Accounting for VAT can take many forms. Here we make the distinction between The Standard Method and the Net-Rate Tax Method.
Standard Method for VAT
Can be used by all businesses operating in Switzerland. Any business with a taxable turnover exceeding CHF 100,000 per annum is required to register for VAT (this excludes for instance educational establishments as their services are not subject to VAT).
VAT paid on goods and services bought for the legitimate use of the business is reclaimable through the quarterly tax return. VAT paid through the customs authorities on imports of goods is normally also reclaimable through the VAT form.
Net-Rate Tax Method
Can be used by businesses who have a turnover of up to CHF 5,005,000 and whose VAT that needs to be submitted does not exceed CHF 103,000.
A simplified method of accounting for VAT, and returns only need to be submitted twice a year.
Invoices are still made out with the full VAT amount (currently 7.7%, 3.7% or 2.5% depending on the nature of the item or service sold, and this is clearly stated on invoices) – check here for the current rates.
The sector of activity of the business is taken into consideration, and the VAT registered business will not submit the full VAT collected to the authorities, but submit a % of the total amount collected (including the VAT that has been applied at the proper rate, given above). The rates for the different sectors of activity can be viewed here. Each VAT registered business can apply up to 2 different rates depending on the nature of activity, if different activities are undertaken.
Whilst this method may seem to very advantageous to small businesses there are a number of pitfalls, notably:
Input VAT – i.e. VAT on items or services bought – cannot be recuperated. This would include VAT on any capital equipment (e.g. machinery, computers and cars) as well as goods for resale, including imported merchandise on which VAT is paid through the customs authorities.
Additionally, any services bought from abroad on which no Swiss VAT has been paid (e.g. webhosting, web design, etc.) will also need to have the relevant Swiss VAT applied to them and will need to be paid. For businesses that purchase services in this way and which are not registered for a VAT there is no need to self declare for the VAT to be paid if the purchases total less than CHF 10,000 per annum.
With the Net-Rate Tax Method no VAT accounting needs to be made for goods & services bought in Switzerland and this can therefore simplify the accounting procedure.
Changing between the Two Methods
Once a business registers for VAT it has 60 days after it receives its VAT number to state that it wishes to use the Net-Rate Tax Method rather than the Standard Method. Once this deadline is missed the business needs to remain on the Standard Method for at least 3 complete years.
After a business has been on the Net-Rate Method for a complete year it can choose to use the Standard Method starting in the following year, and needs to register this change within 60 days of passing into the new tax year.
A business that starts to exceed the turnover limits will also need to change system under certain conditions.