What is Switzerland's new VAT law and how will it impact you?

From the former rate of 7.7 percent, the Value-Added Tax (VAT) has jumped to 8.1 percent at the beginning to 2024.

Yes, this is yet another expense — in addition to health insurance premiums, electricity, rents, and other costs — that has increased just as the new year kicked in.

However, the (relatively) good news is that, even with the increase, Switzerland’s standard VAT is still vastly below the double-digit European rates, including in neighbour countries.

For instance, the standard Value-Added Tax in Germany is 19 percent, in France and Austria the standard rate is 20 percent on most goods, and in Italy the standard rate is 22 percent. Although in most European countries certain goods and services have reduced rates.

The new 8.1 percent rate is applied to general consumption; it is much lower (2.6 percent, up from 2.5 percent previously) for basic-need goods such as food.

Some services, such as education, healthcare, insurance, and financial services, are exempt from the VAT altogether.

What are the VAT proceeds used for?

In Switzerland, they are used to finance the old-pension (AHV / AVS) scheme, which is the cornerstone of the country’s social insurance system.

For the past decade, as baby boomers have reached retirement age, funds paid into the old age insurance are no longer sufficient to finance current and future annuities — especially as life expectancy is also rising.

The VAT hike is therefore important to anyone working and planning to retire in Switzerland, because without a new influx of funds, the Swiss pension system could plunge into the red within a few years.

READ ALSO: Will you be able to live comfortably on your Swiss pension?

And though nobody likes price increases, the Swiss are pragmatic when it comes to fiscal matters: on September 25,th 2022, majority of voters approved the new value-added tax rates in a national referendum.

How will the new VAT rate hit your pocketbook?

Unlike other increases — such as the aforementioned health insurance premiums or electricity prices, which will strain many household budgets — the impact of higher VAT will be less dramatic.

For instance, if you spend 100 francs in a supermarket, you will pay only 10 to 40 cents more than previously on average.

In 2022, just before the September referendum, business umbrella organisation EconomieSuisse calculated that for a middle-class family with two children, this represents additional expenses of around 200 francs per year. 

However, much depends on what you will be purchasing.

While you will hardly notice the VAT hike while shopping for food, “the increase in tax will be felt when making large purchases, such as an electric bike or a car,” said Benno Suter, head of VAT consulting at Ernst & Young Switzerland. 

But even then, the extra cost should be manageable for most people: if, for example, you buy a used car worth 10,000 francs, the VAT will add up to 810 francs, compared to 770 francs previously — 40 francs more.