Anyone starting a business in Switzerland or growing an existing company will sooner or later have to deal with value added tax (VAT).
A typical question we hear from clients is:
“At what level of turnover do I have to register for VAT – and what happens if I exceed the threshold during the year?”
This is often followed by another question:
“Would it make sense to register voluntarily before reaching the threshold?”
VAT liability does not simply depend on whether a business is structured as a sole proprietorship, a limited liability company (GmbH) or a corporation (AG). The company’s business activities, turnover and the type of services or goods supplied are particularly important.
Reviewing your VAT position at an early stage can help avoid unexpected tax payments, corrections and unnecessary administrative work.
When Does a Company Become Liable for VAT?
For most businesses in Switzerland, the relevant turnover threshold is:
CHF 100,000 per year
In principle, the assessment is based on turnover generated from supplies in Switzerland and abroad that are not exempt from VAT without credit.
If the relevant turnover threshold is reached, or if it is already foreseeable when the business starts operating that the threshold will be reached, the company must determine whether mandatory VAT liability applies and whether registration with the Swiss Federal Tax Administration (FTA) is required.
An important point is that the CHF 100,000 threshold does not refer to the company’s profit.
The relevant figure is turnover – not profit.
A company can therefore become liable for VAT even if only a relatively small profit remains after salaries, rent and other business expenses have been deducted.
Special thresholds apply to certain organisations. For example, non-profit, voluntarily managed sports and cultural associations as well as charitable institutions are generally subject to a higher threshold of CHF 250,000.
What VAT Rates Apply in Switzerland?
Switzerland currently has three VAT rates:
Standard rate: 8.1%
This applies to most taxable supplies of goods and services.
Reduced rate: 2.6%
This applies in particular to certain everyday goods, including many food products, medicines, books, newspapers and magazines.
Special rate for accommodation: 3.8%
This applies primarily to accommodation services such as overnight stays in hotels.
Businesses need to apply the correct VAT rate when issuing invoices. Depending on the business model, different VAT rates may apply to different products or services offered by the same company.
Is All Turnover Relevant for the CHF 100,000 Threshold?
No.
This is an area where misunderstandings frequently occur.
Not every source of income is treated in the same way for VAT purposes. Swiss VAT law distinguishes between different types of supplies, including taxable, exempt and excluded supplies.
Certain services in areas such as healthcare, education and culture, as well as certain real estate transactions, may for example be excluded from VAT.
For this reason, determining VAT liability should not simply involve taking the total turnover shown in the income statement and comparing it with CHF 100,000.
The key question is what type of supplies the company provides and how those supplies are treated for VAT purposes.
What Applies When Starting a New Business?
VAT liability should be considered from the very beginning when establishing a new company.
If it is already foreseeable when business activities commence that the relevant turnover threshold will be reached, the company should not wait until it has actually invoiced CHF 100,000 before addressing VAT registration.
For example:
A newly established consulting GmbH starts operating in January and already has several ongoing client engagements. Based on signed contracts, it is expected to generate relevant turnover of approximately CHF 150,000 during its first financial year.
In such a situation, VAT liability should be assessed when the business activity begins and the necessary registration should be completed accordingly.
For newly established and fast-growing companies, it is therefore advisable to monitor turnover from the outset.
Can a Company Register for VAT Voluntarily?
Yes.
Even if the relevant turnover threshold is not reached, a company can, under certain conditions, waive the exemption from VAT liability and register voluntarily.
This can be particularly interesting for businesses that make substantial investments or purchase a significant amount of goods and services from other VAT-registered businesses.
The reason is the input tax deduction.
A VAT-registered business can generally reclaim VAT paid on eligible business expenses, subject to the applicable legal requirements.
A company purchasing machinery, IT infrastructure, office equipment or other business assets may therefore benefit from voluntary VAT registration.
However, whether voluntary registration actually makes sense depends on the business model.
A company serving mainly private customers, for example, needs to consider whether VAT can be added to its existing prices or whether the VAT will effectively have to be absorbed within the current sales price.
Voluntary VAT registration should therefore not be based solely on the potential input tax deduction.
Practical Example: Consulting Company With CHF 120,000 in Turnover
Let us take the example of a consulting company generating relevant annual turnover of CHF 120,000.
Consulting services are generally subject to the standard VAT rate of 8.1%.
As the relevant turnover threshold of CHF 100,000 is reached or exceeded, the company must assess its VAT liability and, if the legal requirements are met, register with the FTA.
Once VAT liability begins, the company must account for VAT correctly.
At the same time, it can generally deduct eligible input VAT paid on business expenses.
If the company incurs expenses for software, computers, office supplies, fiduciary services or other business costs, the VAT paid on those expenses may be deductible, subject to the applicable requirements.
This illustrates an important point:
The VAT charged on sales is not automatically the amount that ultimately has to be paid to the FTA.
Under the effective method, the VAT due on sales is generally offset against eligible input VAT.
Effective Method or Net Tax Rate Method?
Once a company has registered for VAT, another important question arises:
Which VAT accounting method should the company use?
For many small and medium-sized businesses, there are two main methods to consider.
Effective VAT Accounting Method
Under the effective method, the company calculates the VAT actually due on its taxable turnover.
Eligible input VAT paid on business expenses is then deducted.
In simplified terms:
VAT on sales – deductible input VAT = VAT payable to the FTA
This method reflects the company’s actual VAT position relatively closely.
It can be particularly suitable for businesses with significant investments or generally high expenses that include deductible input VAT.
Net Tax Rate Method
The net tax rate method – known in German as the Saldosteuersatzmethode – is designed to simplify VAT accounting for small and medium-sized businesses.
Under this method, the business does not calculate and claim input VAT separately for every individual expense. Instead, the VAT payable is calculated using a sector-specific net tax rate determined by the FTA.
One distinction is particularly important:
The net tax rate is not the VAT rate charged to your customers.
The invoice issued to the customer still shows the applicable statutory VAT rate, such as 8.1%.
The applicable net tax rate is instead used to calculate the amount payable to the FTA.
Since 2025, various new rules have applied to the net tax rate method. Among other changes, businesses may use more than two net tax rates. Companies carrying out several different activities may therefore require a more detailed assessment.
The net tax rate method can generally be used if annual taxable turnover including VAT does not exceed CHF 5.024 million and the annual VAT liability calculated using the applicable net tax rate does not exceed CHF 108,000.
Which method is more appropriate depends particularly on the company’s industry, cost structure and level of investment.
Agreed or Collected Consideration: When Is VAT Accounted For?
In addition to choosing the VAT accounting method, businesses need to consider when turnover and input VAT are included in the VAT return.
A distinction is made between accounting based on agreed consideration and accounting based on collected consideration.
Under the agreed consideration method, the relevant point in time is generally when an invoice is issued or received.
Under the collected consideration method, VAT accounting is generally based on when the customer actually pays the invoice or when the business pays its supplier.
Accounting based on collected consideration requires the corresponding approval from the FTA.
Which approach is administratively more suitable will depend, among other things, on the company’s accounting processes and payment terms.
Common VAT Mistakes
In practice, we repeatedly see a number of common mistakes.
Confusing the CHF 100,000 threshold with profit:
VAT liability is generally determined based on relevant turnover, not the company’s profit.
Registering too late:
Businesses that do not monitor their turnover may only realise during the year-end closing process that the conditions for VAT liability had already been met. This can result in retrospective corrections and additional tax payments.
Treating every source of income in the same way:
Not every transaction is automatically subject to VAT. Taxable, exempt and excluded supplies need to be distinguished correctly.
Applying the wrong VAT rate:
Depending on the goods or services supplied, the applicable rate may be 8.1%, 2.6% or 3.8%.
Confusing the net tax rate with the customer VAT rate:
The net tax rate is used to simplify the calculation of VAT payable to the FTA. The customer invoice, however, shows the applicable statutory VAT rate.
Failing to consider voluntary VAT registration:
Voluntary registration may be worth considering, particularly where a business has substantial initial investments. However, the decision should always be assessed in the context of the specific business model.
Ignoring international turnover:
Supplies made abroad can also be relevant when assessing VAT liability. At the same time, cross-border transactions are subject to specific rules concerning the place of supply and their VAT treatment.
What Should Companies Pay Particular Attention To?
VAT should not be something a company considers only when preparing its annual financial statements.
Newly established and growing businesses in particular should monitor their turnover throughout the year.
Important questions include:
What turnover is relevant when determining VAT liability?
Which supplies are taxable, exempt or excluded from VAT?
Which VAT rate applies to each product or service?
Would voluntary VAT registration make sense?
Is the effective method or the net tax rate method more appropriate?
Should VAT be accounted for based on agreed or collected consideration?
Are cross-border transactions being treated correctly?
Ideally, these questions should be addressed before invoices are issued with an incorrect VAT treatment.
Conclusion: Review Your VAT Liability Early
For many businesses, the CHF 100,000 turnover threshold is the main starting point when determining whether VAT registration is required in Switzerland.
However, the turnover threshold alone is not sufficient for a complete assessment.
It is also important to consider what type of supplies the company provides, where those supplies are deemed to take place and how they are treated for Swiss VAT purposes.
Companies below the turnover threshold should also consider whether voluntary VAT registration could be beneficial, particularly if they are making substantial investments or incur significant expenses subject to input VAT.
Once registered, the appropriate VAT accounting method should also be considered. Depending on the company’s industry, cost structure and investments, the effective method and the net tax rate method can lead to different administrative and financial outcomes.
Addressing VAT as part of the company’s financial planning at an early stage can reduce the risk of retrospective corrections and additional tax payments while ensuring that available options are used appropriately.
The correct VAT treatment will always depend on the individual circumstances. The business model, turnover structure, customer base, investments, international activities and type of supplies can all have a significant impact. The examples and figures above are therefore provided for general information and do not replace individual tax advice.
Carlino Trust will be happy to help you assess your VAT liability, select an appropriate accounting method and set up your VAT reporting correctly and efficiently.