Increase in VAT rates as of 1 January 2024 already relevant in 2023

The effective date of 1 January 2024 seems a long way off – deceptively so, because taxable businesses who provide cross-period supplies may already have to ask themselves at the beginning of 2023 to what extent they will have to apply the new VAT rates.
 

Background: Determination of the applicable tax rate

Regardless of the applicable VAT rate, the VAT liability continues to arise at the time of invoicing or with the prior receipt of payment (assuming VAT is reported based on considerations agreed). For the determination of the applicable VAT rate, however, neither the date of invoicing nor the receipt of payment is to be considered, but the date or the period of the supply.
 

The date of supply is therefore of central importance in the context of the VAT rate increase – it determines whether the taxable business can still account its supply at the old (lower) VAT rate or must already apply the new (higher) VAT rate. In principle, supplies rendered before 1 January 2024 are taxable at the current VAT rates, while supplies rendered after 31 December 2023 are subject to the new higher VAT rates.

Cross-period supplies

In some industries, it is typical or at least not unusual that services are rendered over an annual term and across periods. In particular, maintenance and service contracts, telecommunication contracts, subscriptions to magazines and newspapers, Half-Fare/GA and other transport services are often concluded for a period of one year and invoiced in advance. If a corresponding annual contract is concluded as of 1 February 2023, for example, the invoice must split the consideration between the supply period before and after 1 January 2024 and show the applicable VAT rates accordingly. Otherwise, the taxable business must account for VAT on the total supply at the higher VAT rate (para. 2.1 of the draft VAT Info 19 "VAT rate increase as of 1 January 2024" of 12 December 2022).
 

For other cross-period supplies (without an annual term) such as (opted) rents, construction services, ski season tickets, etc., the requirement of supplies being split by period will also arise sooner or later in 2023. If it is not clear from the invoice when and to what extent supplies were rendered and what portion of the remuneration is attributable to the respective supplies, the total consideration is subject to the higher VAT rate according to the draft of the practice adjustment of the VAT Law dated 12 December 2022.
 

Declaration of supplies subject to the new VAT rate

In its draft VAT Info 19 "VAT rate increase as of 1 January 2024" of 12 December 2022, the Swiss Federal Tax Administration (SFTA) has shed light on specific questions regarding the VAT rate increase and outlined its administrative practice.

According to this draft, turnover at the new VAT rate can only be declared in the VAT return as of the 3rd quarter 2023. If turnover is already subject to the new higher VAT rate before then, it needs to be reported provisionally at the current VAT tax rate in the corresponding quarterly VAT returns and corrected later – at the latest with the annual corrective VAT return 2023.