VAT opting in Switzerland: opportunities and risks for businesses

What does VAT opting mean?

Opting means voluntarily subjecting normally VAT-exempt supplies to taxation. The legal basis is Article 22 of the VAT Act. Typical areas include:

• Rental and leasing of real estate
• Sale of shareholdings
• Certain financial and insurance services

The aim is to enable deduction of input tax that would otherwise be lost on exempt revenues.

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Advantages of opting

1. Claim input tax deduction

• Businesses can reclaim VAT paid on inputs.
• Especially relevant for major investments (e.g. renovations).

2. Competitive advantage‍

• Reduced effective cost structure.
• Better calculation basis for investments.

3. Flexibility

• Companies choose for which transactions to opt.
• Adapted to their business situation.

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Risks and disadvantages

1. More administration

• Additional declarations to the Federal Tax Administration.
• More complex bookkeeping and documentation.‍

2. Complex distinctions‍

• Mixed cases require precise allocation.
• Risk of accounting errors.

3. Customer perspective

• For non-VAT-registered clients (e.g. private persons), services become more expensive.
• Possible competitive disadvantage if competitors do not opt.

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Practical example: office rental

A property company rents offices to a VAT-registered business. Without opting, rents would be exempt, and input tax on construction or maintenance could not be recovered.

By opting, the company charges VAT on rents and reclaims input tax – a major financial benefit.

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When is opting worthwhile?

It is advisable:

• when input tax on investments is high;
• if most customers are VAT-registered;
• when transparency and cost clarity are important.

Not recommended if most clients are private consumers.

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Conclusion: good planning pays off

VAT opting is a valuable tax optimisation tool but demands careful analysis and accurate accounting. A wrong decision can lead to extra work or competitive loss.

Recommendation:

Examine carefully whether opting suits your business model. Professional advice from your fiduciary or tax expert helps you maximise opportunities and minimise risks.

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