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How VAT works

Value added tax (VAT, or in Switzerland MwSt) is a general consumption tax. It is imposed exclusively by the federal government on

  • all stages of production and distribution
  • domestic service industries
  • the import of goods
  • the purchases of services provided by companies based abroad

Is your company subject to VAT?

Is your revenue from taxable services less than CHF 100,000 per year? Then your company is exempt from value added tax. In all other cases, your company is required to pay VAT, regardless of its legal form.

Companies who do not pay taxes do not benefit from the deduction of input tax. Depending on the company, it can make perfect sense to voluntarily assume the liability for VAT so that you can deduct the input tax. (e.g. a start-up company that initially has significant expenses but very little income).

Input tax

A company that adds VAT to the goods and services it sells is then entitled to a refund of the input tax it pays.

For example:

A carpenter buys wood worth CHF 100.00 (net) and pays CHF 8.00 VAT to the seller. He now produces a chair which he sells for CHF 200.00 (net) to his customers. For this, the carpenter must pay CHF 16.00 VAT. In total, the carpenter pays CHF 24.00 or 12% VAT for every product sold. The deduction of input tax comes into play to compensate for this excessive taxation. The carpenter has the right to deduct the tax he paid on the purchased materials (VAT on the wood for CHF 100.00) from the VAT which he takes from his customers.

Value added tax rates

  • Normally, 8% of revenue
  • For the hospitality industry (restaurants, hotels) the percentage is lowered to 3.8%
  • For food and non-alcoholic beverages, books, newspapers and magazines, medicine, sports and culture, the reduced rate is 2.5%

The applicable value added tax is factored into the selling price by the company and passed on to customers.

VAT – deadlines and important dates

As a rule, VAT is deducted quarterly. The declaration form must be submitted to the relevant tax authority within 60 days of the end of the reporting period. There is also a 60-day period to pay the tax owed.

All the deadlines and important dates can be found in detail on the Eidgenössischen Steuerverwaltung, (Swiss Federal Tax Administration)website.