When navigating grants in Switzerland, one common question arises: Are grants subject to Value Added Tax (VAT)? This article explores the VAT implications for grants, including how the reverse charge mechanism and input VAT deductions apply.
Current VAT Rate in Switzerland
As of 2025, the standard VAT rate in Switzerland is 8.1%.
Are Grants Subject to VAT in Switzerland?
Not all grants in Switzerland are subject to VAT. Grants generally fall into two categories:
1. Non-taxable Grants
Most grants, particularly those provided by public authorities for general support or specific public-policy purposes, are not subject to VAT. These grants include:
- Operational subsidies for general expenses.
- Research support without specific deliverables.
- Innovation grants with no clearly defined contractual obligations.
Example of Non-taxable Grant Calculation:
Company A receives a CHF 50,000 non-taxable operational subsidy from a public authority. It incurs expenses of CHF 10,000 from foreign services under reverse charge.
- Non-taxable grant revenue: CHF 50,000
- Expenses incurred (Reverse charge VAT at 8.1%): CHF 10,000 × 8.1% = CHF 810
- Reclaimable VAT: CHF 0 (fully non-taxable activity)
2. VAT-applicable Grants
Certain grants, however, are considered taxable because they function as payment for clearly defined goods, services, or deliverables. Examples include:
- Research grants with specified outcomes or intellectual property rights transfer.
- Consultancy and advisory services explicitly funded by grants.
- Any commercial arrangement masked as a grant with clear contractual obligations.
Example of VAT-applicable Grant Calculation:
Company B receives a CHF 50,000 research grant that requires specific deliverables. It incurs expenses of CHF 10,000 from foreign services under reverse charge.
- Taxable grant revenue: CHF 50,000
- Expenses incurred (Reverse charge VAT at 8.1%): CHF 10,000 × 8.1% = CHF 810
- Reclaimable VAT: CHF 810 (fully taxable activity)
Impact of Grants on Input VAT Deductions
Receiving non-taxable grants can impact your company's right to reclaim input VAT, especially regarding services received under the reverse charge mechanism. Here's how:
- Only non-taxable grant revenue: If your only revenue source is a non-taxable grant, you cannot reclaim any input VAT.
- Mixed revenue streams (non-taxable grants and taxable income): You must calculate a pro-rata reduction based on the percentage of your revenue that is non-taxable.
- Taxable grants: Allow full reclaiming of input VAT since the associated activities are fully taxable.
Reverse Charge VAT and Grants
The reverse charge mechanism applies when a Swiss business receives services from abroad from suppliers not registered for Swiss VAT. In this scenario, the Swiss recipient accounts for VAT on these services as both output and input VAT.
- If your activities funded by the grant are taxable, the input VAT on these reverse charge services is fully reclaimable.
- If grant-funded activities are non-taxable, input VAT reclaiming is limited proportionally.
Practical Example with Mixed Revenue
Consider Company C:
Company C receives the following revenues and incurs foreign consultancy expenses:
- Non-taxable Grant Revenue (operational subsidy): CHF 20,000
- Taxable Grant Revenue (research with deliverables): CHF 30,000
- Taxable Consultancy Revenue: CHF 50,000
- Expenses incurred (Reverse charge VAT at 8.1%): CHF 15,000 × 8.1% = CHF 1,215
The total taxable revenue is CHF 80,000 (CHF 30,000 taxable grant + CHF 50,000 consultancy). The total revenue (taxable + non-taxable) is CHF 100,000.
In this scenario, the reclaimable VAT is:
- CHF 1,215 × (80,000/100,000) = CHF 972 reclaimable
- CHF 243 (attributable to non-taxable activities) is not reclaimable
Equity-funded Expenses and Reverse Charge VAT
If your business raises capital through equity and incurs expenses abroad before generating taxable revenue, VAT reclaim depends on intended future taxable activities:
- No current taxable revenue but clear intent to generate taxable revenue: Reverse charge VAT incurred on foreign expenses is reclaimable if you clearly document that these expenses are related to future taxable business activities.
- If taxable activities do not materialize, you may need to repay reclaimed VAT.
Example:
Company D raises CHF 200,000 in equity and incurs CHF 30,000 in expenses abroad, resulting in CHF 2,430 reverse charge VAT (8.1%). Company D plans to offer consultancy services but has no revenue yet.
- Reclaimable VAT: CHF 2,430 (assuming clear evidence of future taxable activity)
Recent Legal Developments in Swiss VAT Law (2025)
As of January 1, 2025, Switzerland updated its VAT law with key changes:
- Subsidy Classification Clarification: Grants explicitly labeled by public authorities as subsidies gain clearer VAT treatment.
Example: A municipality provides a CHF 30,000 subsidy explicitly designated as operational support. Since it is clearly identified as a subsidy, it is recognized as non-taxable, simplifying VAT treatment and ensuring no ambiguity.
- VAT Exemptions Expanded: Broader exemptions for non-profit institutions and healthcare services.
Example: A non-profit hospital receives CHF 100,000 funding to improve community health services. Under the expanded exemption rules, these funds are fully VAT-exempt, meaning the hospital incurs no VAT obligations related to this funding.
Conclusion
Understanding the VAT implications of grants in Switzerland requires careful consideration of the nature and purpose of the funding. Companies should document clearly, calculate carefully, and seek professional advice when needed to ensure compliance and optimal VAT handling.