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Value Added Tax (VAT) Increase from 2024: Impacts on the Economy and Consumers

On September 25, 2022, the Swiss population approved the reform for the stabilization of the Old Age and Survivors' Insurance (AHV 21), which will come into effect on January 1, 2024. The reform consisted of two components: the amendment to the Old Age and Survivors' Insurance Act and the Federal Decree on the additional financing of AHV through an increase in the value-added tax.

In this blog post, we take a closer look at the new VAT rates and their implications for businesses.

The new VAT rates from January 1, 2024:

Standard Rate: 8.1% (previously 7.7%)

The standard rate is the regular VAT rate applied to most goods and services not subject to the reduced or special rates.

Reduced Rate: 2.6% (previously 2.5%)

The reduced VAT rate, also known as the reduced rate, is applied to certain goods and services considered essential, culturally important, or socially relevant. This rate is generally lower than the standard rate and aims to make specific products and services more affordable. Often motivated by social policy, it applies, for example, to food (excluding alcohol), magazines, medicines, and more.

Special Rate: 3.8% (previously 3.7%)

The special rate for accommodation applies to a specific VAT rate applied to overnight stays in accommodation establishments such as hotels, guesthouses, vacation rentals, and similar accommodations. This special rate is often introduced to adjust the tax framework for the hotel and tourism industry and, if necessary, enhance competitiveness. The intention behind a reduced VAT rate for accommodation is often to promote the tourism sector and stimulate travel by reducing accommodation costs for travelers.

Impact on Businesses:

Companies are urged to prepare for the upcoming VAT increase as it will have direct effects on their finances and business strategies. Here are some considerations:

  • Price Adjustments: Service and product prices must be adjusted to compensate for the increased tax burden.

  • Accounting: Companies need to adapt their accounting systems to accurately reflect the new tax rates and ensure compliance with tax regulations.

  • Temporal Allocation: Temporal allocation refers to the recording and billing of expenses or income over different accounting cycles or periods. This can occur in various contexts, such as contracts, lease agreements, or other financial arrangements. If services are provided or received across both calendar years (2023/2024), it must be accurately recorded in invoicing/accounting, specifying the applicable VAT rates for each period. Explanation with an Example: A carpenter provides services from December 18, 2023, to January 12, 2024. In invoicing, the rendered services must be separated as follows: from December 18 to 31, 2023, with a VAT rate of 7.7%. and from January 1 to 12, 2024, with a VAT rate of 8.1%.

  • Consumer Behavior: The VAT increase, coupled with ongoing inflation, could influence consumer behavior, as price hikes typically lead to consumer spending restraint. We recommend that all businesses engage with this issue in a timely manner to ensure that the changes are implemented properly. Contact us today for a consultation!



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