How are expenses charged on? - Part 1: The Value Added Tax

Should expenses such as travel costs, accommodation, or meals be passed on to the customer, there are some points to consider. We will show you in this series of articles what options you have. Today we explain the principles of value-added tax.

Depending on the field of profession, people can often be on the move in their work. Consultants, for example, travel very often to their clients. As a result, costs for travel, accommodation, or meals arise. Naturally, one does not want to be left with the costs that have arisen in the performance of work. They are a necessary part of the service provided and must also be passed on. After all, providing the service to the customer is often not possible without these. However, it is often not clear how expenses should be passed on. In particular, dealing with value-added tax can be challenging: Are expenses subject to VAT at all? Should the VAT paid be deducted from the customer's invoice or added on? Which tax rate should be chosen? What about expenses that have been incurred abroad?

We will answer these and other questions in our series of articles "How to pass on expenses?". In this article, we will address the basic principles of value-added tax.

Basic principles of value-added tax

Value-added tax is levied on services provided for a fee, which are provided by taxable persons in Switzerland. For most goods and services, the current VAT rate is 7.7%. At the reduced rate of 2.5%, everyday goods such as food, non-alcoholic beverages, books, newspapers, magazines, and medications are taxed. There is an intermediate rate of 3.7% which applies to accommodations including breakfast. Art. 21 MWSTG regulates which services are not subject to VAT. These are mainly hospital treatments, services provided by doctors, social assistance services, education, theater and film performances, transactions in the area of money and capital, lottery revenues, and the sale of products of agriculture, forestry, etc. The reasons for tax exemption are of a socio-political or economic nature. Where no VAT is levied, it cannot be deducted as input tax, which is why the law allows for voluntary compliance in most cases. As mentioned earlier, only services provided for a fee are subject to VAT. According to the Federal Tax Administration, the fee also includes the following outlays:

"The fee includes the replacement of all costs, even if these are billed separately. These can include, for example, expenses for travel, meals, accommodation, etc., even if these are incurred abroad"

‍ Therefore, it is clear that expenses are also subject to VAT. They must be passed on with the VAT rate applicable to the respective service. We will show you what this can look like in the next article of our series "How to pass on expenses?".

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