Swiss Value Added Tax and VAT billing

Value Added Tax (VAT) in Switzerland

Swiss Value Added Tax is an indirect tax levied by the federal government. Why does Switzerland need a value added tax? The basic concept is simple: It ensures that each consumer supports the government financially. To simplify matters by not having each consumer report taxes owed on his/her consumption individually, companies have to pay this tax. They pass it on to consumers in the form of value added tax that is included in the purchase price. What exactly is the tax base? According to the Swiss Federal Tax Administration (ESTV, Swiss Internal Revenue Service) «The tax targets all goods and services provided in Switzerland for compensation and that are not subject to a statutory exbillinemption.»

How high are the applicable VAT rates?

The regular VAT rate is 7.7% of the sales amount. It applies to most goods and services. A reduced tax rate of 2.5% applies to goods needed daily, such as food, newspapers or medications. A special rate of 3.7% is charged for hotel accommodations.

VAT billing with advance tax? An explanation of advance tax and how to calculate it

The best way to explain what the advance tax is and how to compute it, is by using an example: A carpenter purchases CHF 100 worth of timber and pays the owner of the forest CHF 108 (VAT: CHF8). He later uses the timber to complete a customer order, for which he bills the customer CHF 216 (VAT: CHF 16). To compensate for the accumulated tax, i.e. the excessive tax paid, he is authorized to deduct advance tax from the amount owed to the Swiss Internal Revenue Service (ESTV), which is equivalent to the VAT he paid when purchasing the wood (CHF 8). Hence, the carpenter pays «only» CHF 8 or 4% value added tax for the order in this example.

Tip: Generate your VAT statement easily and quickly with the accounting software bexio. The form in the software is automatically displayed in a manner that corresponds to the accounting form of the Federal Tax Administration (FTA).

VAT reporting: effective or balance tax rate?

All companies that are required to pay value added tax, have to report their VAT. However, they also have to choose the method they will use – based on agreed upon or collected compensation.

• Agreed-upon compensation: Reporting based on agreed-upon compensation is the standard procedure of the Swiss Internal Revenue Service (ESTV). If this reporting method is used, the value added tax is due for payment upon issuance of the invoice. This implies that companies have to pre-finance the VAT if their customers do, for instance, not pay the invoice until the next billing period.
• Collected compensation: If a company reports the VAT based on collected compensation, the value added tax does not become due for payment until payment from the customer is received.

Moreover, companies have to choose one of two VAT reporting methods: The effective method or balance tax rate based reporting. The bookkeeping requirements change depending on the method they choose. What are the differences?

Detailed information on the balance tax rate method

For companies filing their VAT reports on the basis of balance tax rates (SSS) the tax owed is determined as follows: The total sales (which include the value added tax billed to customers) are multiplied by the balance tax rate (ref. Art. 37 MWSTG). This reduced VAT rate has to be approved by the Swiss Internal Revenue Service (ESTV) and depends on the company’s sector. The advantage of this VAT reporting method is obvious: A lump sum advance tax amount is included and does not have to be reported separately.

Ob ein Unternehmen mit Hilfe von Saldosteuersätzen abrechnen kann, hängt vom steuerbaren Jahresumsatz ab und ist zudem an eine maximale jährliche Steuerschuld gebunden. Darüber hinaus muss die offizielle Abrechnung mit Saldosteuersätzen der Eidgenössischen Steuerverwaltung (ESTV) mitgeteilt werden.