How do you pass on expenses? – Part 2: Which VAT rate do I pass on?

Should expenses such as travel, accommodation, or meal costs be passed on to the customer, there are several points to consider. In our last post, we explained to you that expenses are also subject to value-added tax (VAT). In today's part of the series, we show you which VAT rate you need to apply when passing on these costs to your customers.

According to the Federal Tax Administration, expenses are also subject to VAT as they also form part of the remuneration for the services provided. Therefore, they must always be passed on with the VAT rate applicable to the respective service. Since expenses most often arise in the area of services, for which a VAT rate of 7.7% applies in most cases, this means that a surcharge of 7.7% VAT must be applied when passing them on. It does not matter which VAT rate (7.7%, 2.5%, or 3.7%) was paid by oneself.

An example: A business consultant travels from Zurich to Geneva, has to stay overnight (including breakfast), eats lunch, and returns to Zurich in the evening. He incurs the following costs: 88 Fr. for the train, 150 Fr. for the hotel including breakfast, and 12 Fr. for a sandwich with a drink from the supermarket. The costs for the train are subject to a rate of 7.7%, the overnight stay with breakfast 3.7%, and the sandwich with a drink a rate of 2.5%. Since the consultant's services are subject to a VAT rate of 7.7%, he must impose 7.7% VAT on all amounts when recharging them to the client, regardless of whether he himself has paid a different rate. However, it looks different for services that are not subject to the rate of 7.7% or not subject to VAT at all (Art. 21 VAT Act). For example, medical treatments by a doctor according to Art. 21 para. 2 item 3 VAT Act are not subject to VAT. Therefore, medical expense reimbursements for the expenses of actual costs are also not subject to VAT if they are directly related to the service the customer receives. For instance, if a Swiss doctor needs to fly to Egypt to treat his patient there, these costs are not subject to VAT.

In the next post of our series "How to charge expenses forward?", we will show you what possibilities you have despite the prescribed VAT rate when passing them on.

Findea helps you keep your taxes simple and hassle-free.