Value Added Tax: the basics

Introduction

The Value Added Tax (VAT) is a general consumption tax that is levied on almost all goods and services in Switzerland. It is an important component of the tax system and affects almost every business – including small and medium-sized enterprises (SMEs). This guide provides a clear overview of the key points concerning the VAT.

What is the Value Added Tax?

The VAT is an indirect tax that is borne by consumers, but must be collected by the company and remitted to the Federal Tax Administration (ESTV). It is incurred at every stage of value creation, which is why it is also referred to as a Value Added Tax: companies pay VAT on their purchases (input VAT) and levy it simultaneously on their sales (output VAT).

Who needs to register for the VAT?

The VAT obligation depends on the annual revenue:

• Companies with a revenue of at least CHF 100,000 must register with the ESTV and settle the VAT.

• Companies with lower revenue are generally exempt, but can voluntarily register to, for example, claim input VAT.

Exception: Non-profit organizations or certain professional groups (e.g., in the healthcare sector) may be exempt depending on their activity.

The three VAT rates

The following VAT rates apply in Switzerland:

• Standard rate of 8.1% for services, consumer goods, and consultations

• Reduced rate of 2.6% for food, medicines, and books

• Special rate of 3.8% for accommodation services (e.g., hotel stays)

Input tax deduction: A central principle

The input tax deduction allows companies to offset the VAT they have themselves paid on purchases (e.g., for materials, services) with the VAT they charge their customers. Only the difference – the added value – is taxed. To be eligible for the input tax deduction, the services received must serve business purposes.

Two accounting methods

Companies can choose between two VAT accounting models:

1. Effective method:

2. Net tax rate method:

What you need to keep in mind

The following obligations apply after registration:

• Regular accounting of the VAT (quarterly or semi-annually)

• Correctly issuing invoices, including VAT number, tax rate and amount

• If necessary: Collaborate with a fiduciary office or use software (such as bexio)

Conclusion: Obligation and opportunity simultaneously

The VAT is a challenge for many SMEs but can also offer advantages – especially through the VAT tax deduction. Good organization and the right accounting model help to keep the effort within limits and avoid errors.