The Swiss value-added tax (VAT) evolved from the former Swiss sales tax, which was introduced in 1959. The sales tax was replaced by the value-added tax nearly 40 years later, on January 1, 1995. Today, the value-added tax is the federal government’s most important source of income. In 2021, the value-added tax brought the Swiss government 23.6 billion francs in revenues.
Unlike a sales tax, a value-added tax is not levied on the entire sales turnover, but only on the value added by a merchant. That means a company being taxed can deduct the VAT for services provided by its suppliers (the input tax).
In Switzerland, there are three different tax rates for value-added tax:
- Standard VAT rate: 8.1 percent. This rate applies to most goods and services.
- Reduced VAT rate: 2.6 percent. This rate applies to groceries, medicines, newspapers, and books.
- Special VAT rate: 3.8 percent. This rate applies to stays in hotels, campgrounds, and other short-term accommodations.
Many banking services, including basic fees for private accounts and payment cards, are exempted from value-added tax. But there are also banking services like custody fees, administrative research, and tax statements, that are not exempted from value-added tax.
In Switzerland, there are a number of transactions that are exempted or partially exempted from value-added tax. These include services in the healthcare, finance, education, real estate, and cultural sectors.
Swiss companies that have a turnover of less than 100,000 francs per year are generally exempted from VAT. But because registering for VAT enables companies to deduct input tax, doing so can be beneficial for companies with turnovers below the 100,000-franc threshold in some cases. Companies that do not currently have a turnover of 100,000 francs or more, but expect to exceed that threshold in the future, can benefit by registering for VAT.
Small businesses in Switzerland have the option of paying a flat-rate VAT or VAT net tax. These options are available to companies with an annual turnover of up to 5.024 million Swiss francs and a VAT burden of up to 108,000 francs per year. Companies that opt for the flat-rate or net tax options pay VAT at lower, flat rates, but are not able to calculate VAT individually for each sale. The flat rates vary depending on the company’s industry sector. The advantage of using the flat-rate VAT option is that it cuts down on the administrative work required to keep track of VAT for individual sales. When calculated across all companies in a given industry sector collectively, the total tax burden per company is the same, regardless of whether companies calculate VAT for each sale, or use a flat-rate model. But there are cases in which calculating VAT for each sale individually can result in a company paying lower taxes, compared to using the flat-rate VAT option.
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