Reduction of the applicable VAT-related turnover thresholds for non-profit and voluntarily administered associations as well as non-profit institutions

In principle, all entities operating a business are liable for VAT. However, in order to keep the administrative burden as low as possible, the compulsory VAT obligation only exists above certain annual turnover thresholds. If the annual turnover of a company, association or non-profit institution falls below the defined threshold for the duration of one year, it is exempt from VAT (Art. 10 (2) (a, c) Swiss VAT Act (MWSTG)). For non-profit, voluntarily administered sports or cultural associations as well as charitable institutions (Art. 3 (j) MWSTG), a limit of CHF 150,000 applies under current law (Art. 10 (2c) MWSTG). In order to provide additional support for such associations and non-profit institutions, the Swiss parliament has decided to raise the current limit by increasing the turnover threshold to CHF 250,000 per year. This higher turnover limit with regard to compulsory VAT liability for associations and non-profit institutions will come into effect from 1 January 2023.

If the annual turnover of the respective associations or non-profit institutions does not reach this threshold, they will be exempt from the tax liability and no longer required to charge VAT. Conversely, they will no longer be subject to the respective VAT-related rights and obligations.¹ In some cases, however, a continuation of the VAT liability despite the exemption option may be more advantageous for companies, associations and non-profit institutions. In particular, this is due to the possibility of claiming an input tax deduction, which would be lost in the case of tax exemption (Art. 28 (1) (e) contrario MWSTG). Companies, associations and non-profit institutions that fall below the turnover thresholds and would therefore be exempt from the tax liability can actively waive this exemption and voluntarily submit to VAT (Art. 11 (1) MWSTG). In such cases, the company, association or non-profit institution has the right to be entered in the VAT register.²

We recommend that all associations and non-profit institutions regularly review their VAT liability.

In practice, we encounter the following issues:

• The association or non-profit institution would have been liable for VAT earlier
• Entry in the VAT register would have resulted in VAT refunds
• The individual revenues were incorrectly accounted for or invoiced without VAT
• The reverse charge tax (“Bezugssteuer”) on services from abroad was not declared

Example:
The non-profit association X is not registered in the VAT register. Its annual donation income amounts to CHF 500,000. The expenses charged with input tax amount to approximately CHF 130,000 per year including 7.7% VAT. Services are purchased annually from abroad for CHF 15,000.

VAT consequences without VAT registration:
The input taxes of CHF 9,294.35 (CHF 130,000 / 107.7 x 7.7) paid on the annual expenses cannot be reclaimed.
Settlement of the service import tax on CHF 15,000 = CHF 1,072.40 (CHF 15,000 / 107.7 x 7.7)
Disadvantage: CHF 9,294.35 + 1,072.40 = 10,366.75

VAT consequences with VAT registration:
From a VAT perspective, the donation income is considered as non-revenue and does not lead to an input tax adjustment. The input tax paid on the expenses of CHF 9,294.35 can be refunded as input tax in the VAT statement. The service import tax is neutralised.
Advantage: CHF 9,294.35

Comparison of articles of law:

Art. (10) (2) (c) MWSTG
“Any non-profit-making, voluntarily administered sports or cultural association or non-profit-making institution that generates an annual turnover of less 150,000 Swiss francs in Switzerland and abroad from services, which are not exempt from tax under Article 21 (2), shall be exempt from tax.”

Art. 10 (2 c, n) MWSTG
“Any non-profit-making, voluntarily administered sports or cultural association or non-profit-making institution that generates an annual turnover of less than 250,000 Swiss francs in Switzerland and abroad from services, which are not exempt from tax under Article 21 (2), shall be exempt from tax.”

¹ Grundsätze der Mehrwertsteuer, Dokumentation und Steuerinformation / Eidgenössische Steuerverwaltung, November 2019.

² Fischer in: Zweifel/Beusch/Glauser/Robinson, Zürich 2015, MWST-Kommentar Art. 10 N 89.