Withholding tax in Switzerland: definition, calculation, and obligations

1. What is withholding tax?

Withholding tax is a form of value added tax (VAT) levied in Switzerland when a domestic company or private individual purchases services from a provider based abroad. This is known as the reverse charge procedure, whereby the tax is paid by the recipient of the service rather than the provider.

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2. Who has to pay the withholding tax?

The withholding tax applies to:

• Swiss companies that purchase services from foreign companies, provided they are not already subject to VAT.
• Swiss companies that are not subject to VAT, if the total amount of services purchased exceeds CHF 10,000 in a calendar year.
  
• Private individuals only in exceptional cases if they purchase services for non-business purposes, such as electronic services from foreign providers.

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3. Which services are subject to withholding tax?

Withholding tax is particularly relevant for cross-border services, including:

• Consulting, legal, and fiduciary services
• Advertising and marketing
• IT and software services
  
• Licenses and patents
• Electronic services (e.g., cloud services, streaming services)

Goods deliveries are generally not subject to withholding tax, as they are already cleared through customs and taxed upon import.

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4. Calculation of withholding tax

Sample calculation: A Swiss company purchases an IT service from Germany for CHF 5,000. As the service is subject to the standard rate, the company must charge 8.1% withholding tax and declare this in its VAT return.

Calculation: 5,000 x 8.1% = CHF 405 withholding tax

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5. How is the acquisition tax declared and paid?

Companies that are subject to VAT must record the acquisition tax in their VAT return:

1. Recording the service received in the VAT return.
2. Calculating the acquisition tax based on the current VAT rates.
   
3. Offsetting against input tax: If the company is entitled to deduct input tax, the withholding tax can be claimed as input tax.

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6. Consequences of non-declaration

If the withholding tax is not declared, this can lead to:

• Subsequent tax claims by the Federal Tax Administration (FTA).
• Possible fines and interest on arrears.
  
• Additional audits by the tax authorities.

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7. Conclusion: Take withholding tax into account in good time

Withholding tax is an important part of the Swiss VAT system and affects many companies that purchase services from abroad. To avoid legal consequences, companies should check whether they are required to declare withholding tax and settle it correctly.

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Recommended action

Check your accounting for foreign services and ensure that the withholding tax is recorded correctly. If you are unsure, it is advisable to seek advice from a tax expert or fiduciary.