VAT increase in Switzerland 2024

From January 1, 2024, an increase in value-added tax (VAT) will come into effect in Switzerland. The standard rate will increase from 7.7% to 8.1%, the reduced rate will be 2.6% instead of 2.5%, and the special rate for accommodation will be 3.8% instead of 3.7%.

This increase is an important fiscal policy measure to ensure Switzerland’s long-term financial stability. General inflation and rising expenditures in healthcare, education, and infrastructure necessitate more funding. The VAT increase is intended to close part of the funding gap.

The VAT increase This has an impact on everyone, citizens and businesses alike. Small and medium-sized enterprises in particular need to prepare thoroughly to comply with the administrative requirements.

What are the effects of the VAT increase?

The VAT increase often leads to price increases. Companies have to pay more in taxes, and in most cases, they pass this increase on to customers by also raising the prices of their services and products.

This, in turn, affects consumer behavior. Since customers have higher living costs, they carefully consider what they want to spend their money on.

Cost management of the VAT increase

Companies face the challenge of covering rising tax costs while maintaining profitability and competitiveness. VAT is a significant component of pricing and can impact a company’s success.

This switch to the new tax rate can lead to staffing and/or resource problems, especially for small and medium-sized enterprises (SMEs). Companies risk having higher prices than their competitors after the adjustment, which can negatively impact their budget and profitability.

Companies should therefore carefully consider in which areas or for which products price adjustments are made. Short-term offers, discounts, and price reductions can sweeten the bitter pill for customers.

Legal aspects and compliance with VAT increases

The planned VAT increase in Switzerland in 2024 will not only bring economic changes but also have implications for legal aspects and tax compliance. Companies must meet the new legal requirements to avoid potential legal consequences. Here are some key points regarding legal aspects and tax compliance:

1. Adaptation to new VAT rates:

The new VAT rates need to be integrated into accounting systems and business processes. This may require updates to sales and invoicing systems to ensure the correct tax rates are applied.

“ERP systems are generally prepared for VAT changes. In the case of SAP Business One, this takes approximately fifteen minutes. This includes all special cases with the new tax rate in 2023 or the old tax rate in 2024, as well as updating the VAT form. The VAT codes remain unchanged; the rates are controlled by the posting date. I recommend integrating these adjustments early on.”

Bruno Mühlebach, ERP Consultant

ERP systems such as SAP Business One or SAP Business by Design They allow for a relatively simple transition, while decentralized or outdated management systems often involve more personnel and labor costs. Should you have any questions or doubts, please contact our ERP experts. You can also find further information in our wiki. How to adjust tax rates in SAP Business One or in the following video.

2. Tax documentation:

Accurate documentation of transactions ensures that all tax records are properly maintained, including invoices, receipts, and records of VAT payments. This facilitates compliance with tax regulations and audits by the tax authorities.

3. Review of existing contracts:

Existing contracts should be reviewed to ensure they correctly reflect the new VAT rates. This may include contracts with suppliers, customers, and service providers. If necessary, contracts must be amended and renegotiated.

4. Timetable for the VAT increase:

Businesses must closely monitor the timing of the VAT increase and ensure they apply the new rates from that point onward. This can have a significant impact on invoicing cycles and payment deadlines.

Neither the invoice date nor the payment date is decisive for the applicable tax rate. Only the date the service is rendered counts. Therefore, the increase can already apply to invoices issued during 2023.

This applies particularly to invoices issued in 2023 that fall wholly or partially into the 2024 service period, such as partial payment invoices, advance payment invoices or invoices for periodic services.

Conversely, this also applies to 2024 if subsequent reductions in remuneration and returns are received that fall within the 2023 performance period.

Which industries are most affected by the VAT increase?

The impact of the VAT increase depends on various factors, including specific business models, the competitive landscape, and consumer response. Some sectors will therefore be more affected by this change than others.

1. Retail: 

The retail sector is often most directly affected by VAT increases, as price hikes are passed directly on to customers. Consumers may become more hesitant to purchase products that have become more expensive due to the tax increase. This could potentially lead to a decline in sales in certain areas.

2. Gastronomy and tourism: 

The hospitality and tourism industry is particularly sensitive to price fluctuations. Higher VAT rates can lead to rising prices for restaurants, hotels, and leisure activities, negatively impacting demand.

3. Construction and real estate sector: 

The construction and real estate sector could also be affected by the VAT increase, as it raises the costs of construction and renovation projects. This, in turn, impacts the demand for real estate and construction projects.

4. Healthcare and Education: 

Services in the healthcare and education sectors are generally exempt from VAT, but indirect effects can still be felt. Rising living costs could strain people’s budgets and affect their willingness to invest in healthcare and education services.

5. Luxury goods: 

The luxury goods industry is generally less affected by the VAT increase. Buyers of luxury goods are usually not as price-sensitive when prices rise.

6. Export-oriented companies:

Export-oriented companies will also be less affected by the VAT increase. They primarily sell their products abroad, and in this case, a tax increase has less of an impact on prices and competitiveness.

Tips and best practices for increasing VAT

1. Early preparation:

Start preparing for the VAT increase early. The more lead time you have, the better you can adjust to the changes.

2. Thorough training:

Train your staff, especially those responsible for accounting and tax compliance. Ensure they understand and can apply the new VAT rates and regulations.

3. Software update:

Check your accounting and invoicing systems for updates to ensure you can correctly apply the new VAT rates. Make sure your software provider delivers the necessary updates.

4. Review of contracts:

Review existing contracts and agreements to ensure you correctly account for the VAT increase. If necessary, amend contracts and explain the price increase to your contractual partners.

5. Regular monitoring:

Establish regular monitoring mechanisms to ensure that VAT rates are applied correctly. This may include internal audits and controls.

6. Transparency in communication:

It is advisable to explain the price increase to customers clearly and transparently. This strengthens customer trust and prevents misunderstandings. Special offers and discounts can mitigate the impact on customers. 

7. Expert consultation:

Consult tax experts and accounting advisors to ensure you are following best practices for your specific situation. 

8. Keep the documentation:

Keep detailed records of all tax transactions and VAT payments. Accurate documentation is crucial to demonstrate compliance.

9. Cash flow management:

In cash flow management, companies must ensure they have sufficient liquidity to pay the higher taxes without jeopardizing their operational activities.

If your company already uses an ERP system, the transition to the VAT increase will proceed without major problems. If you are considering purchasing such a system, speak with one of our experts and let them explain and demonstrate its advantages.