Pretax and Deduction Types of the Value Added Tax (VAT)
In order for a business to be able to deduct its input tax it must be entered into the VAT register (MWST-Register).
The individual with the VAT duty may bring the pretax into the deduction when he or she has proven that the pretax has been paid. It is advisable to submit this proof with the original invoice. In the case that this document is not available, alternative proof may be submitted at the taxpayer’s choosing.
Two varieties of VAT deductions exist; however, there are no obvious pros and cons in choosing one variety over the other. Choosing the preferred method mainly depends on the type and size of the business.
Through agreed upon fee:
The services will be taxed following an agreed upon fee for the time of the issuance of the invoice. Deductions following agreed upon fees are prescribed by the law. The disadvantage of this method is that the tax is already owed in the period of time of the issuance of the invoice, even though the payment will only be made to the taxpayer later on.
Through collected fee:
This kind of deduction must first be approved by the Swiss Federal Tax Authority (ESTV). The prerequisites for approval are that there are no accounts receivables and that only payment vouchers are recorded. The services are taxed in the period in which payment is received. Since not having accounts receivables is among the requirements for this method, it really only makes sense for very small businesses.
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