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Net tax debt rate (VAT) : What is it?

Net tax debt rate - VAT Switzerland

You may be wondering what exactly NTDR is in Switzerland. Well, in this article we're going to look at the subject. The net tax liability rate is a VAT settlement method provided by the Federal Tax Administration to ease the administrative burden on entrepreneurs.

The method of settlement according to the net tax liability rate is the subject of a VAT info. In this article, we'll take a broad look at the subject.

It is essential to understand the NTDR to avoid any confusion or misinterpretation when drawing up VAT statements.

Table of contents

Net tax debt rate method (NTDR)

The net tax debt rate method (NTDR) is an approach used to calculate the amount of VAT due by the taxpayer. The rates are the input tax coefficients customary in the industry concerned, and are set by the Federal Tax Administration (FTA) after consultation with the relevant industry associations.

Unlike the effective method, this method allows businesses to simplify their administrative procedures and forecasting calculations based on sales generated, as the method of application remains relatively simple.

Steps to apply this method

  1. You must apply to the FTA for tax liability. On the online form, make sure you choose the net tax liability method.

  2. Indicate your industry and activity. (important for determining the rate)

  3. Choose between collection or invoicing methods. You will need to choose between these methods and apply them to the VAT statements you submit.

  4. Once you're a taxpayer, you'll have to submit a VAT statement every six months.

  5. Calculating the tax due: to determine the VAT owed to the authorities, you need to take all the services provided (incl. VAT) during the accounting period and multiply this figure by the rate you have been granted.

Advantages of the net tax debt rate method

The NTDR method offers a number of advantages over other counting methods.

Rapid assessment

For most business managers, managing cash flow is important. With this method, it's easier to know how much the company will have to pay for X amount of sales generated.

Less administrative work

The NTDR method allows you to file 2 statements instead of 4 in an effective method. Not to mention that the legal application of the TDFN is simpler.

Including private share

The NTDR takes several coefficients into account, it is not necessary for a self-employed person to pay VAT on the private portion of his business. (for example: private share of vehicle)

Disadvantages of the net tax debt rate method

The NTDR method also has its drawbacks, which you should be aware of before opting for it.

Recovery of VAT on purchases

You won't be able to reclaim VAT on purchases and services paid. If you plan to make major investments in the first few years, this method may not be for you.

Recovery of VAT on imports

As with purchases in Switzerland, purchases of materials made abroad cannot be reclaimed. Imports are made at value before tax, and you will have to pay VAT at the corresponding rate without being able to reclaim it.

Tax on acquisitions

Tax on services provided by companies based abroad must be paid at the standard rate applicable in Switzerland. This includes Google Ads, for example.

Net tax debt rate method by sector and activity

Net tax debt rate (NTDR) vary considerably between different branches of economic activity. Each sector has its own characteristics, which influence the coefficients and therefore the rate applied.

Service companies tend to have a higher rate, as they don't usually buy many goods or services from third parties on which VAT could be reclaimed if the normal accounting method were applied.

Examples of high net tax debt rates:

Rental of services (administrative, IT, etc.): 6.5%

Hair salon: 5.1%

Restaurant: 5.1%

 

On the other hand, some industries may have a lower net tax liability. This is because, in such industries, the need for equipment is greater than in those mentioned above.

Examples of low net tax debt rates :

Sales of food products: 0.1%

Medical services: 0.1%

Stores (general): 2.0%

Can I have several rates ?

Yes, it is possible to be granted two rates maximum. Particularly when the company does different activities. A garage that does mechanical work, but also bodywork, or a restaurant that offers meals to eat in and take away.

Example of calculation using the NTDR method

A hairdressing salon with a 5.1% tax rate and first-half sales of CHF 120,000 (incl. VAT) will have to pay the amount of 6’120 CHF (120’000 CHF * 5.1%).

At this stage, it is not possible to make a comparison with the actual method, as purchases of materials and services acquired during the same period would have to be taken into account.

Flat rates (FR): definition and difference from the Net Tax Debt Rate (NTDR)

Flat rates (FR) are a method reserved for certain taxpayers such as: the Confederation, cantons, municipalities and similar institutions, as well as associations and foundations.

Comparison between TR and NTDR

Number of statements to be filed

TR: quarterly

NTDR : every six months

 

Limits to use

TR : No limit

NTDR : Sales must not exceed CHF 5'005'000 and the amount of VAT due calculated at the rate granted must not exceed CHF 103'000.

Advice on the choice of method

The use of the net tax liability rate (NTR) can bring efficiency gains to the company that uses it. Easy to understand and apply, it's ideal for the self-employed and for service companies. But there are other bills to be taken seriously, such as tax on foreign acquisitions. These expenses can represent a significant amount of tax to be paid, which can be avoided by opting for the effective (normal) method.

A consultation with a specialist can save you a lot of money. Our experts will be happy to answer any questions you may have.

FAQ - Net tax debt rate

The NTDR method is a simpler way of applying VAT. It allows precise analysis of VAT due based on sales generated.

The NTDR is calculated by multiplying the sales generated by the rate or rates granted by the Federal Tax Administration FTA. The acquisition tax due on foreign services must also be taken into account.

Yes, from January 1, 2024, changes will take place to take account of the increase in VAT rates.

The calculation of tax receivables using the NTDR method can be carried out by anyone with accounting skills.

However, it is advisable to call on the services of experts to ensure the correct application of VAT info 12 and the general VAT rules.

Flat rates are sometimes confused with the net tax debt rate (NTDR) - the two are similar, but flat rates (FR) are reserved exclusively for institutions such as the Confederation, cantons, municipalities and similar institutions, as well as associations and foundations.