Value added tax (VAT) (German: MWST; French: taxe sur la valeur ajoutée TVA; Italian: imposta sul valore aggiunto IVA; Rhaeto-Romanic: taglia sin la plivalur TPV) is an indirect tax levied by the Confederation on the basis of Art. 130 of the Federal Constitution. As of 1 January 1995 it replaced the goods turnover tax (WUSt) levied until then. The VAT is structured as an all-phase tax with input tax deduction.
Since 1 January 2024[1] the rates are 8.1% standard rate, 2.6% reduced rate and 3.8% special rate for lodging services.
With the exception of the mail order provision (Art. 7 Para. 3 Let. b VAT Act), the partially revised Value Added Tax Act (VAT Act) and the partially revised Value Added Tax Ordinance entered into force on 1 January 2018.[2]
Value added tax is structured as an all-phase tax with input tax deduction. If a taxable person provides a service to another taxable person, the former must pay the VAT on the service; the recipient can reclaim the tax paid as input tax from the Federal Tax Administration (FTA), but must also pay tax on his services to his customer. This ensures that systematically only the added value in a value chain is subject to tax.
Domestic consumption is to be taxed. Therefore, supplies within Switzerland are taxed by the taxpayers. Deliveries from abroad are invoiced without Swiss VAT, but import tax and any customs duties and surcharges are levied at customs. The import tax can be reclaimed by taxable persons in the same way as domestic input taxes. Supplies to foreign countries are also not to be taxed. This is achieved through an exemption for deliveries or by the place of performance being abroad.
In this context, the law distinguishes between domestic tax on services provided by domestic entrepreneurs, reference tax on services provided by foreign entrepreneurs to domestic entrepreneurs, and import tax on the import of goods into the country.[3] The tax is levied on the import of goods into the country.
All supplies made by taxable persons are subject to domestic tax, unless they are expressly exempted from tax:[4]
Both legal entities and natural persons or associations of persons can be taxable persons if they operate a business and are not exempt from tax. According to Art. 10 Para. 1 VAT Act, a person operates a business if he or she independently carries out a professional or commercial activity with the aim of generating income on a sustainable basis and appears to the outside world under his or her own name. It is not necessary to also want to make a profit.
One is exempt from tax liability if one does not exceed the turnover limit of CHF 100,000; however, as an entrepreneur, one can also voluntarily subject oneself to VAT. Upon application, several companies can also be treated jointly as one taxable person ("group taxation"). Special rules apply to foreign entrepreneurs and non-profit organizations as well as sports and cultural associations.
The term domestic used in the text of the law does not correspond to the national borders of the Swiss Confederation. Article 18 of the VAT Act defines domestic. The following are considered domestic:
The law defines foreign countries as all territories that are not located within the political borders of the Swiss Confederation or for which one of the exception clauses expressly mentioned in the law applies (entrepôt, duty-free ports, treaty agreements).
According to Art. 3 VAT Act, a supply occurs when an item is sold. However, the rental of goods (e.g. a vehicle) also constitutes a supply, even if the goods are returned at the end of the rental period. Furthermore, the processing of buildings and the processing of objects (production) are treated as supplies. Processing does not necessarily require adding or adding components. Washing clothes, for example, also constitutes a supply. In addition to movable and immovable goods, refrigeration, heat, electricity, gas and the like are also considered to be goods. The term "supply" is thus defined much more broadly in the VAT Act than, for example, in the EU. This approach is partly due to historical reasons and corresponds to the practice of the former WUST (goods turnover tax).
Examples: Selling edibles, e.g., at the bakery, cleaning the car at the car wash, changing a seal on a water pipe, selling software on a floppy disk, harrowing or plowing the ground, ironing shirts, dog grooming services.
According to Art. 3 of the VAT Act, all services that do not constitute deliveries are considered to be services. Explicitly mentioned are also sales of intangible assets as well as compensation for actions or their waiver or toleration of conditions. Thus, it can be stated that everything that cannot be recorded with a delivery falls under the facts of the service.
Examples: Consumption of coffee and croissants in a café, radio/TV reception subscription, installation of software via data telecommunication, analysis work, provision of personnel, transfer of a patent for further marketing, planning services of the architect for a new building, advertisement in a magazine, mediation of a transaction between two parties, waste disposal service.
Whether a service is taxable depends on the place where the service is performed. Only domestic supplies are subject to VAT. In order to determine the taxability of a service, it is therefore necessary to examine what type of service is involved.
Art. 7 VAT Act determines the place of a supply. The place of supply is the place where:
This means that the rental of a car is taxable where the delivery of the car takes place. Similarly, supplies of construction work are taxable where the construction work is located. Thus, if a Swiss construction company builds a house in Vorarlberg for a Swiss customer, this turnover is not subject to Swiss VAT.
Art. 8 para. 1 VAT Act determines the place of a service. Unless the law provides for an exception, the place of residence or place of business of the recipient is deemed to be the place where the service is provided.
Art. 8 para. 2 VAT Act determines a different place of performance for the following services:
Thus, if a marketing company provides advertising services for a German customer in Switzerland, the place of performance is deemed to be abroad, which means that the advertising service is invoiced without Swiss VAT.
If a Swiss customer purchases a service from abroad (for example, software from a German server) or a supply that is not subject to import tax (for example, foreign personnel for work on the customer's own machines), this service does not physically cross the border. In order not to disadvantage domestic service providers, it must be ensured that the foreign service is also subject to tax. This is done in such a way that the domestic recipient of a service settles the purchase with the FTA (reverse charge procedure). Therefore, taxable persons must account for all purchases of affected services from abroad with the FTA (purchase tax), but may claim the input tax deduction. Non-taxable persons (for example private individuals) must report to the FTA if their purchases of such services exceed CHF 10,000 per year. The tax administration will then send them a corresponding invoice (ruling). However, this procedure only leads to a limited tax liability for these persons (without the right to deduct input tax).
Imports of goods into Switzerland are also subject to VAT by customs. The taxable amount is normally the consideration for the goods, otherwise the market value (Art. 54 para. 1 VAT Act).
In general, all postal consignments that have not been dispatched from the Swiss customs territory are also subject to tax. For reasons of administrative economy, tax amounts up to 5 Swiss francs are not levied. This tax amount corresponds to an assessment basis of 62 Swiss francs at the VAT rate of 8.1% or 192 Swiss francs at the VAT rate of 2.6%. An exception to this rule is made for the importing of consignments marked as gifts, for which a limit of 100 francs in the value of the goods applies.[5]
The rates of value added tax are laid down in Art. 130 of the Federal Constitution. There, the Confederation is granted the right to levy value-added tax on supplies of goods and services, including own consumption, and on imports at a standard rate of no more than 6.5 percent and at a reduced rate of no less than 2.0 percent.
Based on Art. 196 No. 3 Sentence 2 Letter e of the Federal Constitution, the Confederation is permitted to levy a further 0.1 percentage points for the financing of large-scale railroad projects.[6] The Confederation was also authorized, in the form of a federal law, to increase the standard rate by a maximum of one percentage point and the reduced rate by 0.3 percentage points for the financing of the development of the old-age structure for the AHV/IV [de].
Based on the defined basic features for the design of the Federal Law on Value Added Tax in the Federal Constitution, the standard rate (7.7%) was composed as follows:
Until the end of 2017, additional VAT financing of the IV by 0.4 VAT percentage points applied and from 1 January 2018 VAT rates increased by 0.1 percentage points due to the financing of the railroad infrastructure expansion FABI. From then, the normal rate of 7.7%, the reduced rate of 2.5%, and the special rate of 3.7% applied.[7]
The reduced rate (2.5%), which was levied on supplies and own consumption of some everyday or agricultural goods (conclusively regulated in Art. 25, para. 2 VAT Act), is composed as follows:
The following goods and services are taxed at the reduced rate (selection):[8]
A reduced rate can be levied by the federal government for accommodation services provided by the Swiss hotel industry. This amounted to 3.7 percent. The law defines an accommodation service as the provision of accommodation including breakfast, even if this is charged separately.
On 1 January 2024 VAT rates increased.
Date[9] | Mutation | Normal rate | Reduced rate | Special rate for accommodation services |
---|---|---|---|---|
01.01.1995 | Introduction of value added tax | 6,5 % (+6,5 %) | 2,0 % (+2,0 %) | – |
01.10.1996 | Introduction of the special rate for accommodation services | 6,5 % (+0,0 %) | 2,0 % (+0,0 %) | 3,0 % (+3,0 %) |
01.01.1999 | Increase in favour of AHV and IV [de] | 7,5 % (+1,0 %) | 2,3 % (+0,3 %) | 3,5 % (+0,5 %) |
01.01.2001 | Increase for the financing of large-scale railroad projects (FinöV) | 7,6 % (+0,1 %) | 2,4 % (+0,1 %) | 3,6 % (+0,1 %) |
01.01.2011 | Increase for the reorganization of the IV (limited until 31 December 2017). | 8,0 % (+0,4 %) | 2,5 % (+0,1 %) | 3,8 % (+0,2 %) |
01.01.2018 | Increase for FABI, decrease due to expiry of increase in 2011 | 7,7 % (−0,3 %) | 2,5 % (±0,0 %) | 3,7 % (−0,1 %) |
01.01.2024 | Increase in favour of AHV[10] | 8,1 % (+0,4 %) | 2,6 % (+0,1 %) | 3,8 % (+0,1 %) |
01.01.2030 | Expiring FABI supplementary funding | 8,0 % (−0,1 %) | 2,5 % (−0,1 %) | 3,7 % (−0,1 %) |
Companies that become liable for domestic tax must register with the Federal Tax Administration in Bern within 30 days without being asked to do so (Art. 66 para. 1 VAT Act). If they do not already have one, they receive their own Enterprise Identification Number (UID) and are registered as taxable persons. The UID replaces the previous VAT number, which could continue to be used until the end of 2013.[11]
According to Art. 21 VAT Act, the activities of board members, etc. are to be considered as dependent gainful activity and are therefore not subject to VAT. Art. 25 VAT Act lists further subjective exemptions from the tax obligation. These are farmers, foresters and gardeners for the sale of their own primary products (without purchasing third-party products), livestock traders and milk collection centres.
Deliveries (and in some cases directly related services) to foreign countries are not subject to tax, but entitle to input tax deduction. These are therefore genuinely tax-exempt transactions. The tax-exempt transactions are listed exhaustively in Art. 23 VAT Act. Exempt from tax are:
Further provisions in Art. 19:
In order to maintain competitive neutrality, the Federal Council may exempt carriage in international air and rail transport. It has made use of this in the Ordinance, in that in international air transport the entire route is abroad if the airport of departure or arrival is abroad. Direct export under paragraph 2(1) occurs when the subject matter of the supply is transported or dispatched abroad either by the taxable person himself or by his non-taxable customer, without the latter having previously put the subject matter into use within the country or having handed it over to a third party within the country as part of a supply transaction. The subject matter of the supply may have been worked on or processed by agents of the non-taxable recipient prior to export.
Anyone who makes taxable or tax-exempt sales is entitled to reclaim the input tax incurred on these expenses from the FTA (Art. 38 VAT Act).
In addition to this material requirement, the formal provisions according to Art. 37 VAT Act must also be fulfilled. Thus, input taxes may only be reclaimed if the receipts contain the following information:
If the remuneration includes the tax, it is sufficient to indicate the tax rate.
While the FTA initially reviewed the aforementioned requirements in a very formalistic manner, the situation has since been alleviated. In particular, for the address of the recipient, all common and usual (if applicable) company names are now accepted (Art. 15a VAT Act). Nevertheless, the service recipient is well advised to insist on formally correct receipts in order to avoid unpleasant offsets. If a receipt subsequently turns out not to be VAT-compliant, this can be partially corrected with form 1550 - available on the Internet at www.estv.admin.ch.
If items that were originally purchased for taxable or tax-exempt transactions are now used for other purposes or withdrawn, the input tax must be corrected again in accordance with Art. 31 VAT Act. This is done by means of a declaration of own consumption.
A classic example of own consumption is the private use of business vehicles. Here, according to the practice of the FTA, 9.6% (12 × 0.8% per month) of the purchase price of a vehicle is accounted for as own consumption. For a vehicle with a purchase price of CHF 50,000 (excluding VAT), the own consumption amounts to CHF 4,800 per year. The tax (8.00%) amounts to CHF 384.
The free gift of goods also triggers the own consumption tax. Excepted are, on the one hand, gifts of up to CHF 500 per year and recipient and, on the other hand, samples of goods.
VAT is collected at the border by the Federal Customs Administration and domestically by the Federal Tax Administration.
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On 1 January 1995 the goods turnover tax was replaced by the value added tax in Switzerland. At that time, the reduced rate was 2% and the special rate 3%. The standard rate was 6.2%, which was increased to 6.5% by federal decree in order to restore the health of the federal finances.
Based on the Federal Decree of 20 March 1998 on the increase of VAT rates for AHV/IV [de] and the Ordinance of 23 December 1999 on the increase of VAT rates for the financing of large-scale railroad projects, the tax rates were increased in order to secure the financing of NEAT and the future costs for AHV/IV.
Based on Art. 130 of the Swiss Federal Constitution, the Federal Council may increase the rates by a maximum of 1% to 7.5% if necessary. It has exercised this right with effect from 1 January 2001. Added to this is 0.1% for the financing of major rail projects, making a VAT rate of 7.6%.
The Federal Law of 2 September 1999 on Value Added Tax (Value Added Tax Act, VAT Act) entered into force on 1 December 2001, after the expiry of the referendum period, and replaced the previous Federal Council ordinance.
On 28 November 2004 the Swiss electorate voted 73.8% in favour of the federal resolution on a new financial order, which also included an amendment to the Federal Constitution. On the one hand, various detailed provisions on VAT were removed from the Federal Constitution,[13] and on the other hand, the old version of Art. 196 allowed the levying of a federal tax only until 2006. The result of the adopted reorganization was thus a "de-cluttering" of the BV and a further temporary grant of authority to levy VAT and direct federal taxes now until 2020.[14]
The Confederation levied direct taxes for the first time in 1916, and only for two years - because of the First World War. But over time, these exceptional taxes became more and more frequent. In 1958, they were enshrined in the Federal Constitution, but for a limited time. The vote of 4 March 2018[15] was about the ninth extension,[16] which was accepted by the people and the cantons.
In Switzerland, 26 different exemptions have been introduced since the introduction of VAT in 1995. Federal Councilor Kaspar Villiger already complained about the ever-increasing number of exemptions.
His successor, Swiss Finance Minister Federal Councilor Hans-Rudolf Merz, went further and launched the idea of a simplified VAT in 2003. In the spirit of a "flat tax" he proposed that in the future there should be no exceptions in Switzerland and that the current VAT rate of 2.5% on everyday goods, 3.7% on accommodation services and the 7.7% on all other services should be set at a uniform rate in the range of 5% to 6%. The Federal Department of Finance formulates the characteristics of an "ideal VAT" as follows:
Liberal advocates of a unified value-added tax argue that this would free companies from costly and cumbersome accrual and accounting problems. At the same time, the tax system would be simplified. In the political debate, however, this proposal seems to have little chance of being realized. Among other things, the standard rate of 5 to 6% would lead to an increase in the price of basic foodstuffs (currently taxed at 2.5%), which would primarily affect the poorer sections of the population.
In mid-February 2006, the Federal Council decided that the Value Added Tax Act should undergo a total revision. As an interim solution, Art. 45a VAT Act was introduced as of 1 July 2006. This is intended to ensure that the administration no longer confronts VAT payers with unobjective additional claims merely for formal reasons. However, how this "pragmatism article" is to be implemented was still completely unknown.[17]
In mid-February 2007, the Federal Council published the details and sent them out for consultation:[18][19]
At the end of June 2008, the Federal Council proposed a flat rate of 6.1 percent.[20]
On 17 December 2021 the Federal Council and the Council of States approved the indefinite proportional increase of the value-added tax by 0.4 percentage points in favour of the AHV as part of the reform of the old-age and survivors' insurance (AHV) "Stabilization of the AHV (AHV 21)."[21][22][23] The deadline for a referendum is 22 April 2022, after which a vote by the Swiss people must be held within one year, so that the increase in VAT rates can be implemented in 2023 at the earliest.[24] The Federal Council and the Council of States approved the indefinite proportional increase of the value-added tax by 0.4 percentage points in favour of the AHV.
Main article: Federal vote on the temporary supplementary financing of disability insurance |
On 27 September 2009 the Swiss people approved a temporary increase in the value-added tax from 2011 to 2017 to provide additional funding for disability insurance. The standard rate is thus 8% during this period, the reduced rate 2.5% and the special rate for accommodation services 3.8%.[25][26]
Main article: Federal popular initiative "Energy tax instead of value-added tax" |
In June 2011, the Green Liberal Party launched a popular initiative to abolish the value-added tax (energy tax instead of value-added tax).[27] According to the text of the initiative, this should be replaced by an energy tax on non-renewable energy sources. The tax should be 'assessed per kilowatt-hour of primary energy', whereby different tax rates can be set for the individual energy sources according to their overall ecological balance. A number of other optional provisions in the initiative text leave room for the legislator to design the tax: There can be exceptions to full taxation, and embodied energy can also be taxed additively to avoid distortions of competition. A rebate is planned for exports. With regard to the level of the energy tax, after a start at the level of the previous value-added tax, a fixed link to the gross domestic product is planned so that the state quota does not fluctuate unpredictably; the tax is thus to be neutral in terms of the state quota. Up to about 20 percent of the proceeds will be used to benefit old-age pensions and to subsidize health insurance premiums for lower-income earners.[28][27]
Thus, not the work and the added value, but the energy should be taxed. In addition to the main goal of an energy turnaround towards renewable energies, high administrative costs for the federal government (approx. CHF 200 million annually) and high administrative costs for the more than 300,000 SMEs (approx. CHF 1.3 billion annually) could be saved with this request.[29] The intention of the initiators was to make the energy tax, which was justified by the nuclear phase-out after Fukushima and the need for climate policy action, fiscally neutral, i.e. not to additionally burden the citizens; the goal was a 'cost-neutral nuclear phase-out'.[27] The Green Liberals intended to 'additionally exempt consumers and companies from value-added tax' with an economy-friendly steering system.[30] The Green Liberals wanted the tax to be 'neutral'.
After the initiative was submitted on time in 2012, the Federal Council and the Council of States basically supported its thrust in terms of climate and energy policy: However, very high energy taxes would be necessary to finance public budgets - estimated at over 20 billion Swiss francs, about 3 Swiss francs per liter of gasoline - and they would far exceed what can be justified in terms of energy and climate policy. In addition, the tax substrate would be smaller, unlike with the value-added tax, because the energy tax would have a steering effect; the tax would then have to increase. The complete abolition of the VAT would be wrong. The very high energy tax would also have negative distributional effects, since households with lower incomes would be disproportionately burdened. In the Council of States, the position of the initiative was represented by Markus Stadler (GLP/UR), but after the rejection of a counter-proposal by a commission minority led by Luc Recordon (Green/VD) with an incentive tax and reimbursement of the proceeds to the population (29 to 12 votes), the Council of States in June (34 : 3) and the National Council of Switzerland (171 : 27) in September 2014 also decided to recommend that the people reject the popular initiative. The counter-proposal with energy steering taxes was rejected in the National Council by 110 votes to 79. The Federal Council wants to replace the current support system for the energy transition from 2021, admittedly, also by a "climate and energy steering system", a consultation draft without abolition of VAT will be available in 2015.[31]
An abolition of the value-added tax has been proposed by the Fribourg economists Reiner Eichenberger and Mark Schelker (published, among others, in Weltwoche 7/04.[32]).
They list the following five main advantages: