Swiss VAT Reform: New Features from January 1, 2025

The partial revision of the Federal Act on VAT (Value Added Tax) passed by the Swiss Parliament in June 2023 includes several significant amendments aimed at adapting the legislation to the evolution of digital commerce and the internationalization of services, while simplifying the process for small and medium-sized enterprises (SMEs) and strengthening measures against tax fraud.

Digitization and Internationalization

The recent amendment of the Federal Act on VAT in Switzerland places a strong emphasis on adapting taxation to the realities of the digital economy and the internationalization of commerce. This reform primarily targets online sales platforms, which have become major players in cross-border commerce.

Since the introduction of the previous revision in 2019, mail-order businesses shipping goods to Switzerland must pay VAT if their turnover exceeds 100,000 Swiss francs for shipments with individual VAT below 5 francs. However, this measure did not have the intended impact, mainly because many small businesses do not reach this turnover threshold. In response, the new legislation now requires all mail-order platforms to declare and pay VAT for every delivery made to Switzerland, without exemption based on turnover volume.

To ensure compliance with this regulation, the Federal Tax Administration (FTA) will be endowed with expanded powers for administrative intervention. If a platform or business neglects to register as VAT liable or fails in its tax obligations, the FTA can take several measures. Among these, it can prohibit the importation of goods by offending businesses and, in the most serious cases, proceed with the destruction of imported goods.

In addition to these punitive measures, the FTA may also publicly disclose the identities of offending companies, a step aimed at protecting consumers and enhancing market transparency. This publication can act as an additional deterrent against non-compliance and improve overall compliance of businesses with the VAT regime.

These legislative adjustments reflect a clear intent to modernize the VAT system to better align with the current commercial environment, characterized by a substantial increase in online transactions and an increased need for effective and fair regulation.

Simplifications for SMEs

SMEs will have the option to establish annual VAT returns, rather than quarterly or monthly, which should alleviate their administrative burden. Additionally, the Federal Tax Administration (FTA) may exempt foreign companies from the obligation to appoint a tax representative in Switzerland under certain conditions, thus simplifying procedures for foreign companies operating in Switzerland.

VAT Reductions and Exemptions

Certain categories of products and services now benefit from a reduction or exemption from VAT, such as menstrual hygiene products which are subject to a reduced rate and various services related to tourism, cultural events, and medical care, which are exempt from VAT.

Combatting Fraud

To combat serial bankruptcies and other forms of tax fraud, the FTA can now demand guarantees from company executives if they have managed multiple companies that have gone bankrupt in a short period of time. Additionally, transfers of emission rights and other similar certificates will be subject to acquisition tax to prevent tax fraud in this area.

All of these changes, which will come into effect on January 1, 2025, aim to modernize the Swiss VAT system, make it fairer and more efficient, and better prepare it for the future challenges of global and digital commerce.