The collection of value added tax

Value added tax is the most important source of revenue for the federal government. The value added tax (VAT) is placed on private individuals and is an exclusive federal tax. The appropriate tax rate depends on the object to be taxed. Since 2018, the following has been applicable: a standard rate of 7.7%, a reduced rate of 2.5% for tap water, food or medicines, and a special rate of 3.7% for accommodations. If you have any questions regarding the levying of VAT, please contact one of our tax lawyers.

TAX OBJECT

VAT is structured as a net ‘all-phase’ tax and hence, it is levied at all stages of the value chain, with input charges being credited (input tax deduction). Accordingly, at every stage, tax is paid on the previous service in the value chain. Which flows of funds are exempt from VAT is listed in Art. 18 of the VAT Act. Subsidies, donations or dividends are not considered as remuneration in the absence of a performed service and are therefore not subject to VAT. Art. 21 does exempt certain services from tax, such as hospital treatment or specific cultural services. Finally, according to the destination principle, services that are intended for export are also excluded from VAT obligation. In this way, an exemption to tax liability can also be waived.

TAX SUBJECT

VAT can be divided into three forms of (sub)taxes. Firstly, there is the domestic tax, which relates to the operation of a business. It is irrelevant within which legal form the company exists, what purpose is pursued or whether the company makes a profit. The only decisive factor is the external appearance of the company. Secondly, there is the purchase tax. This is mainly levied on services provided by companies based abroad, which are not taxable in Switzerland, but their place of performance is in Switzerland. And thirdly, there is the import tax, which establishes a subjective duty payment obligation for the import of goods.

EXEMPTION FROM TAX LIABILITY

The subjective tax liability is not linked to a turnover limit, but an automatic exemption if the turnover falls below certain values. Thus, an entity which generates less than CHF 100,000 in sales worldwide annually is exempt from tax liability. The tax exemption can also be waived in order to use the input tax deduction.

Value added tax provides some lenience for companies precisely because of the possibility of voluntary taxation or the taxation of services or companies. In the case of ambiguity, our lawyers in tax law will help you.