Value added tax (VAT) is a general consumer tax. It is applied to all stages of production and distribution as well as to the import of goods. It is also charged on the services provided by the domestic services sector and must be paid by those obtaining services from companies based abroad. The bodies responsible for collecting the tax on domestic sales in Switzerland and Liechtenstein and on services obtained from companies based abroad are the Swiss Federal Tax Administration and the Liechtenstein tax authority respectively. As far as imported goods are concerned, responsibility lies with the Swiss Federal Customs Administration.
Value added tax in Switzerland is based on the federal law on value added tax of 2nd September 1999 (SR 641.20). Within the European Union, the Sixth VAT Directive (77/388/EEC) applies in this area, subject to the amendments and simplifications listed below. Swiss VAT law reflects the main features of the corresponding EU regulations.
Self-employed suppliers are subject to the tax when their annual domestic (within Switzerland and Liechtenstein) turnover relating to taxable services exceeds CHF 100’000. For non-profit, volunteer-run sports clubs and charitable institutions, the threshold is based on an annual turnover of CHF 150,000.
VAT is paid based on gross income. However, the tax charged on any purchased objects or services can be deducted. This “input tax deduction” avoids any inappropriate accumulation of taxes (whereby both purchases and sales are taxed). In the case of imported objects, tax is charged on their value up to the time when they reach their Swiss destination. There are tax-free allowances for those engaged in cross-border travel. More details are available from the Swiss Federal Tax Administration (www.ezv.admin.ch). For services obtained from a provider based abroad, the domestic recipient must pay tax on the service received. Where this party would not otherwise be liable based on their domestic turnover, they will become liable for tax on this type of service if the annual value of the services exceeds CHF 10,000.
The new VAT Law (MWSTG) went into force on 1 January 2010 together with the related Implementation Ordinance. The most important aim of the total revision of the Federal Law concerning value added tax is to make the legal regulations easier and more user-friendly. More than 50 measures aim at relieving the administrative burden of companies and cutting the costs of levying the tax. A new tax form will also be introduced as of 1st January 2010.
The VAT rates in Switzerland have been as follows since 1 January 2011:
Normal rate: 8%
Reduced rate: 2.5%
Special accommodation rate: 3.8%.
The normal rates in the EU vary between 15 and 27 percent. The reduced rates can drop to 2.1 percent.
A whole range of benefits are exempt from VAT. These include health care, social welfare, education, culture, the transfer of currency and capital (asset administration and collection business are, however, taxable), insurance, residential letting and the sale of property. Anyone providing such benefits, however, has no right to an input tax deduction (a “non-genuine” tax exemption,) even if they are liable for tax on the basis of other taxable turnover. It is possible, subject to certain conditions, to choose to have exempted turnover taxed.
Goods supplied abroad are also essentially taxable. The same applies to services provided abroad. However, such services are later exempted from tax once the required evidence has been provided. In such cases (unlike the provider of services not subject to tax), the provider of the benefit who is liable for tax may claim an input tax deduction (“genuine” tax exemption).