Value added tax (VAT) is one of the most important sources of income for the federal government – and is levied on almost all services and products in Switzerland. In this article, you will find out how VAT works in Switzerland, who has to pay it and what special features there are.

The essentials in brief:

• Definition and meaning: Value added tax (VAT) is an excise tax levied on the increase in value of goods and services. Companies pay them, but the end user bears the burden.
• Obligation to pay VAT: Anyone who, as a company, converts more than CHF 100,000 annually in Switzerland is obliged to pay VAT and must register with the Federal Tax Office.
• Value added tax rates: There are three tax rates – a standard rate of 8.1% for most goods and services, a reduced rate of 2.6% for essential goods and a special rate of 3.8% for accommodation services.
• Input tax deduction: Companies can claim the VAT paid in the course of their business as input tax. This avoids double taxation and enables a fair tax burden distribution.

1. What is VAT?

Value added tax is an excise tax applied to the increase in value of goods and services. What’s special about this? Companies pay the tax, but in the end, the end user bears the tax burden.

• VAT in Switzerland is one of the main sources of government revenue and is levied at all stages of the value chain – from the extraction of raw materials to retail sales.
• When companies pay VAT on purchases and materials in the course of their business, they can deduct them from their own tax liability. This is called input tax deduction. This avoids double taxation and distributes the tax burden transparently and fairly throughout the value chain.

2. Who has to pay VAT?

In Switzerland, all companies must pay value added tax (VAT) that generate income independently and sustainably and have an annual turnover of over CHF 100,000. Foreign companies in Switzerland must also comply with this regulation.

Important: Smaller companies with less than CHF 100,000 turnover can register voluntarily for VAT. This offers financial benefits such as input tax deduction. With this deduction, they can deduct the VAT paid on business expenses from their tax liability. This can relieve small companies financially, especially in the initial phase or if they have high investments.

3. What is the VAT?

Switzerland has three different VAT rates:

• Standard rate: The standard rate is currently 8.1% and is applied to most goods and services.
• Reduced rate: A reduced rate of 2.6% applies to essential goods such as food, medicine and books.
• Special rate for accommodation: A special rate of 3.8% applies to accommodation services.

4. How does the registration process work?

• Anyone who, as a company, exceeds the turnover threshold of CHF 100,000 in Switzerland must register with the Federal Tax Office (FTA). Then the FTA checks the company’s information and issues an official VAT number. This VAT number must then be visible on all business invoices and in all corresponding documentation.
• After registration, the companies are obliged to carry out their VAT settlement on a regular basis. In Switzerland, billing usually takes place on a quarterly basis. You would therefore have to submit a detailed list of your taxable sales and the input taxes paid or deducted from them to the FTA four times a year. This is done electronically via the FTA portal.
• The correct recording and settlement of VAT is extremely important. Errors or omissions in the VAT settlement can lead to financial penalties and endanger tax compliance. Companies should therefore ensure that their accounting systems are correctly configured and that all relevant transactions are properly recorded and documented.

5. How does the input tax deduction work?

• The input tax deduction allows companies a significant financial relief. The principle is simple: Anyone who, as a company, pays VAT in the course of their business on purchases and services can claim this as input tax.
• This input tax is offset against the VAT that the company charges its customers. The difference between these amounts is the tax liability that companies pay to the Federal Tax Office. If the input tax is higher than the VAT owed, this results in a tax credit. This will then be refunded by the tax office or offset against future tax liabilities.

6. What special features and exceptions are there?

There are exceptions and special regulations in the Swiss VAT Act to relieve certain sectors of the economy or to promote social and cultural activities. For example, some goods and services are exempt from VAT. These include medical treatments that directly benefit health, educational services such as school and higher education, and cultural activities that promote art and culture.

Closing remarks

VAT is an important part of the Swiss tax system. Companies must strictly observe the VAT regulations in order to avoid legal difficulties and fully exploit the advantages of the system. Find out about the current regulations and make sure that your bills are made correctly and on time. In the event of uncertainties and doubts, advice from a tax consultant or accountant can be useful.