Leasing in Switzerland: Accounting, Taxation, VAT and Balance Sheet Impact

Leasing in Switzerland: Complete Accounting, Tax and Strategic Guide

(Vehicles, Industrial Machinery, Professional Equipment)

Introduction

In Switzerland, leasing has become a central financing tool for SMEs, industrial companies, holding structures and service businesses. Commercial vehicles, executive cars, production machinery, industrial lines, IT equipment or medical devices: leasing is now widely embedded in corporate financing strategies.

However, leasing should not be analyzed solely from a cash-flow perspective. It has a direct impact on:

• Balance sheet structure

• Financial ratios

• Corporate taxation (income tax on profits)

• VAT

• Banking debt capacity

• Business valuation

Incorrect qualification or improper structuring may result in significant tax or banking consequences.

This article analyzes leasing in Switzerland under:

• The Swiss Code of Obligations (CO)

• Federal and cantonal taxation rules

• The Swiss VAT Act (VAT Act / MWSTG)

• Banking and strategic best practices

1. Definition of Leasing under Swiss Law

Leasing is a contract whereby:

• A leasing company (lessor) acquires an asset

• Makes it available to a user (lessee)

• In exchange for periodic lease payments

Throughout the contractual term, legal ownership remains with the lessor.

In practice, three main forms exist.

Operating Lease

Similar to a pure rental arrangement.

• No economic intention to acquire ownership

• Often used for vehicles or frequently renewed equipment

Finance Lease

Economically comparable to a loan.

• The asset is used as if the company owned it

• Often includes a purchase option

Sale & Lease Back

The company sells an existing asset to a leasing company and immediately leases it back.

Main objective: generate liquidity without interrupting operations.

2. Accounting Treatment in Switzerland (CO)

The accounting treatment depends on the economic substance of the contract.

2.1 Operating Lease

Under the Swiss Code of Obligations:

• Lease payments are recorded as operating expenses

• No asset is recognized on the balance sheet

• No depreciation is recorded

Effects:

• Lighter balance sheet

• EBITDA decreases (lease payments are operating expenses)

• No apparent debt

However, commitments may be disclosed in the notes.

2.2 Finance Lease

When leasing is economically equivalent to a financed purchase:

• The asset is recognized as a fixed asset

• A corresponding liability is recognized

• Depreciation is recorded

• Interest is recorded as financial expense

Effects:

• Increase in total assets

• Impact on equity ratio

• EBITDA improves (depreciation is not an operating expense)

2.3 Differences under IFRS (IFRS 16)

Under IFRS 16:

• Almost all leases (with minor exceptions) must be recognized on the balance sheet

• Asset: Right-of-Use (RoU)

• Liability: Lease obligation

Consequences:

• Mechanical increase in reported debt

• Changes in banking ratios

• Impact on valuation and financial covenants

3. Impact on the Balance Sheet and Financial Ratios

Leasing directly affects:

• Equity ratio

• Debt ratio

• Borrowing capacity

• Banking rating

Operating leases may improve some metrics in appearance. In practice, banks often reintegrate off-balance-sheet commitments into their economic analysis.

As a result, the “off-balance-sheet” effect is increasingly limited in banking negotiations.

4. Taxation of Leasing in Switzerland

4.1 Tax Deductibility

Operating lease:

• Lease payments are fully deductible as expenses.

Finance lease:

• Depreciation is deductible.

• Interest is tax-deductible.

The tax treatment must be consistent with the economic substance of the contract.

4.2 Risk of Reclassification

Tax authorities may reclassify a lease as a loan if:

• The purchase option is symbolic.

• The lease term covers most of the asset’s economic life.

• Risks and rewards are transferred to the lessee.

Possible consequences:

• Mandatory capitalization of the asset.

• Retroactive tax adjustments.

• Exposure to late-payment interest.

A prior review is essential to mitigate these risks.

5. VAT and Leasing

5.1 VAT on Lease Payments

VAT is charged on each lease installment.

If the company is Swiss VAT-registered:

• Input VAT can be recovered,

• Provided the asset is used for taxable activities.

5.2 Passenger Vehicles

Key sensitive points:

• VAT adjustment for private use

• Limited input VAT recovery in mixed-use situations

• Taxation of fringe benefits for executives and employees

Poor management may lead to VAT reassessments.

5.3 Leasing of Industrial Machinery

In an industrial context:

• VAT is recoverable if the activity is taxable

• For imports: import VAT is recoverable

• Pay attention to cross-border structures and permanent establishments

6. Leasing vs Purchase vs Bank Loan

Leasing is a strategic tool, not merely a financing method.

7. Strategic Considerations for Executives

Leasing is particularly relevant when:

• The company is growing rapidly

• Liquidity preservation is a priority

• Equipment evolves quickly

• Technological risk is high

It is less relevant when:

• The company has strong self-financing capacity

• The business is stable long-term

• Dividend optimization is a priority

8. Common Mistakes

• Incorrect accounting classification

• Failure to adjust VAT for private use

• Underestimating off-balance-sheet commitments

• Ignoring banking impact and covenants

• Focusing on monthly payments instead of total cost

Conclusion

Leasing in Switzerland is a powerful financial, tax and strategic instrument.

When properly structured, it helps:

• Optimize liquidity

• Shape the balance sheet

• Manage technological risk

• Support growth

When poorly structured, it can:

• Deteriorate financial ratios

• Create tax risks

• Complicate a sale or fundraising

Before signing any lease, a full accounting, tax and banking analysis is recommended to integrate leasing into a coherent overall strategy.

FAQ – Leasing in Switzerland: Frequently Asked Questions

1. Does leasing always appear on the balance sheet?

No.

Under Swiss accounting rules (CO):

• An operating lease does not appear on the balance sheet (payments are expenses only).

• A finance lease is recognized as an asset and a liability.

However, even when off-balance-sheet, banks often reintegrate lease commitments into their economic analysis.

2. Can you depreciate an asset under a lease?

It depends on the classification:

• Operating lease: no depreciation, lease payments are expenses.

• Finance lease: depreciation is required because the asset is capitalized.

The classification must reflect the economic substance of the contract.

3. Are lease payments tax-deductible?

Yes, in principle.

• Operating lease: payments are fully deductible.

• Finance lease: depreciation and interest are deductible.

Be mindful of reclassification risk if the lease is economically comparable to a loan.

4. How does VAT work on a lease?

VAT is charged on each installment.

If the company is VAT-registered:

• Input VAT can be recovered.

• If there is mixed professional/private use, an adjustment is required.

5. What happens if a leased vehicle is used privately?

Two potential consequences:

• VAT adjustment for the private portion.

• Taxation of a fringe benefit for the employee or executive.

Poor management can lead to VAT and social security reassessments.

6. Does leasing improve the equity ratio?

With operating leases, yes in appearance, because no liability is booked.

But:

• Banks often adjust ratios by incorporating future lease commitments.

• The improvement may therefore be purely accounting-driven.

7. Is leasing more expensive than buying?

Often yes, on the total cost.

However, leasing:

• Preserves liquidity

• Spreads the cost over time

• May offer tax advantages

• Provides operational flexibility

Comparisons should be done on a discounted cash-flow basis.

8. Is a CHF 1 purchase option problematic?

Potentially, yes.

A symbolic option may trigger reclassification as a financed purchase.

Possible consequences:

• Mandatory capitalization

• Tax adjustments

• Retroactive corrections

9. Does leasing affect borrowing capacity?

Yes.

Even off-balance-sheet, banks:

• Consider future commitments

• Assess available cash flow

• Adjust covenants

Leasing therefore indirectly affects debt capacity.

10. Is sale & lease back tax-neutral?

Not always.

It may trigger:

• A taxable capital gain

• VAT implications

• Changes in future depreciation

A prior analysis is necessary.

11. Is leasing recommended for industrial machinery?

Often yes, especially:

• During expansion phases

• To preserve banking lines

• To limit technological exposure

But the decision depends on the company’s overall financial structure.

12. Should a lease contract be reviewed before signing?

Absolutely.

A lease should be reviewed from four perspectives:

• Accounting

• Tax

• VAT

• Banking

A pre-signature review prevents costly adjustments later.