Generally, anyone who is commercially or professionally self-employed is taxable for VAT. This holds for private persons (e.g. sole proprietors) as well as for companies (e.g. general partnership, LLC, PLC, etc.). The statutory tax rate is 8%, but there are exceptions for lower rates.
There are various exceptions from VAT liability. On one hand, tax liability for VAT is only in effect when a certain turnover is reached, on the other hand there are various business activities that are excluded from VAT taxation.
Whoever does not make more than an annual turnover of CHF 100,000 domestically is generally exempt from tax liability. A further exception is made for everyone who does not make more than CHF 5,020,000 turnover per year as long as this does not result in a tax amount higher than CHF 109,000 per year. To determine whether this limit is reached or not, however, a VAT book would have to be kept internally (especially to determine reductions before tax). A more simple procedure is to work with settlement tax rates to determine if one is liable for VAT. Hereby turnover is multiplied with a branch-specific tax rate. The result may not surpass CHF 109,000.
An Example: Car Wash LLC Zurich makes a turnover CHF 150,000 this year. Car wash facilities have a settlement tax rate of 3.7%, which—multiplied with turnover—results in an expected tax amount of CHF 5,500. This LLC, therefore, is not liable for VAT (CHF 5,500 < CHF 109,000).
If the LLC were a bicycle shop, a rate of 1.3% would be used and would result in a tax amount of CHF 1,950. The Bicycle GmbH would also not be liable for VAT with the settlement tax rate method (CHF 3,450 < CHF 109,000).
Summary: When the annual total turnover is more than CHF 100,000, VAT liability is to be checked in any case, preferably together with an experienced consultant.
Apart from these turnover and tax amount limits there is an extensive list of tax exceptions and exemptions. Examples of exceptions are medical services or entry fees for the zoo. Exemptions are made for, among others, services of travel agencies and the rental of airplanes. Whether a new company is taxable for VAT or not is to be determined in each particular case.
This article has been submitted by STARTUPS.CH