Entrepreneurs have to pay the value added tax (VAT) invoiced to its customers. This is how it’s done.
Value Added Tax (VAT) is a general tax on consumption paid by the end consumer. Consumers pay VAT via the purchase of goods (clothes, cars, food, etc.) and services (hairdresser, travel, eating out, etc.). It is collected exclusively by the Confederation and is used to cover the State’s general expenditures. A company must include value added tax in the price of the services supplied and the products sold in the country, and pay it to the Confederation. In return, it can deduct from this amount the input tax paid in connection with its business.
This refers in particular to:
- the domestic tax issued in the invoice (at all stages of production/distribution and on service-provider companies in Switzerland);
- the purchase tax declared by the company (services supplied by businesses with their registered office abroad);
- import tax (on importation of items).
The following VAT rates are applied (status as of 1.1.2018):
- in normal cases – 7.7% of turnover;
- for the hotel and serviced accommodation sector (special rate for accommodation services, including breakfast) – 3.7%;
- food and non-alcoholic drinks, books, newspapers and magazines, medicines and access to sports and cultural events benefit from a reduced rate of 2.5% (ordinary consumer goods).
Deduction of input tax
For goods and services which go directly to the consumer, value added tax must be mentioned but must above all be included in the final price. The same does not apply for business relations: companies usually work with net prices, to which value added tax is added.
In this context, the principle of deducting input tax plays a major role: as, during their processing from raw material into finished product, goods pass through several stages where value added is taxed each time, at each stage; the creator of value can deduct the amount of value added tax already paid at the previous stage.
In practice, the following happens: once a quarter (or every month, where applicable), the Federal Tax Administration (FTA) receives an “auto-taxation” document produced by the taxpayer, which shows the total value added tax owed. All amounts of input tax paid – whether by the supplier to the FTA or, for imports, to the Federal Customs Administration (FCA) – can be deducted from this gross value added tax total. The gross margin is thus subject to the tax levied on the transactions completed on Swiss territory (Swiss VAT).
The input tax deduction is distributed as follows:
- principle (where can input tax be deducted?);
- exclusion of right to deduct input tax (e.g. in the case of turnover excluded from the scope of the tax, if the taxpayer has not opted for their taxation);
- double allocation (goods and services are combined, that is, they are used for entrepreneurial and non-entrepreneurial activities – input tax must be adjusted);
- services to self or subsequent relief of input tax (input tax must be adjusted);
- deduction of input tax (in particular in the case of receipt of subsidies).
The UID as VAT number
The old six-digit VAT number was replaced on 01.01.2014. Now only the Unique Enterprise Identification Number (UID) can be validly used as a VAT number.
In accordance with Article 26 (2)(a) of the Law on VAT (LTVA), companies subject to VAT are required to mention on their invoices the number under which they are registered in the register of parties liable to VAT. With the UID, the addition of “VAT” must appear after the number.
The format of the VAT number to be mentioned on invoices therefore appears as follows:
Defining companies’ specific needs
Business owners and their family sometimes use the products and services (cheaper for them) of their own company (only possible for private companies). They thus become the “end consumers” of their own clothing, computers, jewelry, health products, food, etc. and cannot therefore deduct input tax for this part of their product offer.
Here, allocation is not always easy. The same applies then to benefits in kind for the owner of a grocery store or personal use of a company car. For this reason, value added tax (on the federal direct tax form) provides for fixed deductions for business owners, their family and their employees.
In some cases, such benefits in kind are exempt from VAT and deducted from input tax as personal consumption (input tax adjustment) or service (declaration as turnover and to be taxed at a reduced and/or normal rate).
Anyone benefiting from public assistance in the form of subsidies, incentives, etc., must also proceed with a reduction of the input tax deduction proportionately, given that, otherwise, unjustified double tax relief would be seen.