Switzerland is known for its strong economy and business-friendly environment, consistently ranking among the world’s best-performing economies. To keep this reputation, the country regularly updates its regulations to stay in step with global trends and ensure a smooth business climate.
In this effort, the Swiss Federal Council has introduced changes to the VAT law that will take effect on January 1, 2025. These changes will let Swiss companies registered for VAT choose to report annually, remove the need for foreign taxpayers to have a fiscal representative, and make directors share responsibility for VAT debts.
Continue reading to learn more.
Updates to VAT reporting requirements
Currently, businesses can report VAT quarterly, semi-annually, or monthly, with payments and refunds matching these periods. The new law will let small and medium-sized businesses report VAT just once a year, which means less frequent filing. But if you’re expecting VAT refunds, this might not be the best option.
Who Qualifies for Annual Reporting?
To qualify for annual reporting, your business must have a taxable turnover of CHF 5,005,000 or less and a good record of submitting VAT returns and payments on time for the last three tax periods. "On time" means within 60 days after the reporting period or within an extension given by the SFTA.
When you choose annual reporting, you'll need to make advance payments, usually based on last year’s VAT. These payments are quarterly for the flat tax rate method or semi-annual for the net tax rates method. After submitting your annual return, these payments will be adjusted, and any overpayment will be refunded. If you pay late or underpay, the SFTA may charge interest.
How to Switch to Annual VAT Reporting
You can switch to or from annual VAT reporting at the start of any tax period, as long as you request it within 60 days. If you switch away from annual reporting, you have to wait three full tax periods before you can go back. If your turnover goes over the limit, you underpay advances, miss an annual return, or face legal issues with VAT debts, you could lose the option to report annually.
Fiscal Representation: What’s Changing for Foreign Businesses
Currently, businesses outside Switzerland need a fiscal representative in the country to communicate with the Swiss Federal Tax Administration (SFTA). However, with the upcoming changes to Swiss VAT law, the SFTA may be able to communicate directly with foreign taxpayers, eliminating the need for a local representative.
Joint Liability for Managing Directors: New Responsibilities
The new law will also introduce joint liability for managing directors, meaning they could be held responsible for unpaid VAT. In cases where a director has been involved in a previous bankruptcy, the SFTA might require them to provide security, which could be used to cover any unpaid VAT if the company can’t pay its debts.
Other Key Compliance Updates for 2025
Starting January 1, 2025, some new compliance rules will kick in. Businesses that are suppliers under VAT Act Article 20a or those based outside Switzerland won’t be able to use the lump-sum method anymore. For cash transactions over CHF 15,000 between registered entities, you’ll have to use the notification procedure. Additionally, electronic proof of export for goods will be accepted for passenger traffic.
Impact on Small and Medium-Sized Businesses
The new VAT law changes offer both benefits and challenges for small and medium-sized businesses (SMEs) in Switzerland. One big advantage is the option to report VAT annually instead of quarterly or semi-annually, which can reduce the paperwork and save time for SMEs. This allows them to focus more on their main business activities.
However, there are some challenges to consider. For businesses that usually get VAT refunds, switching to annual reporting could delay those refunds, which might impact cash flow. SMEs need to weigh the convenience of fewer reports against the possibility of waiting longer for refunds.
SMEs also need to make sure they meet the requirements for annual reporting, like staying within the CHF 5,005,000 turnover limit and submitting VAT returns on time. If they don’t meet these conditions, they might lose the option to report annually, making compliance more complicated.
Over To You
With the upcoming VAT law changes in 2025, small and medium-sized businesses in Switzerland need to understand what’s ahead. Annual VAT reporting can make things easier by cutting down on paperwork, giving SMEs more time to focus on their business. But, it’s important to think about the challenges too, like possible delays in getting VAT refunds, which could affect cash flow.
SMEs should weigh the pros and cons of switching to annual reporting to see if it’s the best fit for their business. By staying informed and planning ahead, they can handle these changes smoothly and keep their business running strong in Switzerland. Contact SIGTAX for assistance whenever needed.
Add new comment