Swiss Value-Added Tax (VAT): Everything you need to know
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These days, we talk a lot about the increase in VAT. But what is the Value-Added Tax (VAT) and what purpose does it serve?
This indirect tax is levied by the confederation on the value-adding chain. In this article, we will cover this indirect tax in detail. We will see who it concerns and how it works.
Value-Added Tax (VAT)
The Value-Added Tax started in 1995, as an evolution from the sales tax from 1959. It is an indirect tax, meaning it is not directly collected by the Confederation. Instead, it is collected by companies on each value-adding service or product. There are some exceptions, as we will see later.
But basically, we can say that the Value-Added Tax is a tax on consumption. The more one person consumes, the more VAT he will pay. Every time you do your groceries, some part of your expenses will go to the federal government instead of going to the grocery store.
And it is important to note that VAT is only levied on products in Switzerland. If you buy something in another country, you will not pay Swiss VAT (but likely foreign VAT). And if you order something from another country, you will not directly pay Swiss VAT, but the import Tax is loosely based on VAT.
VAT is essential for the Swiss government because it is the second source of income, just after direct taxes. In 2023, the Confederation had an income of 79.6 billion CHF. Out of this revenue, the three highest sources of income are:
- Direct taxes for 27.8B
- Value-Added Tax for 25.1B
- Other consumption taxes (tobacco, oi, …) for 8B
So, the federal government would not be able to continue without VAT.
One thing that is very essential to note in Switzerland is that the VAT must be included in the advertised prices for retail shops. If you go to a grocery shop, all prices are shown with VAT included. For everything that is not retail (a bill for instance), each provider is free to do as it chooses.
VAT Tax rates
There are three groups of rates in the Value-Added Tax system:
- The standard rate, which applies by default.
- The reduced rate for food, medicines, books and such.
- The accommodation rate for services provided by the Swiss hotel industry.
In 2024, we paid the following rates:
- 8.1% for the standard rate
- 2.6% for the reduced rate
- 3.8% for the accommodation rate
While these rates are not negligible, they are well below the standard in Europe (average of 21% in 2024). This explains why some things (few) are cheaper in Switzerland than in Europe because we pay a lower VAT on them.
VAT in 2026
Since the introduction of the thirteenth salary for the first pillar pension, there have been talks about an increase in the Value-Added Tax. As of September 2024, the federal government proposal is to raise VAT from 8.1% to 8.5%. The goal is to increase the financing of the first pillar. We will know later exactly how this goes, and we may have to vote on this matter.
What does this mean for us? It means that each service or product under the normal rate will have an extra 0.4% VAT tax. For instance, to buy a television at 1000 CHF gross, you would pay:
- 1081 CHF in 2024
- 1085 CHF in 2026
This is not a huge difference, of course, but this will add up on almost all expenses. It is expected that it will cost between 100 CHF and 500 CHF per household per year.
Which companies are liable?
All companies doing business and not exempt from tax are liable to the Value-Added Tax. This includes legal entities, natural persons and associations. So, if you are doing business through a sole proprietorship or through an LLC, you are liable in the same way for VAT.
If a business does less than 100’000 CHF in turnover, it will be exempt from VAT. Once the business reaches 100’000 CHF in turnover, it will have to register with the VAT office and start charging VAT.
Exemptions from VAT
Some products and services are exempted from VAT. It means that when you purchase such a good, the company you purchase it from will not charge any VAT.
Here are the main services exempted from VAT:
- Medical services
- Educational services (public institutions, mostly)
- Financial services and insurance
- Postal services (by Swiss post)
- Cultural services (museums, libraries, theaters, …)
This exemption makes businesses providing these services more competitive (since they are cheaper). However, it also means that these companies cannot claim input tax deductions. As a result, they may have higher expenses.
It is also interesting to know that some exceptions are more specific. For instance, some banking services are exempted, like the fees for a private account. However, some banking services are not exempted, like custody fees or special tax reporting fees.
Input Tax Deductions
Since the tax is supposed to only tax the value-adding chain, it should not tax products or services used to create more value. In the Value-Added Tax system, this is achieved by allowing taxable businesses to deduct the so-called input tax. The input tax is simply the VAT they paid on the input on which they based their value-adding chain.
A good example of this system is for clothes (fully fictional numbers):
- The fabric factory will buy raw cotton, for instance for 1000 CHF and sell fabric for 2000 CHF
- This business can deduct an input tax of 81 CHF
- This business will charge 162 CHF in VAT to the buyer (the cloth factory)
- The net VAT result will be 81 CHF
- The cloth factory will buy the fabric for 2000 CHF and sell clothes for 5000 CHF
- This business can deduct an input tax of 162 CHF
- This business will charge 405 CHF in VAT to the buyer (the clothes shop)
- The net VAT charge will be 243 CHF
- The clothes shop will buy the clothes for 5000 CHF and sell them to direct customers for 10’000 CHF
- This business can deduct an input tax of 405 CHF
- This business will charge 910 CHF in VAT to the buyers (the direct customers)
- The net VAT charge will be 405 CHF
As we can see in this simple example, each of the business involved only paid the VAT on the value they added to the chain.
In practice, businesses generally declare VAT (both output and input) every 3 months.
Of course, this is a simple example. In practice, the system can be more complicated if suppliers from other countries are involved or if some goods are exempt from VAT. If you are in a complex business situation, you will need experts to help you, since these points are outside the scope of this article.
It is also worth mentioning that prices between companies are typically negotiated about without VAT. Then, when paying, the VAT is added. This makes sense since they often can deduct it.
Other VAT calculations methods
For completeness, I should mention that there are three different calculation methods for Value Added Tax, for companies.
The first one is the Effective Counting Method, which is the standard one explained before, when a company declares exactly how much it paid in VAT (input) and how much it charged in VAT (output). And it will be billed the difference, either monthly or quarterly.
The second method is the Counting Method according to Net Debt Tax Rates. This method is simplified for small to medium companies. It uses specific rates per sector and calculates the VAT due on the total turnover. This method only requires semi-annual declarations. Only companies with a turnover below 5 million CHF and a tax debt blow 108’000 CHF per year can use this method.
The last one is the Counting Method according to Flat Rates. This method is made for public companies (schools and hospitals, for instance). It is almost the same as the previous method, but there is no limit on the turnover and tax debt.
If you are a company, you may want to read the official documentation on VAT. This is quite complete and goes beyond the scope of this article.
Conclusion
The Value-Added Tax (VAT) is an important part of the tax system of Switzerland. It is the tax we pay the most often, since we pay it many times a month. For instance, every time we do our groceries or have a meal in a restaurant. But the system is not always well understood.
With this brief introduction, we have a better idea of how much we pay in VAT and what does the system taxes. It is definitely interesting to know how much this tax matters in the federal budget. I was not expecting it to weight as much as direct taxes.
The only way to save on the Value-Added Tax (VAT) is to consume less. The less you consume, the less VAT you will pay. But this is really the only way to reduce this tax. Buying abroad is a way to avoid this tax, but then you are sometimes paying more VAT, so all things must be considered.
If you have a company, the Value-Added Tax is essential to know because it requires multiple declarations each year.
What about you? What do you think about the Value-Added Tax? Did I forget anything worth mentioning?
Recommended reading
- More articles about Personal Finance in Switzerland
- More articles about Save
- The role of the Swiss National Bank (SNB)
- The Poor Swiss versus the Average Swiss Household
- Should you buy or rent a house in Switzerland?
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Hi Baptiste,
Nice article as always,
Detaxe part is missing :).
Given the amount it is possible to avoid French (for my example) and Swiss VAT.
If you buy some article in France or any other country you can make the “detaxe”.
For France the amount need top be over 100eur.
For Swiss If the amount is less than 300chf per person (150chf the 01 Jan 2025) then no need to pay the Swiss VAT.
In practise for the food it is not really big.
Example you go with 1kid and have a 300euro ticket, French VAT is 5.5% on food so this make 16.5Eur. on this you deduce all the fee from the detaxe compagny (around 25%-30%) which give you 11Euro back under the condition that:
1. Make the detaxe (ID needed)
2. Stop at the border on a location who has a “Pablo” machine (rare).
If this concern non food then it is better. 300euro mean 60euro VAT in France mean than we can get back arround 40Euro after the detaxe fee.
Hi Stépane,
Yes, this was omitted on purpose. First, to keep the article to Swiss VAT system itself and not about foreign VAT. And second, because I do not want to encourage people to shop abroad :)
Hi Baptiste,
Yes I believe this is linked to the residence place.
When you live near the border we cannot ignore the price difference, especially If you are carfull on spending, it is too big !
From -10% to -70% for similar/same product depending on categories.
Cumulated, at the end of the year this make multiple thousands of chf saved :)
It’s true that when you are talking about thousands, it can make a huge difference on total expenses!
Interesting to know is whether VAT is applicable to remote services provided to companies in EU and outside EU from CH.
I have a business located in the EU. EU-to-EU transaction: 0% VAT, EU-to-nonEU: VAT-exempt.
What would happen if services would be provided from a Swiss entity? CH is not part of the VIES system, obviously.
Hi Roald,
Normally, if you provide a service from a CH company to a business located outside of Switzerland, this service is not subject to VAT.
Now, this may be different for remote services since the place of the service is not clearly defined. This is outside of my research on VAT.
Hi Baptiste,
Do you know whether the 100k/year only apply to a single business or all businesses of a person combined? Imagine a person has 4 different businesses (separate companies) and they all make 90k/year, there is no VAT on any of the businesses?
That would feel a bit like a loophole that surely is either not allowed or if it is, then heavily used, no?
Or would the overhead of having 2 separate companies anyway be more expensive than the “savings” on the 7.5*2 = 15k CHF (8.5% of 90k)?
Hi Peter,
For VAT, it’s per business. I would say in the case you mention, it’s indeed allowed to have 4 businesses at 90k. But these business must be clearly separated: banks accounts, tax returns, invoices and customers.
If the tax office feel you are doing this for the sole purpose of evading VAT, then it’s tax evasion. But given the disadvantages of having to manage multiple businesses, I am not sure this is worth it unless you are very close the threshold.