Value Added Tax - is there a business activity?

A person is subject to tax if they operate a business irrespective of its legal form, purpose, or profit motive and are not exempt from tax liability. This is regulated in the Value Added Tax Act.

Entrepreneurial Activity

A company domiciled domestically that generates more than CHF 100,000 in revenue from taxable services within a year is mandatorily subject to tax. For companies based abroad, tax liability must be examined on a case-by-case basis. For domestic, non-profit, volunteer-run sports or cultural clubs, the revenue threshold is CHF 150,000 from taxable services. What, however, does the term "operating a business" mean from the perspective of the Federal Tax Administration? An entity operates a business if it independently carries out a professional or commercial activity aimed at the sustainable generation of income from services and appears under its own name externally. Sustainable income generation presupposes a business approach planned for a certain duration. However, even a short duration may suffice if the activity is intensively pursued during this time (e.g., a multi-day festival operation). The criterion of targeting income generation from services is met if the collection of payments from services is a primary goal of the activity. Whether a profit is actually made or not is irrelevant.

A professional or commercial activity exists when goods are systematically produced or traded, or services are provided, and these goods or services are intended for exchange on the market or for private consumption by third parties. The criterion of independence is always fulfilled for legal entities. The question only arises for natural persons. Bearing entrepreneurial risk (profit and loss), the freedom to choose whether to take on a task and to organize it independently, having multiple clients, owning business premises, etc., are all indicators that support independence in VAT terms.

What are the consequences if someone does not operate a business from the perspective of the Federal Tax Administration? The business is not obligatorily subject to tax and cannot opt out of the VAT exemption either. For businesses in the start-up phase, this means that they cannot claim the input tax on their investments. In case of doubt, a preliminary clarification from the Federal Tax Administration is recommended.

Do you have individual questions about your business? The founding specialists at FINDEA will be happy to advise you on your company formation and carry out all necessary actions.

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