sum advance tax amount is included and does not have to be reported separately.

The Federal Tax Administration offers this 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).


How to report on Value Added Tax

VAT has an effect on your accounting procedures. There are two ways of reporting it:

Effective reporting (declaration of the turnover achieved and der incurred input tax): you have to submit a return every quarter.

Reporting using net tax rates: You have to declare your turnover (including the VAT charged to your customers) every six months and multiply it by the net tax rate approved by the Federal Tax Administration (FTA). In this way, input tax is deducted at a flat rate and does not have to be calculated.

You should submit the VAT return without being requested to do so within 60 days of the end of the reporting period and pay the tax due at the same time. If the FTA owes you a tax credit in any reporting period, the money will be refunded to you within 60 days of receipt of the VAT return.

The question of when, i.e. in which reporting period, you should declare the tax and deduct the input tax depends on the form of reporting you opt for. Basically, the date on which the invoice is sent or received is decisive. However, you can request authorization to declare the tax and the input tax in the reporting period in which the invoice is paid. You must abide by the reporting procedure chosen for at least one tax period (calendar year).



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