VAT duty – Who is subject to Value Added Tax (VAT)?
Basically, everyone who performs a commercial or professional activity of independent character is subject to VAT. This is true for physical persons (e.g. sole proprietorships) as well as for legal entities (e.g. partnerships, GmbH, AG, etc.). The current standard rate of VAT in Switzerland is 7.6%, although there are reduced rates where exceptions apply.
Please note that there will be some modifications to the VAT Act coming into effect on the 1st of January 2010. The following explanations will not be up to date any more, as of next year.
However, there are many exceptions to the VAT duty. On the one hand, one is subject to VAT only over a certain turnover threshold. On the other hand, there are diverse activities which are exempted from VAT duty.
Basically, who does not generate more than CHF 75’000 of turnover is exempted from VAT duty. An additional exception applies up to an annual turnover of CHF 250’000 if the VAT amount does not exceed CHF 4’000. However, in order to determine whether the VAT amount exceeds CHF 4’000 or not, an internal VAT accounting would be necessary (particularly to calculate the input tax deduction). To simplify matters, it is possible to estimate whether the requirements for VAT duty are given or not with the so called balance tax rate method: the turnover is multiplied by a sector-specific tax rate, and the outcome must not exceed CHF 4’000.
Instance: This year, the Car Wash GmbH generates a turnover of CHF 150’000. For car washes, a balance tax rate of 3.5% applies. In this case, the outcome of the multiplication is CHF 5’250. The company is therefore subject to VAT (5’250 > 4000). However, if the company did sell bicycles instead of washing cars, the applicable rate would be 2.3%, and the outcome of the multiplication would be CHF 3’450. Thus, according to the balance tax rate method, the company would not be subject to VAT (3’450 < 4000).
In summary: Upon trespassing the turnover threshold of CHF 75’000, the VAT dutyhas to be comprehensively cleared up, at best by asking an experienced consultant.
Apart from the turnover and VAT amount thresholds, there is an extensive list of tax exemptions, such as medical services, entry tickets at zoos, services of travel agencies and aircraft leasing. It has to be checked out on an individual basis if a new business qualifies for VAT exemption.
Preferably you establish the foundation of your company with STARTUPS.CH. STARTUPS.CH will provide you with professional guidance before and after the foundation.
Here you will be able to apply for a counselling interview and to request free documentation.
