What are the VAT rates in Switzerland ? Explainations
VAT rates in Switzerland are one of the key element entrepreneurs must understand. Recently, in January 1, 2024, there were changes changes to VAT rates in Switzerland. Let’s look together at how these changes impact individuals and businesses.
VAT rate changes on January 1, 2024
The Swiss people voted on September 25, 2022, for a reform of the AVS (old-age and survivors’ insurance) that will notably see the retirement age for women increase from 64 to 65 years. Moreover, to cover the financial needs of the AVS, VAT rates will be increased.
Here is a summary table that explains the old and new VAT rates applied in Switzerland following the vote of September 25, 2022.
| Until December 31, 2023 |
Starting January 1, 2024 |
||
|---|---|---|---|
| Standard Rate | 7.7% | Standard Rate | 8.1% |
| Reduced Rate | 2.5% | Reduced Rate | 2.6% |
| Special Rate | 3.7% | Special Rate | 3.8% |
Presentation of the three VAT rates in Switzerland until December 31, 2023
In Switzerland, three VAT rates have been applied so far in accordance with the Federal Act on Value Added Tax (VAT Act).
The standard rate
Until the end of 2023, the standard rate is 7.7%. This is the rate applied to most goods and services.
The special rate
This rate of 3.7% applies to accommodation services.
The reduced rate
It is set at 2.5% and concerns certain specific categories of goods, such as foodstuffs, books, newspapers, and certain medical services.
Presentation of the new rates from January 1, 2024
From January 1, 2024, these three VAT rates will be modified as follows:
The standard rate
It will increase to 8.1% to apply to the vast majority of goods and services.
The special rate
It will slightly increase to reach 3.8% and will remain applicable to accommodation services.
The reduced rate
It will be raised to 2.6%, still intended for the specific goods and services mentioned previously.
Reason for the rate increase
The decision to increase VAT rates results from a careful analysis of the current economic environment. The aim of this reform is to ensure the sustainability of the Swiss tax system by adapting to the constantly evolving economic and budgetary dynamics.
Moreover, this increase will finance the rising costs of public infrastructure, healthcare, and other essential public services. Companies must therefore prepare for this transition to ensure a smooth implementation of these new rates and avoid errors that will be spotted during VAT control.
Impact of the rate change on invoicing
Rules for determining the applicable tax rate
The change in VAT rates implies a direct impact on the invoicing of goods and services.
According to the Federal Act on Value Added Tax, the applicable VAT rate is the one in force at the time of the delivery or service provision.
Therefore, it is the date of delivery or service that determines the VAT rate to apply, not the date of invoicing or payment.
Thus, any turnover from the delivery of goods or provision of services carried out from January 1, 2024, will be subject to the new VAT rates.
Special case of periodic services
For periodic services such as subscriptions or long-term contracts, the change in VAT rates may raise questions.
In the case of service provision over a period or in installments, each service is considered separate. Therefore, each service is subject to the VAT rate in force at the date it is performed.
Thus, for an annual subscription whose duration extends beyond December 31, 2023, the part of the service provided in 2023 will be invoiced with the 2023 VAT rates.
Services provided from January 1, 2024, will be invoiced with the new rates. Companies must therefore ensure to correctly adjust their billing systems to account for these changes.
Concrete examples of the impact of VAT rate changes
Example 1: purchase of a tangible good
Consider Télévision SA, a furniture sales company located in Geneva. A customer decides to buy a television worth 3’500 CHF on December 30, 2023, but the delivery is scheduled for January 2, 2024.
According to the VAT Act, the applicable VAT rate is the one in force at the time of delivery. Thus, even if the sofa was paid for in 2023, the applicable VAT rate will be the one in force in 2024, considering the delivery date. Therefore, the customer will be invoiced with the 2024 VAT rate.
Example 2: service provision over a period (Conseils SA)
Take the example of Conseils SA, a consulting company based in Lausanne. It offers an annual subscription of 12’000 CHF for various advice, paid in advance, the contract starting on July 1, 2023.
For this type of service, in accordance with the VAT Act, each service is considered separate and is subject to the VAT rate in force at the date it is performed.
So, for services rendered between July and December 2023, the 2023 VAT rate will be applied. For services provided from January to June 2024, the new 2024 VAT rate will be applicable. Conseils SA will therefore have to adjust its billing to reflect these rate changes.
VAT management in companies
Changes in VAT declarations
The changes in VAT rates have a direct impact on the accounting and administrative management of companies.
Concretely, they will have to update their accounting systems to take into account the new VAT rates from January 1, 2024.
It is therefore essential to plan a transition period to make these modifications and ensure compliance with VAT declarations.
When declaring VAT, the company must separately indicate the taxable amounts for each VAT rate. Therefore, it is crucial to clearly distinguish operations carried out under the old rate and those under the new rate.
Examples of adjustments to VAT declarations for contracts covering the period before and after January 1, 2024
Take the example of a company providing a subscription service on an annual basis. Imagine the company receives full payment for the year 2023-2024 before January 1, 2024.
In this case, it will have to divide the subscription into two parts for the VAT declaration: one for services provided in 2023 (with the old VAT rate) and another for services provided in 2024 (with the new rate).
The company will then have to adjust its VAT declaration to separately indicate the taxable amounts for each rate. This may require additional administrative work and special attention to ensure a smooth transition.
Conclusion: an increase in VAT rates in 2024
As we have seen, the changes to Swiss VAT rates on January 1, 2024, will have a significant impact on commercial transactions and the accounting of companies. It is essential to understand that these changes not only concern the effective VAT, but will also affect the net tax debt rates of companies and the tax on acquisitions.
Companies must therefore anticipate these changes and adapt their accounting accordingly. The slightest doubt or misunderstanding can have significant consequences, both financially and legally. It is therefore strongly recommended to seek advice from a Swiss accountant.
