News Value Added Tax

Change of Reporting Method as of January 1, 2025 - Risks and Opportunities

The Federal Council enacted the partial revision of the Value Added Tax Act (VAT Act), passed by Parliament in June 2023, in August 2024, with effect from January 1, 2025. At the same time, the partially revised Value Added Tax Ordinance (VAT Ordinance) will also come into force. The VAT Ordinance includes adjustments that are not based on amendments to the VAT Act. One such adjustment concerns the change in reporting methods between the effective method and the balance and flat tax rates, and vice versa. With the revised VAT Ordinance, the current value of goods and services must be taken into account when changing. Accordingly, from January 1, 2025, this change presents both risks and opportunities.

Anyone subject to tax who generates annual turnover from taxable supplies not exceeding CHF 5,024,000 and does not owe more than CHF 108,000 in taxes, calculated based on their applicable net tax rate, can use the net tax rate method (SSS) for reporting. Public bodies and related institutions, such as private hospitals and schools or licensed transport companies, as well as associations and foundations, can use the flat tax rate method (PSS) for reporting.

When applying the SSS and PSS methods, the tax liability is determined by multiplying the total taxable income, including tax, generated in a reporting period by the rates approved by the Swiss Federal Tax Administration (SFTA). The input tax deduction is omitted, as it is accounted for within the multiplier. Under applicable law, changing from the effective reporting method to the SSS/PSS, and vice versa, generally does not require adjustments to stock inventories, operational resources, and fixed assets.

From January 1, 2025, the next possible opportunity to change reporting methods, when changing from the effective reporting method to the SSS/PSS, the previously claimed input tax (including any portions corrected through self-supply taxation) must be refunded to the SFTA based on the market value of goods and services at the time of the change. In this regard, goods and services acquired in recent years should be reviewed for their market value to determine whether corrections are necessary and, particularly, whether a method change under these circumstances is worthwhile or feasible.

Conversely, when changing from the SSS/PSS to the effective reporting method, the tax burden on the market value of goods and services at the time of the change can be deducted as input tax in the first reporting period after the change. Therefore, if significant costs were incurred under the SSS/PSS in recent years, changing to the effective reporting method may be worthwhile.

Naturally, alongside self-supply taxation and input tax correction, all other implications of a method change must be considered.

For individual advice or further information, please contact our VAT expert Matthias Höhn.

Source: SR 641.201 - Mehrwertsteuerverordnung vom 27. No... | Fedlex (admin.ch)

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Matthias Höhn, 22.10.2024

Keywords: VAT, value-added tax, partial revision of the Value Added Tax Act, VAT Act, VAT Ordinance, Reporting Method, Effective Method, Balance Tax, Flat Tax Rates