Several questions arise when creating or modifying a business. One of them is whether the company should account for its sales with or without VAT. This article explains
the start of VAT liability at different times.
The criteria for determining when a business is subject to VAT are set out in arts. 10 ss. of the federal law on value added tax (VAT). Detailed explanations can also be found in the VAT Info 02 of the Federal Contribution Administration. Art. 10 para. 1LTVA stipulates that any person who operates a company which provides services in Switzerland or which has its head office, domicile or permanent establishment in Switzerland is liable to tax. The legal form (sole proprietorship, joint stock company, limited liability company), the purpose of the business and the intention to make a profit are irrelevant.
Art. 10 para. 2 VAT Act provides for exempted exceptions from tax liability. These are, on the one hand, companies which do not generate taxable turnover at world level of at least
When calculating this limit, it is necessary to exclude sales which are excluded from the value added tax according to art. 21 para. 2 VAT Act (training services, health benefits). The services exempted according to art. 23 para. 2 VAT Act (exports, services abroad) must however be considered. This limit is raised to CHF 150,000. For sporting and cultural associations managed on an honorary basis and not for profit.
Foreign companies are also exempt from tax if they only provide tax-exempt services in Switzerland, if the services given is subject to the tax on acquisition, or if they supply electricity online, gas via the distribution network and district heating to taxable persons in Switzerland.
All the head offices of a company in the national territory are taxed the same way. If the company has a registered office and a branch in Switzerland, the VAT obligation applies either to both or to none. The situation is different for a foreign company. In this case, it is the regime of foreign companies which is applicable to its foreign head office. However, the national establishment is subject to the obligation if the requirements are met.
This is called the principle of Dual Entity.
When the company is founded it is particularly during the founding of a company that it is difficult to answer the question whether the above-mentioned turnover limit will be reached or not. Therefore, the law on value added tax provides for various cases in which an inspection must be carried out to see if the subject weaving is proven.
First, when starting the activity, it is necessary to check whether the expected turnover will exceed the limit of CHF 100,000. If this is not the case, the company has the obligation to carry out a new check at the latest after three months. The income generated during this period must be converted over twelve months. If this calculation exceeds the turnover exemption limit, the business must register for VAT. The company then has the choice of being subject to value added tax from the start of the activity, from the date of the new revision of turnover or from the first day of the fourth month of operation.
Be careful when starting your business.
Check regularly, at the start of the activity, whether the turnover limit will be reached or not. If in doubt, register for VAT early, otherwise, you risk incurring higher administrative costs if it is only discovered at a later date that you are liable for retroactive tax.
At the end of the first financial year, it will be necessary to carry out a new check to see if the company is subject to compulsory value added tax. In the event of a new foundation, it often happens that the first financial year does not include twelve months, so that the end of the financial year occurs at a predetermined time. In this case, a distinction should be made between a short exercise and an exercise that is too long. In the event of a shortened financial year, the turnover must be extrapolated over twelve months in a manner analogous to the control after three months of operation (art. 9 para. 3 OTVA).
If the turnover limit has been reached, the company must register on the first day of the new financial year. However, in the case of a prolonged financial year, no conversion over twelve months takes place. The administrative practice of the Federal Tax Administration requires that, in the event of a lengthy financial year, the actual turnover is offset up to the exemption limit of CHF 100 000.-.
Pay attention to social financial years
Due to the difference in the treatment of reduced and professional fiscal years along, it is possible that you are liable for tax with your company during a prolonged financial year even if you do not reach the necessary turnover limit during of a normal fiscal year. You must therefore pay attention to the period over which you set a social exercise.
For an existing business
In the case of an existing business, the analysis to determine whether a company will be subject to value added tax in the future is the same as after the first financial year. Here again, the turnover achieved is compared to the exemption limit. If the turnover achieved exceeds the exemption limit, the company must register for VAT on the first day of the new financial year. In order to avoid costly subsequent invoicing of VAT to customers, it is advisable to check whether the exemption limit has been exceeded towards the end of the fiscal year.
Foreign companies not domiciled in Switzerland
Companies that do not have a domicile in Switzerland are subject to compulsory taxation in Switzerland if they provide a service for the first time in the national territory and it can be assumed that the corresponding turnover limit will be reached within twelve months. If a company abroad already achieves a turnover of more than CHF 100 000 .-, this company is subject to compulsory taxation in Switzerland from CHF 1 .-, on the first service provided, provided that they are not services and that the services are not exempt from tax within the meaning of art. 21 para. 2 VAT Act.
If the company is not able to assess with certainty whether the turnover limit is reached when it makes its first delivery on the domestic market, it is required to carry out a new assessment after three month. To this end, the sales generated during these three months are converted to twelve months. If the turnover limit is thus reached, the company has the possibility of registering for VAT again from the date of the first provision of services or from the date of the new assessment, but at later at the beginning of the fourth month.
Global turnover to consider
Please note that you must consider worldwide turnover to determine VAT liability. It must also be considered in Swiss francs, which means that conversions from foreign currencies to Swiss francs must be made.
If the company is not yet subject to compulsory tax at the time of its audit, it must check at the end of each financial year whether the turnover limit has been reached. Here too, the principle is that, in the case of a shortened financial year, the turnover is converted over twelve months, but in the case of a too long financial year, the actual turnover is compared to the limit.
A company that is not subject to value added tax is subject to acquisition tax if it receives, during a calendar year, services, that are subject to the tax of acquisition, worth more than CHF 10 000. The services subject to acquisition tax may be services or deliveries.
For a service to be subject to acquisition tax, the following points must be cumulatively fulfilled in accordance with VAT Info 14:
- The provision of services is subject to the principle of the place of service
- The place of performance of the service is Switzerland
- The provision of services is not exempt from tax
- The service provider is a company based abroad which is not registered in the VAT register
- These are not telecommunications or electronic services intended for recipients not subject to tax
Imports of data carriers without market value are also considered to be services subject to withholding tax. These are data carriers for which it is not known at the time of importation at what price the data carrier will be acquired or whether the data carrier will be paid for in exchange for recurring charges.
These data media are equivalent to intellectual works on data media (such as plans, drawings and illustrations by architects, legal documents from lawyers, expert opinions). However, this only applies to the extent that these are independent legal transactions. If they are provided as part of other services (for example, the handover of a building), they are not independent and are treated in the same way as the main transaction.
In addition, supplies of real estate are subject to withholding tax. The exact definition of the latter is not discussed in this article, as it is a specific case.
If a person not subject to VAT receives deliveries subject to acquisition tax exceeding CHF 10,000 per calendar year, he or she must register and pay the corresponding acquisition tax. A company may decide to become subject to VAT on a voluntary basis, the acquisition tax then being able to be deducted as input tax.
You can voluntarily submit to value added tax. However, this is only possible for the current period. It is therefore appropriate to verify at the start of the year whether any expenditure liable to be subject to value added tax will be incurred during the following calendar year. If in doubt, we recommend that you submit to VAT early enough to absorb any costs.
Source : Weka newsletter no 6 on VAT, June 2021