Why public grants require dedicated accounting treatment
In Switzerland, businesses and self-employed professionals can access federal, cantonal or municipal grants for innovation, training, investment, sustainability or economic survival. Programmes such as those run by Innosuisse, SECO, cantonal economic development funds or COVID measures have made it common to receive significant amounts that, however, are not ordinary commercial revenue.
The most widespread error is to treat every payment from the authority as immediate revenue or, conversely, to omit it entirely from the balance sheet. Both choices distort the operating result, can trigger tax adjustments and complicate reporting to the granting body. Correct accounting depends on the nature of the grant, contractual conditions and the accounting framework adopted (Swiss GAAP FER 28 or CO standards).
This guide outlines the complete operational process — from approval notification to impact on the balance sheet, income tax and VAT — with references to the Swiss Code of Obligations (CO), the Federal Direct Tax Act (LIFD/DBG), the Value Added Tax Act (LIVA) and Swiss accounting standards.
Types of support: what changes in the balance sheet and for tax purposes
Before recording receipt of funds, the grant must be classified according to its economic purpose and reporting obligations:
| Type | Typical example | Accounting (Swiss GAAP FER 28) | Tax impact (income) |
|---|---|---|---|
| Operating grant | Temporary compensation, liquidity support, coverage of current costs | Revenue when the entitlement accrues (account 39xx) or deferral if tied to multiple financial years | Generally taxable; check for any cantonal rules or grant programme restrictions |
| Investment grant | Purchase of machinery, digitalisation, premises expansion | Reduction of the carrying amount of the fixed asset or deferred liability (2300) released over useful life | Not separately taxable if it reduces the cost of the fixed asset; release taxable if recorded as deferred liability |
| Project grant | Research and development, vocational training, export promotion | Offset against project costs (job-order accounting) or deferred revenue linked to milestone completion | Taxability linked to actual use; costs deductible only if not already covered by the grant |
| Subsidised loan / guarantee | COVID loan, federal guarantee on bank credit | Financial liability (2400); any forgiveness treated as operating grant upon waiver | Debt forgiveness constitutes taxable income at the time of final extinguishment |
Accounting entries: chart of accounts and recognition timing
Under Swiss GAAP FER 28, the guiding principle is to align recognition of the grant with fulfilment of the economic conditions, not simply with the bank credit. For an SME, the recommended operational sequence is as follows:
Approval and conditional commitment
Upon approval notification, record an off-balance-sheet commitment or analytical note. If the grant is subject to suspensive conditions (e.g. project launch by a certain date), do not recognise any revenue.
Receipt in the current account
Record the credit: D 1020 Bank / C 2300 Deferred public grants if conditions are not yet met, or directly to revenue if the entitlement has accrued.
Instalment or milestone disbursement
For multi-year projects, release the deferred liability in proportion to costs incurred or milestones reached: D 2300 / C 39xx Income from public grants.
Investment grants
If the grant programme provides for a reduction in acquisition cost, record: D 1020 / C 15xx Fixed assets (net of the grant). Alternatively, record as deferred liability and release in parallel with asset depreciation.
Caution: double counting of costs
If a grant covers specific project costs (e.g. CHF 30,000 for external consulting), costs remain recorded gross in the income statement and the grant is recognised separately as income — or, if the grant programme explicitly allows it, costs are charged directly against the grant. The choice must be consistent throughout the project and documented in the internal accounting policy.
Tax treatment: income tax and profit tax
For federal direct tax and cantonal income or profit tax purposes, public grants generally contribute to taxable income in principle. Art. 58 para. 1 LIFD establishes how the commercial accounting result translates into taxable income, with any necessary tax adjustments; there is no general exemption for grants earmarked for specific purposes.
For investment grants allocated to the acquisition cost of a fixed asset (net method), the grant does not generate separate income but reduces the depreciation base; if instead recorded as deferred liability and released over time (gross method), the release is generally taxable in the relevant financial year. An unrestricted operating grant, disbursed as generic liquidity support, is fully taxable in the year of receipt or when the entitlement accrues. Cantonal authorities may provide specific rules: verify with the competent authority.
Temporary accounting/tax differences
When the commercial balance sheet recognises the grant over several financial years (deferred liability) but taxability is determined differently for tax purposes, the necessary adjustments must be included in the tax reconciliation (Art. 58 para. 1 LIFD).
Document in the tax file the reconciliation between accounting result and taxable income.
Repayment and forfeiture of the grant
If the granting body revokes the grant for non-compliance (e.g. project not completed, turnover threshold exceeded), the amount to be repaid is not a deductible «penalty» but a reversal of the original income.
Record the repayment: D 2300 or 39xx / C 1020 and carry out any tax adjustments for prior financial years.
VAT: when a public grant falls outside the scope of tax
Grants disbursed by public authorities or public-law bodies, without direct consideration, generally do not constitute taxable supplies under Art. 18 para. 2 let. a LIVA. As of 1 January 2025, Art. 18 para. 3 LIVA provides that qualification as a public-law subsidy or grant generally requires explicit designation by the granting body in the decision or contract. The beneficiary company therefore does not issue a VAT invoice upon receipt of the grant.
Watch out for mixed situations: if the «grant» is in fact remuneration for a specific service (e.g. the public body commissions a study or consulting assignment), it is ordinary operating revenue subject to VAT. The distinction depends on the underlying contract — verify whether there is an obligation to provide a commercial service comparable to a client-supplier relationship.
For costs purchased with public funds, the company can in principle deduct input tax on supplier invoices, but must verify whether a proportional reduction of the input tax deduction applies under Art. 33 para. 2 LIVA. Purpose-specific grants may limit the deduction on the portion financed with public funds; the grant programme and FTA practice (MWST-Info 05) must be checked on a case-by-case basis.
Reporting to the granting body and internal traceability
Almost every cantonal or federal grant programme requires periodic or final reporting. Well-organised analytical accounting avoids disputes and delays in subsequent payments:
- → Dedicated cost centre: open an analytical account or Accountex project for each approved application, with grant programme code and decision number.
- → Document linkage: associate each eligible expense with the supplier invoice, payment proof and approved budget line in the grant programme.
- → Grant register: maintain a schedule with approval date, total amount, instalments disbursed, remaining conditions and reporting deadlines.
- → Retention: archive for ten years (Art. 958f CO) the grant agreement, the decision, interim reports and project closure confirmation.
| Document | Accounting purpose | Tax purpose |
|---|---|---|
| Approval decision | Basis for recognition of entitlement and deferred liability | Proof of purpose and grant programme conditions |
| Project financial plan | Benchmark for instalment release of the grant | Reconciliation of eligible costs vs. tax deduction |
| Final report to the granting body | Closure of deferred liability and confirmation of income | Documentation for any FTA/cantonal audit |
| Bank statement with credit | Proof of receipt and bank reconciliation | Accrual date for taxability |
Practical examples: three common scenarios
Scenario A — Cantonal investment grant (CHF 80,000)
A workshop in the Canton of Vaud purchases a CNC machining centre for CHF 200,000. The canton disburses CHF 80,000 covering 40% of the investment, conditional on commissioning within 18 months.
Accounting: fixed asset recorded at CHF 120,000 (200,000 − 80,000). Depreciation calculated on net value. No immediate income in the income statement. For tax purposes: no separate income if the grant reduces acquisition cost; depreciation is calculated on net value and remains subject to grant programme conditions.
Scenario B — Multi-year Innosuisse project (CHF 150,000 over three years)
A tech startup receives a research project grant disbursed in three instalments linked to semi-annual reviews. Eligible internal costs: CHF 200,000; public coverage: 75%.
Accounting: each instalment received goes to deferred liability (2300). Upon completion of each review, proportional release to revenue (39xx). Research personnel costs remain gross in accounts 5xxx/6xxx. Quarterly reporting to Innosuisse with timesheets and supplier invoices linked to cost centre «INNO-2026-042».
Scenario C — Unrestricted operating compensation (CHF 25,000)
A restaurateur receives a one-off cantonal grant to compensate for a decline in turnover, with no obligation to make a specific investment.
Accounting: upon receipt, immediate recognition as revenue (39xx Public grants). Fully taxable in the current financial year for federal direct tax and cantonal purposes. No VAT exposure on receipt, but verify any reduction of input tax deduction (Art. 33 para. 2 LIVA). At year-end closing, verify correct presentation in the income statement, separate from ordinary operating revenue, for transparency towards banks and investors.
Common errors and how to avoid them
Recognising revenue on receipt without verifying conditions
Receiving a first instalment does not automatically mean the entitlement has accrued. If the grant programme ties disbursement to achieving objectives, use deferred liability until conditions are met.
Deducting costs already reimbursed by the grant
Including in the tax return costs whose expenditure was covered by unrestricted public funds creates double deduction. Reconcile the grant register with the tax position before closing.
Confusing subsidised loan and subsidy
Repayable financing goes to financial liabilities, not to revenue. Subsequent forgiveness requires separate recognition and assessment of taxability at the time of waiver.
Omitting the investment grant from the fixed asset register
Calculating depreciation on full cost rather than net value artificially inflates the result and distorts the tax base in future financial years.
Year-end closing checklist
Before finalising the annual accounts, verify for each active grant:
- ☑ Correct classification (operating / investment / project / loan)
- ☑ Deferred liabilities reconciled with release plan and milestones reached
- ☑ Fixed assets net of investment grants, consistent depreciation
- ☑ Pending reports to granting bodies completed or provisioned
- ☑ Tax reconciliation between accounting result and taxable income (Art. 58 para. 1 LIFD)
- ☑ VAT qualification of the grant verified (Art. 18 para. 2–3 LIVA) and input tax reduction assessed (Art. 33 para. 2 LIVA)
- ☑ Documentation archived with reference to cost centre and grant programme code
With structured accounting from the grant application onwards, business owners and fiduciary firms avoid tax adjustments, facilitate audits by granting bodies and maintain a balance sheet that faithfully reflects the actual economic situation — regardless of the mix between operating revenue and public support.