VAT liability in Switzerland: the CHF 100,000 threshold

A freelance consultant in Basel invoices CHF 62,000 in the first half-year, then CHF 48,000 between July and September. At 30 September, his last 12 months total CHF 110,000. He plans to deal with VAT at the end of the year. The tax administration, however, considers that liability has already arisen, and that VAT is due on the invoices issued since the threshold was crossed.

The rule is set out in art. 10 of the Federal Act on Value Added Tax (LTVA). An undertaking is liable if it achieves taxable turnover of more than CHF 100,000 per year in Switzerland. It applies to self-employed persons, partnerships, public limited companies (SA) and limited liability companies (Sàrl), as well as to foreign companies carrying on an activity in Switzerland.

A point that many managers overlook: the scope differs depending on the origin of the undertaking. A Swiss undertaking adds up all of its taxable supplies, including those made abroad. An undertaking with no registered office in Switzerland counts only the supplies made on Swiss territory, and is subject to a separate regime, described below.

The threshold applies to taxable turnover, that is, to supplies subject to VAT, excluding tax. The calculation includes supplies made to customers in Switzerland and supplies made abroad (exports, services to foreign customers). The latter are exempt with the right to deduct input tax, and they do count towards the threshold.

By contrast, supplies excluded from the scope of the tax or exempt without the right to deduct input tax (art. 21 LTVA) are left out of the calculation. These include certain medical care, educational services, most insurance services and banking and credit transactions. A practice that provides only such services is not liable, whatever its volume of business.

The calculation is retrospective. Under art. 10 para. 2 LTVA, liability arises as soon as taxable turnover over the last 12 months exceeds CHF 100,000, or as soon as it is foreseeable that the threshold will be crossed within the next 12 months. For a new activity, the calculation is based on the turnover expected over the first 12 months (see the Federal Tax Administration page, https://www.estv.admin.ch/fr).

Under art. 10 LTVA, an undertaking with its registered office in Switzerland is liable to VAT when its taxable turnover exceeds CHF 100,000 per year, supplies made abroad included.

Three situations depart from the general rule.

First situation: associations, foundations and public-benefit institutions run on a voluntary basis. The threshold is raised to CHF 150,000 of annual taxable turnover (art. 10 para. 2 let. c LTVA). It applies to non-profit organisations that are managed on a disinterested basis. A sports association that invoices CHF 130,000 of taxable supplies does not become liable, provided it meets these criteria.

Second situation: the undertaking with no registered office in Switzerland. It is liable from the first franc as soon as it makes taxable supplies in Switzerland (art. 10 para. 2 let. b LTVA). The CHF 100,000 threshold does not protect it. One notable exception: if it supplies only services subject to the self-assessment mechanism by the recipient (services supplied by a foreign undertaking to a liable Swiss recipient, art. 45 LTVA), it does not have to register.

Third situation: the cross-border service provider. A craftsman based in Saint-Louis or Lörrach who carries out work for customers in Basel has no registered office in Switzerland. His construction or installation services performed on site are supplied in Switzerland. Liability is therefore immediate, with no threshold, and a tax representative in Switzerland is required for undertakings from countries with no mutual assistance agreement on recovery.

Art. 10 LTVA provides that an undertaking with no registered office in Switzerland is liable from the first taxable supply made in Switzerland, with no CHF 100,000 allowance.

Source: Art. 10, art. 10 para. 2 let. b and c, art. 45 LTVA — fedlex.admin.ch

An undertaking that reaches the threshold must register in writing with the Federal Tax Administration (FTA) within 30 days of the end of the calendar year or of the date the threshold is crossed (art. 66 LTVA). Registration is made through the FTA's electronic portal (SuisseTax), using the undertaking's UID number.

Liability begins on the date the threshold is crossed, or on the date the activity starts for a new undertaking. It is therefore retroactive in relation to the registration. If the undertaking registers late, VAT remains due on all supplies made since the date of liability, whether or not the customer has paid it.

Let us take a worked example. A Basel SA crosses the threshold on 31 May and registers on 15 November. It has invoiced CHF 70,000 between June and November without VAT. At the standard rate of 8.1%, it owes the FTA 70,000 × 8.1% = CHF 5,670, which it can no longer pass on to customers who have already been invoiced. Default interest on the unpaid amounts is added to this. The cost is borne out of the undertaking's margin.

Prompt voluntary registration limits this effect. The FTA accepts voluntary corrections within the framework of non-punishable voluntary disclosure (art. 102 LTVA), provided that it occurs before any investigation. The procedure is conducted with the FTA (https://www.estv.admin.ch/fr).

Source: Art. 10 and 66 LTVA — fedlex.admin.ch; Federal Tax Administration — estv.admin.ch

As soon as liability arises, each invoice must state (art. 26 LTVA): the supplier's name and address, the UID number followed by the mention VAT (for example CHE-123.456.789 TVA), the date or period of the supply, the nature and extent of the supply, the amount of the consideration, and the rate and amount of the tax.

The rates in force are 8.1% (standard rate), 2.6% (reduced rate: foodstuffs, books, medicines) and 3.8% (special rate for accommodation). Returns are in principle quarterly. A half-yearly return is possible under the net tax rate method, on request to the FTA.

Two methods coexist. The effective method requires deducting the input tax actually paid on purchases and investments. The net tax rate method applies a flat rate by sector, from 0.1% to 6.8% of turnover. It is open to undertakings whose annual turnover does not exceed CHF 5,005,000 and whose tax liability does not exceed CHF 103,000 (art. 37 LTVA).

A complete example using the effective method. Turnover: CHF 120,000 excluding tax, rate 8.1%. VAT due: CHF 9,720. Purchases and expenses with VAT: CHF 30,000 excluding tax, input tax of CHF 2,430. Balance to be paid to the FTA: 9,720 − 2,430 = CHF 7,290.

According to the FTA, the standard VAT rate is 8.1%, the reduced rate 2.6% and the special rate for accommodation services 3.8%, with returns in principle filed quarterly.

Below the threshold, the undertaking does not charge VAT. Nor can it deduct input tax on its purchases: the VAT paid to its suppliers remains a cost. For a freelancer who sells advice to private individuals, this situation is neutral. For an undertaking that invests heavily before invoicing, it is costly.

Art. 11 LTVA allows an undertaking to waive the exemption and to opt for voluntary liability, even below CHF 100,000. The option takes effect from the moment it is exercised, with a commitment of at least five years according to FTA practice.

A worked example. A Basel start-up invests CHF 200,000 excluding tax in equipment and fit-out before its first turnover. The VAT paid on these purchases is CHF 16,200. If it is not liable, it loses this sum. If it opts for voluntary liability, it recovers CHF 16,200 of input tax through its first return, then invoices 8.1% to its customers. If its customers are themselves liable, the VAT invoiced is neutral for them.

The option is less relevant where the customer base consists of private individuals or non-liable entities: the VAT invoiced raises the final price and cannot be passed on without a loss of competitiveness. The choice is made case by case, depending on the customer profile and the timing of investments.

Locating one's registered office in Basel-Stadt rather than in the French border zone changes VAT liability from the first Swiss invoice. A company entered in the Basel-Stadt commercial register is an undertaking with its registered office in Switzerland: the CHF 100,000 threshold applies, and the first supplies are not taxable as long as it has not been crossed.

A company whose registered office is in Saint-Louis or Mulhouse, and which invoices Basel customers for supplies made in Switzerland, has no registered office in Switzerland. It is liable from the first invoice. Depending on the case, it must appoint a tax representative domiciled in Switzerland (art. 67 LTVA) and provide security to the FTA.

Domiciliation in Basel-Stadt requires the incorporation of a company and its entry in the canton's commercial register, with a minimum share capital of CHF 100,000 for an SA (minimum paid-up amount of CHF 50,000) or a share capital of CHF 20,000 for an Sàrl. Entries can be consulted on Zefix (https://www.zefix.admin.ch/fr/search/entity/welcome.zul). VAT registration follows entry in the register. The effective seat must correspond to a genuine activity: a letterbox is not accepted.