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VAT payable on acquisitions: a high-risk subject in a company

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Sheraz Ahmad
VAT payable on acquisitions: a high-risk subject in a company

Indeed, when speaking of acquisitions, or more particularly of expenses acquired from foreign suppliers, the following considerations must be kept in mind:

  • The VAT that must be paid on acquisitions to the AFC (by means of the self-taxation mechanism in the VAT return), is 100% recoverable, partially or not at all recoverable (0%), depending on the structure of the turnover achieved by the company in question. Therefore, it is very important not to neglect the VAT aspect on acquisitions, because a tax burden may result for the company (VAT to be declared full pot, but sometimes the input tax is only partially or not recoverable at all).
  • The VAT risk on acquisitions is particularly high for the following categories of taxable persons:

◦ Individuals, private individuals not subject to VAT (excess of CHF 10,000 per year)

◦ Companies not subject to VAT (because they generate a taxable turnover of less than CHF 100,000 per year, for example)

◦ Sporting and cultural clubs run on a voluntary basis, foundations and associations recognized as being of public utility not subject to VAT (because they have a taxable turnover of less than CHF 150,000 per year)

◦ Taxable persons (companies, foundations, sports clubs, etc.) making acquisitions in close connection with the achievement of an excluded turnover

◦ Taxable persons deducting VAT according to the “Net tax debt rate” method (so-called TDFN method)

Given that for the categories of taxpayers mentioned above, there is a mandatory declaration of VAT on acquisitions, but no recovery possible of this paid VAT (prior tax)!

It is therefore extremely important not to take this issue of corporate acquisitions lightly.

As a reminder, you should know that before any calculation of VAT on acquisitions, it is first of all very important to clearly identify the acquisitions that will be the subject of the calculation. Only once the acquisitions have been properly identified, then it will be possible to calculate the VAT on them.

In general, it is also very important to remember that any transaction which is not considered as a delivery of goods (art. 7 VAT Act) is to be considered by default as a provision of services! By provision of services, we must understand in principle all the elements which are not physically palpable, unlike goods.

The following services are subject to acquisition tax:

1) Provision of services

According to article 45, al. 1 VAT Act, are subject to the tax on acquisitions, concerning the provision of services, only those which have the place of taxation where the recipient of the service is located. This means that it is not the supplier but the recipient of the service who must pay the VAT to the AFC that charges these supplies of services imported into Switzerland.

The list of services provided with the place of taxation where the recipient is located is listed in article 8 para. 1 VAT Act.

By imposition at "the place where the recipient is located", it is necessary to understand the place where a natural person resides or the place of domicile of a company (head office).

IMPORTANT: by “recipient”, it should also be understood that the natural person or the company to whom the invoice is sent also corresponds to the economic beneficiary (actual consumer) of the provision of services.

If this is not the case, i.e. the real consumer does not correspond to the person or the company to whom the invoice is addressed, the place where the real consumer of the service is located is then decisive. to qualify the service from a VAT point of view.

2) Provision of services with data carriers without market value

When no market value can be determined, when importing data media (eg: IT domain), the value of the data medium, including the provision of services and the rights relating thereto, is subject to the VAT tax on acquisitions. However, care will be taken to subtract from the calculation any foreign VAT which may have been invoiced by the service provider, rightly or wrongly (art. 45, para. 1, letter b, VAT Act).

3) Imports of goods for which VAT has not already been levied by the Federal Customs Administration (AFD) when they are imported into Switzerland

The following goods are also exceptionally subject to VAT on acquisitions: goods that are imported into Swiss territory which are not already subject to VAT on imports from AFD (but which are however taxable upon importation). or on Swiss territory) and which are supplied by a company headquartered abroad that is not registered in the Swiss VAT register.

Now let's see the calculation of VAT on acquisitions:

The VAT payable on acquisitions is calculated as follows:

  • on the amount in foreign currency which is invoiced by the service provider and which must be considered as excluding tax (= 100%)
  • the VAT rate to be used is always 7.7% (standard rate)
  • the VAT rate of 7.7% is to be applied in addition to the amount of 100% excluding tax
  • the exchange rates to be used for the conversion into CHF are those indicated by the AFC on its website

For details, please visit: Finex Outsourcing

 

 

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