What's Up, Blog?.
How to Freelance in Switzerland: VAT Registration
“Death, taxes and childbirth!
There’s never any convenient time for any of them.”
Many of us can relate to this line from Margaret Mitchell’s Gone With the Wind.
Because let’s be honest: Any kind of tax filing tends to be pretty high on the procrastination list, right?
But convenient timing or not, new companies under Swiss law that are expected to generate over CHF 100’000 in revenue (or CHf 150’000 for non-profit associations and sport organisations) in Switzerland are subject to value added taxes and must register with the Swiss Federal Tax Administration and file regular VAT returns.
But worry not, the Swiss tax authorities have gotten on the online bandwagon a while ago so you can do all of your registering and filing online, if you so choose. (In one of the three official Swiss languages, ‘course.)
All things considered, it’s really no big deal.
So let’s saddle up and ride this VAT tax thing into the sunset!
Value Added Tax: Requirements & Registration Process
Swiss VAT: What is it?
The Swiss VAT is based on the idea that any person who consumes something has to make a financial contribution to the state. But as it would be way too complicated to tax each citizen individually for each consumption, the tax is levied on companies who must pass on the VAT to consumers by including the tax into the sale price of their product or service.
Anyone who is liable to tax and who in turn uses a service from another company for their own taxable service is entitled to offset the so-called input tax, which is the VAT invoiced by the other service provider, against the VAT they charged when they report the VAT to the Federal Tax Administration (FTA).
In practice this means, if you are a company that makes and sells handbags, for example, and you sell a bag for CHF 100 you have to charge 8% VAT, so your customer pays you CHF 108.- At the end of the reporting period (see Filing Methods & Deadline below) you would have to report and pay the CHF 8 to the FTA.
However, let’s say that when you bought the materials for the bag, the canvas cost you CHF 20 plus 8% VAT in the amount of CHF 1.60.- In this example you will end up paying the FTA only CHF 6.40 as you deducted the input tax (CHF 1.60) from the VAT you charge your customer (CHF 8).
Today, VAT is the most important source of income for the federal government. In fact, the revenue from VAT makes up about a third of the annual federal income, at roughly CHF 62 million per day and an annual total of ca CHF 22.454 billion (figures from 2015).
Because Switzerland is not part of the European Union, it can set its own VAT rates without being compelled to follow the EU guidance on rates (a standard rate of 15% or above).
At a standard rate of currently 8%, Switzerland is renowned for having the second lowest VAT rate in Europe.
Andorra has the lowest, at 4.5% in case you were wondering.
Additionally, certain supplies and services such as food, medicine, newspapers and books benefit from VAT reduced rates while public health, education and social services are completely exempt from VAT altogether.
- 8% is the standard rate that applies to most goods and services.
- 2.5% is a reduced rate that applies to certain everyday consumer goods such as food, non-alcoholic beverages, books, newspapers, magazines, medication, tickets for sports and cultural events.
- 3.8% is a special rate that applies for hotel accommodations (incl. breakfast)
Note that the VAT rates may change as of 1 January 2018 and check in on the SSBB blog to find out if they do.
Filing Methods & Deadlines
Before you register for VAT you must decide which filing method you want to use. The Swiss system offers two reporting possibilities
A. The Effective Filing Method
With this method you declare the turnover and offset it with the incurred input tax during that period.
A report has to be filed every quarter (3 months) and within 60 days after the quarter ended.
The VAT tax owed is payable within the the same 60 days after the quarter ended.
Deadline for report of Q1 (January-March) of Business Year: End of May
Deadline for report of Q2 (April-June) of Business Year: End of August
Deadline for report of Q3 (July-Sept) of Business Year: End of November
Deadline for report of Q4 (October-December) of Business Year: End of following February
This method is used by ca 245’000 taxpaying businesses in Switzerland
B. Net Tax Flate-Rate Filing Method
With this method you declare your turnover and multiply it by the net flat-tax rate approved by the Federal Tax Administration (FTA) for your industry.
There are currently 10 different rates that vary greatly between 0.1% and 6.7%. In this way, input tax is deducted at a flat rate and does not have to be calculated.
This report has to be filed every six months and within 60 days after the term ended.
The VAT tax owed is payable within the the same 60 days after the term ended.
Deadline for report of T1 (January-June) of Business Year: End of August
Deadline for report of T2 (July-December) of Business Year: End of following February
To be eligible to file with the net flat-tax rate method your business has to meet the following two criteria:
- The taxable annual turnover (including tax) may not exceed CHF 5.02 million.
- The tax due must not exceed CHF 109,000 per year. It is determined by multiplying the total taxable turnover by the flat tax rate applicable of the respective industry.
Any company wanting to report their VAT with the net flat-rate tax rates must inform the FTA in writing.
This method is used by ca 113’000 taxpaying businesses in Switzerland
Step 1: Getting Your Business Identification Number (BID)
Before you can register your company with the Swiss Federal Tax Administration, it needs to be registered in the commercial registry.
Once entered into the Swiss Business Index, the company will be assigned a Swiss Business Identification Number or BID, that looks something like this CHE-123.456.789. The BID is also called Unternehmens-Identifikationsnummer (UID) in German/ Numéro d’identification des entreprises (IDE) in French / Numero d’identificazione delle imprese (IDI) in Italian.
This Business Identification number will also act as your VAT number with the respective add-on after the final digits:
MWST for German
TVA for French
IVA for Italian
Hence the VAT number for your business will look like one of the following
CHE-123.456.789 MWST / CHE-123.456.789 TVA or CHE-123.456.789 IVA
Step 2: Registering with the Federal Tax Administration
To register your business with the FTA online, fill in their online questionnaire in German, French or Italian.
You’ll be guided through the registration process via a few windows. Apart from the BID number Sole Proprietorships and partnerships will also need to have the follow information at hand:
- Your Swiss social security number (AHV / AVS )
- An estimate of your business revenue in the first year
Alternatively, if you founded your business with the official platform from the Swiss Government Startbiz.ch you can register your VAT directly in that tool as well. Note that the registration has to be made in one of three official languages.
And there you have it, the Swiss VAT process and registration in a nutshell. Stay tuned for the next instalment in the Freelance in Switzerland series, when we check out the Swiss Social Security system.
Until then, keep on trucking
5 Steps to Freelance in Switzerland
Prep: Work permit requirements
Step 1: Name your business
Step 2: Plan your business
………. ➊ Commercial registry
………. ➋ VAT requirements
………. ➌ Social insurance
………. ➍ Launch budget
………. ➎ Market research
………. ➏ Domicile & infrastructure
Step 3: Incorporate and register
Step 4: Kick off
Step 5: Keep rocking
I am a multilingual business executive, communications professional and writer with 20+ years of experience in operations and project management in various roles and industries.
Through the SSBB workshops and blog I help expat entrepreneurs plan, start, register and run their (small) business in the Switzerland.