Net Tax Rate Method

When calculating and declaring VAT in Switzerland, not all businesses have to use the standard effective billing method. For small and medium-sized enterprises (SMEs), the net tax rate method offers a simplified alternative. Instead of separately calculating input and output tax, VAT is settled using a flat percentage of total turnover.

In this article, we explain how the net tax rate method works, who can use it, and what the rules are in 2026. We also look at the advantages and disadvantages of this approach, with practical considerations to help you decide whether it’s the right fit for your business.

The net tax rate method allows eligible Swiss SMEs to calculate VAT using a simplified flat rate applied to total turnover, eliminating the need to track input and output tax separately. This method aims to reduce administrative complexity while implicitly accounting for expected input tax deductions through industry-specific rates set by the Federal Tax Administration (FTA).

The easiest way to understand the net tax rate method for VAT is to compare it to the conventional effective billing method.

Effective billing method

All Swiss companies with an annual turnover exceeding CHF 100,000 must register for and pay VAT in Switzerland. The conventional way to calculate and account for VAT is known as the effective billing method. In short, it involves declaring the VAT collected on sales turnover (usually at the standard rate of 8.1% as of 2026) and deducting the VAT paid on production costs (input tax).

The difference is the VAT amount the company owes to the Swiss tax authorities. With this method, VAT is typically accounted for and paid quarterly. However, as of 1 January 2025, businesses with taxable turnover below CHF 5.005 million can request approval from the FTA for annual VAT reporting (Art. 35 para. 1 lit. b VAT Act). This option is available for both the net tax rate method and the effective billing method.

Net tax rate method

Not all companies are required to use the effective billing method for calculating VAT thanks to an alternative approach known as the “net tax rate method”, sometimes called the “balance tax rate method”. The net tax rate method was introduced to ease the administrative burden for small and medium-sized enterprises (SMEs) and simplify the VAT accounting process.

The method involves calculating the VAT liability at a flat rate of turnover while ignoring input tax deductions. The flat rate used is lower than the statutory VAT rate of 8.1%, and therefore implicitly factors in the input tax deduction without companies needing to calculate them separately. In other words, it makes an implicit estimate of the input tax which is reflected in the lower net tax rate percentage.

Each industry has its own specific net tax rate based on the expected average input costs of the industry in question. For example, service-related industries, such as IT services, tend to have a higher net tax rate of 6.2%, because one would expect their input tax to be quite low compared to their output.

In contrast, industries involved in selling goods with a high production cost and relatively low mark-up, such as a new car trader, have a much lower net tax rate of 0.6%, as their input tax value is expected to be quite close to the value of their output tax.With the net tax rate method, the VAT owed is calculated and settled every 6 months as opposed to quarterly. As of 2025, businesses with turnover under CHF 5.005 million can also request annual VAT reporting (Art. 35 para. 1 lit. b VAT Act).

The net tax rate method simplifies the administrative burden for companies in two ways:

• Firstly, the input tax statement is no longer required.
• Secondly, the VAT statement only needs to be prepared once every 6 months, compared to quarterly with the effective method.

The second point is less relevant given the 2025 updates to the VAT Act which enable any business with a taxable turnover below CHF 5.005 million to request approval from the FTA for annual VAT reporting, regardless of whether they use the net tax rate method or the effective billing method.

However, there are some practical aspects to keep in mind for companies applying the net tax rate method:

Invoicing using the statutory VAT rate

Firstly, even when using the balance tax rate method for calculating their final VAT liability, the correct statutory VAT rate must still be shown on invoices for billing customers. This is usually the standard rate of 8.1 % but could also be the reduced rate of 2.6% or 3.8% depending on the products or services provided.

It is important that the correct statutory VAT rate is shown on the invoice. If, for example, the company quotes a tax rate that is too high (e.g. 8.1 % instead of the correct reduced rate of 2.6 %), they will have to cover the difference between the VAT calculated using the stated tax rate and the correct VAT in accordance with the appropriate statutory rate.

This is in addition to the VAT calculated using the appropriate net tax rate. Therefore, the cost of incorrect invoicing of statutory VAT can be high for those using the net tax rate method.

Net tax rate on turnover including statutory VAT

It is also important to note that the net tax is calculated as a percentage of the final turnover including the quoted statutory VAT amount. The company bills its customers an amount which includes statutory VAT, and it is the total of this turnover that is used when calculating the net tax applicable.

Payment to the Federal Tax Administration

The final VAT payment made to the Federal Tax Administration (FTA) is the amount calculated by multiplying the total taxable turnover (including statutory VAT) by the approved flat net tax rate (industry specific, set by the FTA). This value could be higher or lower than the actual effective tax amount if input and output tax had been separately calculated.

Businesses who would like to use the net tax rate method must inform the FTA in writing and fill out the relevant form when registering for the first time. If you want to use the net tax rate method from the start of your tax liability, you must notify the FTA in writing within 60 days of receiving your VAT number.

If you fail to do this, you must first use the effective method for at least three full years before you can request to change to the net tax rate method at the beginning of a new tax period. (Art. 37 para. 4 VAT Act).

Since the 2025 VAT revision, businesses with multiple activities (each exceeding 10% of total turnover) can request additional net tax rates directly in their VAT return. The FTA will review and authorize these requests afterward, simplifying the process for businesses with diversified operations.

To be granted permission to use the net tax rate method, the total taxable turnover must not exceed CHF 5.024 million and the calculated tax owed using the applicable net tax rate must not exceed CHF 108,000 in the first year of tax liability or in the year before changing from the effective method to the net tax rate method.

The net tax rate method was designed to simplify VAT for SMEs, but it's not universally beneficial. Companies with high input costs may pay more VAT than under the effective method, and the 2025 regulatory changes (detailed above) have significantly increased complexity.

Advantages of the net tax rate method

• Reduced settlement frequency: Businesses who use the net tax rate method only need to settle their VAT liability twice a year as opposed to every quarter. However, as of 2025, all businesses with a taxable turnover below CHF 5.005 million may request for annual VAT reporting.
• Simplified calculation: The net tax rate method simplifies the VAT calculation process, making it more straightforward for businesses with limited resources or complex transactions. Input tax need not to be calculated because it does not get deducted from the tax liability.
• Predictable tax liability: Since the net tax rate is a fixed percentage of turnover, businesses can predict their VAT liability more easily, aiding in financial planning.
• Administrative ease: The streamlined nature of the net tax rate method reduces the administrative burden associated with VAT calculations and reporting. This can also save costs.

Disadvantages of the net tax rate method

• Lack of precision: The net tax rate method is based on industry averages and may not accurately reflect the actual VAT liability for all businesses. This can, in some cases, be advantageous to businesses who would have otherwise had a higher VAT liability when calculated with the more accurate effective billing method. However, other businesses may overpay VAT if the predetermined percentage exceeds the actual VAT liability based on effective billing.
• Limited applicability: The net tax rate method may not be suitable for all businesses, especially those with diverse and complex transactions. The 2025 regulations now require businesses with multiple activities to apply separate rates for each activity exceeding 10% of total turnover, significantly increasing complexity.
• Additional expertise required: Even though the balance tax rate method is designed to simplify the VAT reporting process, changing methods from the conventional effective billing method to the net tax rate method requires knowledge and expertise of both methods. The 2025 changes require professional assistance for residual value calculations, revenue analysis by activity, and potentially obtaining multiple rate approvals.
• Method switching costs: The 2025 residual value adjustment mechanism means switching methods now carries potential cash flow implications through one-time payments to or credits from the FTA.