Value Added Tax: FTA changes certain tax balancing rates as of January 1, 2015

As of January 1, 2015, new balance tax rates, which are used in the calculation of value-added tax, will come into effect. Companies whose industries are affected by a change in the tax rate can switch from the effective method to the balance tax rate method ahead of time.

For companies that generate a turnover of CHF 100,000 or more from taxable services within the country in a year, there is a mandatory registration for value-added tax with the Federal Tax Administration (ESTV). For tax accounting, a company has the choice between two accounting methods: the effective accounting method (Art. 36 MWSTG) and the balance tax rate method (Art. 37 MWSTG). For municipalities, private hospitals and schools, as well as licensed transport companies, associations and foundations, there is also the option of accounting according to flat tax rates (Art. 37 MWSTG). Many companies, predominantly in the service sector where little input tax is incurred, prefer the balance tax rate method because it simplifies accounting with the ESTV. This method is easier to apply because input taxes do not have to be determined and accounting with the ESTV occurs semi-annually (as opposed to quarterly accounting in the effective method). The tax owed is determined from the gross revenue using industry-specific rates. This rate is lower than the normal rate of 8 percent, the reduced rate of 2.5 percent, or the lodging rate of 3.8 percent. However, at the same time, the right to the refund of input taxes is omitted. The balance tax rate method also has some pitfalls to be aware of. It is not recommended for companies that procure services from abroad or engage in cross-border transactions. The balance tax rates are regulated in the "ESTV Ordinance on the Amount of Balance Tax Rates According to Industries and Activities".

Uncertainties resolved

In the previous version of the regulation, certain demarcations between industries and activities were unclear. This problem will now be resolved with the changes. To this effect, some activities will be assigned a new balance tax rate, new activities will be inserted, and some will be more clearly defined. The amendment to the regulation will take effect on January 1, 2015. The changes can already be viewed in the preprint of the regulation. This preprint is not yet binding.

The financial consequences of the adjustment can only be roughly estimated by the ESTV. An increase in revenues of around 4 million francs is expected.

Early Change of Accounting Method Possible

Newly registered persons in the tax register (value-added tax register) who wish to opt for the balance tax rate method must notify the ESTV in writing within 60 days after delivery of the VAT number. If a company fails to apply, it will automatically have to use the effective method for at least three years (Art. 78 para. 3 MWSTV). However, an early change is possible if the ESTV changes the balance tax rate for the respective industry or activity. Therefore, companies affected by the change can switch to accounting by the balance tax rate method as of January 1, 2015, before the end of the three-year application period. An intended change must be communicated to the ESTV in advance in writing.

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