Switzerland is gearing up for some significant changes on January 1, 2024, as new Value-Added Tax (VAT) rates are set to take effect. These changes are aimed at financing "Current-age and survivors" insurance and were approved by public voters in September 2022. To help businesses prepare for the transition, the Swiss Federal Tax Administration (SFTA) has published VAT Info 19, which outlines guidelines and transition rules.
Let’s take a closer look at the changes to the VAT rates and the guidelines provided. This should help you understand how the changes can impact your business.
The New VAT Rates to be Applied
Here are the new VAT rates that will apply in Switzerland (including the Municipality of Liechtenstein) in 2024:
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New standard rate: 8.1% (+0.4)
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New reduced rate: 2.6% (+0.1)
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New accommodation rate: 3.8% (+0.1)
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Application of Current and New VAT Rates
The SFTA has confirmed that the date or period of the supply, not when an invoice is issued or payment made, will determine the applicable VAT rate. Thus, supplies rendered entirely by 31 December 2023 will be subject to the current rates while the new rates will apply to supplies rendered from 1 January 2024.
For invoices that cover supplies rendered during both 2023 and 2024, the date or period and the amount relating to each period must be mentioned separately and split between the applicable rates. If this allocation is not made on an invoice, all supplies will be subject to the new VAT rates.
Partial Payments, Partial Invoices, and Advanced Payments
Partial payments for supplies rendered before 31 December 2023 are subject to the current VAT rates and can be invoiced under the current rates. Similarly, partial payments for supplies rendered from 1 January 2024 must be invoiced with the new VAT rates.
Periodic or Continuous Supplies
Periodic supplies across both the current and new VAT rate periods must be allocated and split according to the pro rata temporis principle. For example, a 3-year maintenance contract covering 2023, 2024, and 2025 must be split, and the portion relating to 2024 and 2025 must be invoiced with the new rates. Ancillary supplies follow the VAT treatment of the main supply.
Reduction of Consideration, Returns, and Cancellation of Supplies
Rebates, volume and/or cash discounts related to supplies taxed at the current VAT rate are also to be granted with the current VAT rate, and vice versa. The VAT rate applicable at the time of the supply determines the VAT rate applicable to the return or cancellation of the supply.
Input VAT Deduction
A taxable person can deduct the Swiss VAT invoiced in the frame of its entrepreneurial activity. Thus, VAT differences invoiced as a correction of the initially wrongly applied VAT rate (by the supplier) should generally be deductible.
Implications for Your Organization
Here are some of the adaptations that may be required for your organization:
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Review inbound and outbound transactions subject to the VAT rate change, such as acquisition tax, leasing and rental contracts, and commission arrangements.
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Validate the new applicable lump sum rates with the SFTA if you are using lump sum tax returns.
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Determine additional tax codes to manage both the supplies subject to the current VAT rates and those subject to the new ones.
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Review guidelines to compliance teams to align with the new VAT return, including the new VAT rates (available from Q3 2023 or 2nd semester 2023 for taxpayers applying the flat rate method).
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Review invoice templates, contracts, etc. to reflect the new rates as from 1 January 2024 and pay attention to prepayments, continuous supplies, etc.
Conclusion
With these guidelines, businesses should generally be able to assess the impacts of the upcoming new VAT rates on their organization and take the necessary steps. You will need to review your inbound and outbound transactions subject to the VAT rate change, validate new lump sum rates with the SFTA, determine additional tax codes, and review compliance guidelines to align with the new VAT return. Additionally, it’s important to review invoice templates, contracts, etc. to reflect the new rates as from 1 January 2024.
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