25 years of Swiss VAT – What a journey! Part 2: How it all began or “Whoever invented that was a genius!” - Tax and Legal blog

Header 25 years VAT Switzerland

With this blog –Part 2 in our series to celebrate 25 years of VAT in Switzerland – we take a look back on how it all began. Whilst customs duties have existed for very long time, the concept of a tax levied on consumption is relatively recent. We only need to go back to the 17th century to, when the first consumption tax was introduced for financing an army and to 1918, when so-called gross VAT was introduced in Germany, the precursor of net VAT with input VAT deduction that was introduced in Europe in the late 1960’s.

VAT in Europe

VAT, as defined today and implemented in Switzerland, is a tax levied at each stage of value creation. In Switzerland, VAT is set-up as an all-phase net taxation with input tax deduction.

A transaction-based tax on consumption was first mentioned and observed in the Netherlands early in the 16th century. Following this example, Frederick William the Great, Elector of Brandenburg, established the General Consumption Excise in the 17th century, he was looking for a tax that can be greatly applied in order to be able to finance his army and military requirements. Subsequently, looking for a tax to finance the art treasures of Frederick Augustus I (Augustus the Strong) – Elector of the House of Saxony – State Minister Heinrich Graf von Brühl introduced a consumption tax on goods in 1754. Following this, the tax concept was adopted in many areas in the German-speaking part of Europe.

In Germany, enormous financial needs during World War I led to a stamp tax concept on the sale of goods in 1916, and then to an all-phase gross sales tax in 1918, initially at a rate of 0.5%. Gross VAT means that the tax is levied at every stage of the production chain without a right to claim back the input VAT, which leads to an accumulation of VAT. It is considered the precursor of today's net VAT.

The idea of net VAT (as we know it today) goes back to Carl Friedrich von Siemens in the 1960s. Mr. Siemens criticised the gross sales tax as it puts an excessive burden on businesses. He wanted to create a concept where consumption tax is neutral for business and is payable by the end-consumer only.

Such net VAT with input VAT deduction was introduced in the European Community in 1968. Subsequently, in order to harmonise the landscape of VAT across the EC, the 6th VAT Directive became the first important legal guideline for VAT Law in 1977.

VAT in Switzerland

In Switzerland, it all started with the commodity sales tax, introduced in 1941. The Second World War caused a big reduction in fiscal revenues and a massive increase in government expenditure. The so-called sales tax (“Warenumsatzsteuer”) was, therefore, introduced as an emergency law: It was levied only at the final stage of the production chain. In the 1970s, the introduction of VAT was proposed for the first time. However, it took several attempts in public votes before the sales-tax was eventually replaced in 1995 by an all-phase net taxation with input tax deduction (VAT). Another mile stone in the history of Swiss VAT was the introduction of the first VAT law, which entered into force in 2001.

In 2010, a revised VAT law was introduced with the aim of implementing an ideal VAT system followed by another partial revision that entered into force in 2018.

Today, VAT revenues amount to more than 30% of total federal expenditures and are one of the most important sources of income for the Confederation. Increases in rates of VAT have also been used to finance certain areas of public interest (AHV, public transportation, etc.).

Recently Switzerland announced another review of the VAT Law, and 2023 seems to be the earliest possible time for its introduction. The main elements of the current first draft bill are: Introduction of platform rules for electronically supplied services, a reverse charge applicable to all supplies of services and goods provided by foreign suppliers, and certain anti-fraud measures. We shall soon provide more information about these suggested changes.

To summarise, VAT has proved successful over the past 300 years, as an easily-administered tax, as taxable persons levy and submit the tax themselves. Furthermore, it became a powerful tool for financing various areas of public interest. At the same time, VAT can be adjusted to give businesses and consumers financial relief in difficult economic times - like the Corona pandemic crisis. Thus, the 25 years since VAT came to Switzerland are just the beginning!


If you would like to discuss more on this topic, please do reach out our key contacts below.

Key Contacts


Romy Mueller - Director, Indirect Tax

Romy Mueller is an Indirect Tax Director in the Business Tax practice of Deloitte Switzerland assisting clients with Swiss as well as International Indirect Tax matters, such as VAT, Customs & Excise Duties. In addition to that Romy has a focus on Tax Technology as well as Tax Management Consulting supporting clients with ERP implementations and automation of VAT compliance processes. Romy started her career in the Big4 environment 15 years ago and has extensive expertise in providing VAT advisory & compliance services to national and international clients. She is currently a member of our Swiss outbound team, serving Swiss based multinationals and European headquarters with a focus on business model transformation. Romy regularly teaches Master Classes for VAT and Direct Tax at Swiss Tax Law School (Kalaidos Fachhochschule). She is a German lawyer and holds a Post Academic Master’s degree in International VAT.



Meriel Peccolo_blog

Meriel  Peccolo - Consultant, Indirect Tax

Meriel is a Consultant in Deloitte Zurich’s Indirect Tax team. Before joining Deloitte, she worked for a major industrial company and gained 5 years of experience in the industry sector. She is assisting multinational companies with VAT consulting, VAT compliance, VAT reporting as well as Customs & Global Trade topics and has improved her indirect tax knowledge through different projects. Meriel has a vocational education background and is currently obtaining a qualification as a certified fiduciary.



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