Switzerland: VAT rate reductions effective from 2018

October 26, 2017

The Swiss population rejected the 2020 Old-Age and Survivors Insurance reform on September 24 2017. As a result, the additional funding of disability insurance (DI) by 0.4 points of VAT will expire at the end of 2017. However, the standard and special VAT rates will increase by 0.1 point from January 1 2018 due to the draft measures to finance and develop railway infrastructure.

Switzerland's current VAT rates will decrease from 8% to 7.7% (standard rate) and from 3.8% to 3.7% (special rate) on January 1 2018. The reduced rate of 2.5% will remain unchanged.

The Federal Tax Administration already published practical guidelines regarding the reductions (e.g. invoicing, down payments, leasing contracts, new net tax debt rates and flat rates). The guidelines also include the new VAT return forms that take both the current and new rates into account.

What does this mean for the VAT payer?

Any change in the VAT rates will require adaptation of invoicing and enterprise resource planning (ERP) systems, in particular:

Invoices, contracts, etc. will need to be amended to reflect the new rates as from January 1 2018;
Additional tax codes will have to be created in the ERP system to manage transactions under the current VAT rates and the new rates;
The tax point of transactions (i.e. the date of supply) will need to be carefully determined to determine the applicable VAT rate. This is especially important for continuous services, down payments and price adjustments/credit notes;
Account will need to be taken of specific rules that apply to certain sectors. For example, for hotels, the current special VAT rate will be applicable to accommodations and catering services provided on New Year's Eve, but a pro-rata rate will have to be used for arrangements concluded for the period straddling 2017 and 2018; and
The new VAT return form may require internal compliance teams to adapt their VAT compliance processes.

Businesses should review their positions as soon as possible to ensure they are prepared for the new rules.