My question is: Given that I can choose to stop work and earn just under 100,000 to avoid the VAT charges and hassle, but could also push on and earn over that. How much revenue earnt is enough to offset the deductions of the VAT if I decide to push on?
I guess earning 101,000.- would make it not worth while but is there an amount that would justify the extra charges involved?
Thanks in advance!
Also, remember VAT is retrospective so you will have to reissue all your past invoices from this year with VAT added.
1. If the sole trader is B2B and works with VAT-registered customers, the sole trader can simply add VAT on top and the customers will deduct the input VAT from their VAT declarations.
2. Not necessarily. The VAT office can use a prospective approach, i.e., the sole trader registers for VAT as of 1/2023 and begins filing VAT returns going forward.
3. For simplicity, the sole trader might wish to register for VAT under the simplified method.
IMO, not worth the hassle to be slightly over 100k.
EDIT: her customers are retail so they can't recover the VAT. Obviously quite different if you have VAT registered customers where the VAT is neutral for them (and you get to reclaim your VAT inputs).
Do you have personal experience with this? Hard to believe the VAT office would walk away from ca. CHF 8,000 extra revenue but stranger things happen in life.
In my case when I reached 100K I had to issue back invoices, although I operated B to B not every "B" was VAT registered.
My understanding is that you must register for MWST if your turnover exceeds 100000 and it's retrospective for that year. You may register for MWST at any time, and it's a good idea to do it at the beginning of the year you think you're likely to go over.
When you reissue a bill for e.g. 1000 francs, you can reissue it as 1000 + 77 (for VAT registered customers - please pay me the VAT), or as 928.51 + 71.49 (non-VAT registered customers - the invoice was vat inclusive). So long as you declare and remit the correct amount to ESTV, it doesn't matter. You'll have to modify your accounts to reflect this. It's the same if you're on the inclusive scheme or not.
Since sales often beget sales, it may be worth suffering a loss this year for future higher income.
Not sure what you mean by break even.
There are either extra costs for a third party to handle your VAT administration or extra work for you.
You do get the benefit to recover the VAT on qualifying purchases but in return, you do have to charge customers more (incl. VAT). You could achieve the same financial effect by simply increasing your prices without adding all the VAT administration assuming you stay below the 100K limit.
A business is required to register for VAT when it becomes foreseeable that the 100'000 annual revenues will be exceeded.
Example:
A new business develops like this:
Year 1:
Q1: 10'000 (projection: 4 x 10'000=40'000 annual sales) *
Q2: 15'000 (projection: 4 x 15'000=60'000 annual sales) *
Q3: 20'000 (projection: 4 x 20'000=80'000 annual sales) *
Q4: 25'000 (projection: 4 x 25'000=100'000 annual sales) **
*: no requirement to register for VAT since projected sales is under 100'000.
**: should register within 30 days of when it becomes foreseeable that annual sales will exceed 100'000. The taxable period can start in next quarter, i.e., Q1 Year 2.
By break even I'm looking at company income from invoices and MWST charges, assuming you don't pass the cost on. (So no costs to the third party). For you, yes, there's a cost. Depending on volume of transactions, you can add another thousand or two to the threshold if you like. But I always found VAT accounting one of the easiest things to do with running a company. It really was little extra effort.
Not so straightforward.
So, if I noticed that I'm going over 100K this year, can I bill a client all the unpaid VAT on their last invoice to catch up for past invoices in which I didn't charge them? For example, I charged them 100K and in the last invoice they pay: 1. New invoice 2. VAT on the new invoice 3. VAT on the 100K before that.
By the way, my main client is from US, do I still charge them VAT? I read somewhere that they are exempt, does it mean I am good not charging VAT to them as I don't have to pay it myself?
Also, for IT services (software), is the VAT 7.7%? Or 2.2%?
1. If your worldwide sales exceed Fr. 100'000, you need to register for VAT in Switzerland and file a VAT return quarterly (effective method) or every semester (simplified method).
2. Your business provides a service to foreign and possibly domestic customers. Foreign customers are then responsible for paying any VAT due as the service recipient (Leistungsempfänger).
3. When you become registered for VAT in CH, "Reverse Charge" should be put on the invoice for foreign customers. These foreign sales would then be deducted from total sales on the VAT declaration. You would owe sales (output) VAT on the domestic sales. Under the effective method, you would deduct domestic supplier (input) VAT.
4. As a service, the VAT on domestic sales would generally be 7.7%.
So, just to rephrase what I understood:
1. I need to register for VAT regardless of my clients' location.
2. For my foreign customers (say from the US), I just add the text "Reverse Charge" somewhere in the invoice but I actually don't charge them anything extra.
3. For domestic customers (I assume from CH only), I have to charge them 7.7% of VAT.
4. If all of my customers this year are foreign, my VAT declaration will have 0CHF, as I didn't charge anyone any VAT.
5. For any work done for domestic clients, I charge them 7.7% of VAT and report that every semester [somehow]
Is that correct?
Once you get into the VAT system (due to exceeding 100k), is it permanent, or do you get out of it again if next year you earn e.g. 95k?
The OP should register as a VAT taxable entity in Q1 of the following fiscal year in which the sales revenue threshold of 100'000 was exceeded.