VAT is a turnover tax levied at each stage of the production and distribution. Liability for VAT rests with the person supplying the taxable goods or services or importing goods into Switzerland. However, the supplier is allowed to deduct from his VAT liability on sales made the amount of VAT paid and properly invoiced to him in relation to purchases effected by him, or VAT paid by him at importation. The actual burden of the tax is therefore borne by the final consumer.
Swiss VAT (MWST/Mehrwertsteuer) is levied on taxable supplies which take place in Switzerland, self-supplies, acquisition of certain services from foreign entrepreneurs and importation of goods. For VAT purposes, the Principality of Liechtenstein is part of the Swiss territory. VAT is collected by the Swiss Federal tax administration.
A transaction is within the scope of Swiss VAT if the following conditions are met:
There are three rates of VAT that are applied to goods and services in Switzerland; the standard rate, the reduced rate and the special rate. In addition, some goods and services are exempted from VAT.
Exemptions without the right to deduct input tax include, inter alia, hospital and medical treatments, services supplied by social services, welfare institutions and social security institutions, child and youth education, schooling, job education etc., cultural services and sports events, insurance transactions, certain banking transactions, transfer and letting of real estate (with exceptions), operations connected with betting and other games of chance involving money provided that such betting/gaming activity is subject to a specific domestic gaming/betting duty, etc.
The supplier of exempt services or deliveries may opt for taxation. Please note that an option is not possible for financial and insurance services. In certain cases, option is only possible if the customer is a taxable person.
VAT borne by a taxable person on the purchase and importation of goods and services which are connected to taxable operations (also if zero rated) or to operations located abroad which would be taxable if located within Switzerland can be deducted/refunded. A proper VAT invoice and, in case of importation, original import documents are required. VAT on the acquisition of goods and services directly affected to exempt activities, on operations which are not in connection with the pursuit of business or on private activities is not deductible.
As a general rule, VAT is payable to the customs at the time of importation. However, taxpayers who have given security for the tax amount may pay import VAT within 60 days based on the invoice issued by the Federal Customs Administration.
Any person running a business is basically liable to VAT irrespective of the realisation of a turnover. Thus tax liability is not depending on the realisation of a taxable turnover. Swiss VAT law allows for an exemption from tax liability if the taxable worldwide turnover is below CHF 100,000. Each enterprise will be able to explicitly abstain from the afore mentioned exemption and therefore become tax liable. The limit is CHF 150,000 for sport or culture clubs (if they do not strive to make profit and are managed in an honorary capacity) and for institutions of public interest.
Companies, partnerships and individuals having their domicile or permanent establishment in Switzerland (not in the Principality of Liechtenstein) and who are closely related to each other, may request to be treated as a fiscal unity for VAT purposes, with one single VAT number. As a consequence, intra- group supplies are not taxable.
Any person whose domicile, registered office or permanent establishment is located in Switzerland, has to pay VAT on certain services (or under certain circumstances also delivery of goods) provided by foreign entrepreneurs who are not registered for VAT purposes in Switzerland, if the value of such services exceeds CHF 10,000 during the calendar year.
Please note that for already registered persons, no threshold is applicable, ie these persons will have to pay VAT on any import of services and certain goods acquired from a not registered foreign person.
Non-resident entities supplying goods or services within Switzerland are generally subject to the same registration rules. However, foreign entities supplying on Swiss territory only services which are subject to service import tax (ie services taxable at the place of the domestic recipient, excluding telecommunication services or electrical services provided to non taxable recipients) are not obliged to register for Swiss VAT purposes and the reverse charge treatment will be applicable.
In case of registration, the foreign firm must designate a fiscal representative in Switzerland and provide guarantees (usually a bank guarantee) to the Federal Tax Administration in respect of likely tax debts.
Based on Swiss tax law a non-established business, which provides services in Switzerland exclusively subject to the service import tax (reverse-charge-mechanism), is generally not liable to register for Swiss VAT. However, a non-established business, which provides telecommunication services and electronic services to non-taxable Swiss resident persons, must register for Swiss VAT once the limit of CHF 100,000 of taxable worldwide transactions has (or will be) reached.
Whether the recipient of the telecommunication services and electronic services is a taxable or a non-taxable person has to be cleared by the supplier. If the non-established business, which is not registered for VAT in Switzerland, provides telecommunication services and electronic services to taxable Swiss resident persons, the recipients of the services should apply the reverse- charge-mechanism.
Once the non-established business is registered for VAT in Switzerland it must charge Swiss VAT on its telecommunication services and electronic services to Swiss resident persons irrespective whether they are taxable or non- taxable persons.
Yes, a non-established person will be required to appoint a fiscal representative in order to be able to register for VAT purposes in Switzerland.
The VAT returns generally have to be filed on a quarterly basis. The VAT return must be filed and the corresponding payment made within 60 days after the accounting period. However, for small businesses, the tax period is semi-annual. In certain cases, the tax period is monthly. Late payments are subject to interest, at the rate of currently 4% p.a.
In case of intentional or negligent tax evasion, unjustified exoneration or refund, the taxpayer is punished by a fine up to five times the amount of the unlawful advantage. Persons jeopardizing the levy of the tax (for instance by not fulfilling the duty to register) are punished by a fine up to CHF 800,000 (doubled in severe circumstances) or can be prosecuted according to the Swiss Penal Code or the Federal Act on Administrative Penal Law.
At the end of the business year, a turnover and input VAT reconciliation must be made. In case deviations between the VAT returns filed and the annual financial statements are detected, the entity is obliged to submit an additional annual reconciliation VAT return within eight months after the end of the business year.
Penalties may generally be imposed in the case of negligent tax evasion, unjustified exoneration or refund.
Foreign taxable persons who are not established in Switzerland and who do not supply taxable goods or services on the Swiss territory may, under certain conditions, claim refund of Swiss VAT incurred on their business costs. The claim can be made once a year and must be filed by a Swiss fiscal representative within a period of six months following the end of the calendar year in which the goods and services were bought. There is no refund if the annual amount does not reach CHF 500.
The seller of the service/goods must produce an invoice to the recipient on request. This invoice must clearly identify provider and recipient as well as the kind of the service provided or good(s) supplied.
Invoices or other accounting documents for taxable recipients as well as for recipients with residence abroad (which are entitled to VAT recovery) should generally include the following:
Electronic invoices must comply with the requirements regarding proof of origin and integrity.
For further information on indirect tax in Switzerland please contact:
Dr. Matthias Hofer
T +41 43 960 71 43
E matthias.hofer@ch.gt.com
