What is Value Added Tax (VAT)?
VAT is based on the concept that those who consume something make a financial contribution to the state. However, it would be too complicated if every citizen had to settle each and every consumption with the state individually. The tax is therefore levied on companies (producers, manufacturers, traders, craftsmen, service providers, etc.) who are obliged to pass on VAT to consumers by including the levy in the price or listing it as a separate item on the invoice.
Any taxpayer who uses a service received from another company for his own commercial, taxable service should not be taxed. The taxpayer may therefore deduct the VAT charged by his or her service provider, the so-called input tax, from the amount due to the FTA.
This system is known as the net all-phase system with input tax deduction. The object of taxation (tax object) is all services that are provided domestically for remuneration and for which the law does not provide an exception.
Services procured abroad are also subject to VAT. In the case of goods, they are taxed on importation, while services and certain works contracts are declared and taxed by the customer/recipient of these services. In return, exports and services provided abroad are exempt from tax on the grounds that they are subject to foreign VAT abroad.
Whether a service is provided in Switzerland (and thus taxed in accordance with Swiss VAT law) depends on the type of service in accordance with the legal definitions. There are several principles for determining this location, such as the customer's place of establishment (place of supply), supplier's place of establishment and the place of activity principles.
For social, cyclical or other reasons, certain services should not be subject to VAT or only to a limited extent. As a result, services in the fields of health, education, culture and the leasing/sale of real estate in particular are completely exempt from the tax. However, those who provide such services and receive pre-supplies for them are not entitled to deduct the input tax charged on these benefits from the amount due to the FTA, unless they agree to pay tax voluntarily on the services exempted from tax (in this case we refer to an option for taxing the services excluded from the tax).
Certain basic human needs services are only taxed at a reduced rate, certain hotel services at a special rate; in both cases, the taxable person may deduct the VAT charged on pre-supplies.
In Switzerland, the following tax rates apply from 1 January 2018 for sales that are not excluded or exempt from the tax (including exports):
normal rate: 7.7%
reduced rate 2.5%
special rate 3.7%
Whether someone becomes liable to tax and thus has to periodically settle his or her turnover with the FTA depends on the scope of services provided annually in Switzerland and abroad that are not excluded from the tax. If the turnover threshold set by law (CHF 100,000) is reached or if it is already clear at the start of commercial activities that the relevant threshold will be exceeded, a company is required to register with the FTA as a taxpayer; he or she will be then be assigned a VAT number.
Several companies under the same management (e.g. group companies) may apply to be treated as a single taxable person (group taxation). This means that services provided by these companies to each other will not be taxed.
The question of VAT liability may arise not only in the case of sole proprietorships and companies but also in the case of public services, temporary forms of cooperation (e.g. a joint venture) or purchasing or cost-sharing associations.
Today, VAT is the most important source of receipts for the Confederation. Current figures can be found here.