Switzerland’s VAT Rates to Rise Again by 2026: What Businesses Need to Know

November 9, 2024

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This year marks a significant milestone for Switzerland and its VAT system. In 2024, several amendments to the VAT law were adopted and implemented, including rules relating to the definition of digital platforms and their obligation to collect and remit VAT as deemed suppliers that will come into effect at the beginning of 2025. The standard and reduced VAT rates also increased from 7.5% to 8.1% and 2.5% to 2.6%, respectively.

Now, an additional increase in VAT rates is expected by 2026.

Reasons for Increase and Proposed Rates

Earlier this year, Swiss voters approved the "Better living in retirement” initiative to introduce the 13th pension paid once a year starting from December 2026. As part of a plan to implement this decision, the Swiss Federal Council announced increasing VAT rates to secure the funds needed to finance these pensions, which could cost around CHF 4.2 billion (around EUR 4.96 billion) in 2026.

Therefore, the Swiss Federal Council proposed an increase of 0.7% for the standard VAT rate, which means the new standard VAT rate will be set at 8.8%. Furthermore, the special VAT rate for accommodation services will also increase from 3.8% to 4.2%, followed by the reduced VAT rate from 2.6% to 2.8%.

For this proposal to become law and come into force in January 2026, first, the Swiss Parliament must decide on increasing the VAT rates by March 2025 at the latest, and then, in September, the so-called popular vote must be held.

Under Swiss law, citizens' voting is part of adopting and implementing initiatives like this. Therefore, after the Parliament decides on the initiative, the Federal Council will issue a decree to put the proposal to the vote at the next polling. After popular voting, the initiative will be implemented if accepted.

Conclusion

As a couple of steps are needed for this initiative to become law, the final decision regarding the change in VAT rates is still to be made. However, considering that people have already approved the introduction of the 13th pension, this measure should not be questioned.

Nevertheless, businesses operating in Switzerland and subject to Swiss VAT law should monitor the situation's development and prepare for changes.

Source: Federal Council - The Swiss Government Portal, VATabout - Switzerland - VAT Reform Approved by the Federal Council, VATabout - Switzerland – Amendments to the VAT Act,