An ageing population and a funding shortage in Switzerland’s public pension system (OASI) led to a national vote in September 2022 to increase Swiss VAT rates starting January 2024. The increase aims to bolster the pension system and ensure financial sustainability as the “Baby Boomer” generation (born between 1946 and 1964) moves into retirement.
Swiss VAT Rate Changes Effective January 2024:
- Standard rate: Increased from 7.7% to 8.1%
- Reduced rate: Increased from 2.5% to 2.6%
- Hotel accommodation rate: Increased from 3.7% to 3.8%
The decision to raise VAT was backed by 55.1% of voters in a national referendum. However, this increase is temporary and will only remain in effect until 2030.
Why Was a National Vote Required?
Since the Swiss VAT rate change was tied to broader pension reforms that required a constitutional amendment, it necessitated a national referendum. Switzerland’s direct democracy system mandates that significant financial and social policy changes be subject to public vote, ensuring widespread participation in crucial decisions. The vote was part of a broader reform package addressing structural issues in the pension system.
Impact on the Swiss Pension System
The additional VAT revenue will help mitigate the financial shortfall in Switzerland’s Old Age and Survivors’ Insurance (OASI). The pension system is under strain due to an increasing number of retirees relative to the working-age population. Life expectancy has risen, leading to longer retirement periods, while birth rates have declined, resulting in fewer contributors to the system.
One of the other key changes in the pension reform is the increase in the retirement age for women from 64 to 65, aligning it with the retirement age for men. This measure aims to improve financial stability and ensure long-term sustainability of the pension system.
A Second Attempt to Raise Swiss VAT for Pensions
This is not the first time Switzerland has attempted to increase VAT to support pension funding. In 2017, a similar proposal sought to raise the VAT standard rate from 8% to 8.3%. However, it was rejected by voters, leading to a VAT rate cut to 7.7% on January 1, 2018. The current increase, albeit more modest, reflects a shift in public sentiment towards ensuring pension security.
What This Means for Businesses
Businesses operating in Switzerland must ensure compliance with the new VAT rates. Companies need to update their accounting systems, adjust pricing structures, and communicate changes to customers.
If you’re doing business in Switzerland, staying compliant is crucial. Find out more about Swiss VAT and get in touch with our team of VAT experts today to ensure a smooth transition to the new rates!
