Value added tax liability: Who has to pay the value added tax (VAT)?

In principle, everyone who carries out a commercial or professional self-employed activity is liable to pay the value added tax (VAT). Said rule applies to private individuals as well as companies. The standard tax rate is 7.7 %, with exceptions for lower rates. An input tax may be deducted from VAT.

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Who is liable to pay VAT?

The value added Tax VAT is regulated in the Federal Act on Value Added Tax (MWSTG) and the associated ordinances.

According to Art. 10 para. 1 MWSTG, anyone who "operates a business regardless of its legal form, purpose and profit motive" is liable to pay VAT. Private individuals or sole proprietorships must therefore pay VAT as well as as companies (e.g. PLC, LLC).

Because the VAT liability is independent of the legal form, even loose associations such as working groups can become liable to pay VAT if they operate a business.

A company is operated by anyone who "independently pursues a professional or commercial activity aimed at the sustained generation of income from services" (Art. 10 para. 1bis let. a MWSTG).

Operate a business

Anyone who runs a business that is intended to generate revenue by providing a service is liable to VAT. For example, a business that sells food is liable to VAT because it charges a fee for the food.

In order to be liable to VAT, it is sufficient for the business activity to be intended to generate revenue. However, it is not necessary that revenue is actually created. Even a company that is still in an early stage and does not generate any income, such as a start-up, may therefore be liable to VAT under certain circumstances.

Note: Holding, managing and selling equity securities, for example share trading, is considered an entrepreneurial activity as well.

External appearance

An additional requirement for the VAT liability is the "external appearance in one's own name" (Art. 1 Para. 1bis Bst. b MWSTG Art).

In order for the tax liability to apply, the business must therefore be recognisable as such to the general public. This is the case, for example, if a pub is operated or if a business has its own website on which it advertises the business.

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No value added tax

There are various exceptions to the VAT obligation. On the one hand, you are only liable to pay VAT on a certain turnover or a certain tax amount, on the other hand, various activities are exempt from VAT.

Exemption from VAT

Anyone who generates an annual turnover of less than CHF 100,000 in Switzerland or abroad is in principle exempt from the obligation to pay VAT. This is provided that the turnover does not stem from services that are exempt from taxation in any case.

Further, exemptions include foreign companies which provide tax-free services in Switzerland, irrespective of the turnover. Non-profit, voluntarily run sports or cultural associations are exempt from taxation if they generate an annual turnover of less than CHF 150,000. For non-profit organisations, the VAT liability therefore begins later than for profit oriented companies.

Is it possible to pay VAT voluntarily?

Yes, it is! - The MWSTG provides the possibility of waiving the exemption from tax liability. This option can be exercised, for example, if the turnover limit of CHF 100,000 is not reached. But why would one voluntarily subject oneself to the tax obligation?

This is the case, for example, if a company's customers are subject to VAT and later wish to claim an input tax deduction. Voluntary subjection to VAT can ensure that the burden of the VAT falls onto the end consumer.

The waiver also makes sense from a tax point of view if high expenses which are subject to the input tax occur in the start-up phase or if services are exempt from the VAT.

The waiver of the exemption must be applied for and must last for at least one entire tax period.

Exemptions from the obligation to pay VAT

Apart from these turnover and tax amount limits, there is an extensive list of services that are exempt from VAT. Art. 21 MWSTG lists exclusivly which services are not subject to VAT.

Examples of exemptions are the services of doctors and admission fees in zoos. No VAT has to be paid on these services, but in return no input tax deduction is possible either (Art. 29 para. 1 MWSTG).Whether a newly established business falls under an exception or exemption must be examined on a case-by-case basis.

Waiver of exemption for input tax

The reason it is possible to waive an exemption is to allow the tax payer to deduct the input tax. For this reason, the legislator has provided in Art. 22 MWSTG for the option of taxing exempt products and services. No special request has to be made to exercise this option. Rather, it is sufficient for the taxpayer to disclose the tax in its accounts.

Still got questions regarding the value added tax (VAT)? The specialists at taxea are happy to assist you with their comprehensive expertise.

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