Net tax rate or effective method: which pays off?

The net tax rate is the convenient option: one industry rate applied to gross turnover, done. No working out input tax item by item for VAT, filing half-yearly instead of quarterly as a rule, and under certain conditions even just once a year.

Convenient does not automatically mean cheap, though. Under the net tax rate method the input tax is already covered by the rate as a lump sum. If you buy a lot, invest or need materials, you may be better off with the effective method. We show you the conditions, a worked example under both methods and the rule of thumb for the level of input costs at which switching pays off.

How the net tax rate works

Under the net tax rate method you multiply your gross turnover, meaning turnover including tax, by the net tax rate the FTA has approved for your industry. The result is the tax you owe. There are no further steps, because the input tax is not determined item by item.

The FTA works it through with an architect: approved rate 6.2 percent, half-year turnover CHF 400,000 including VAT, tax owed CHF 24,800.

One thing to keep in mind: on your invoices you still show the statutory tax rate, so 8.1 percent in the normal case, not your net tax rate. The net tax rate is an arrangement between you and the FTA, not information for your customers.

Who may use the net tax rate

Two limits have to be met at the same time: taxable annual turnover including tax may not exceed CHF 5.024 million, and the tax owed may not exceed CHF 108,000 per year. Exceed either one and switching to the effective method is mandatory.

In the first year of tax liability, and in the year before switching to the net tax rate method, lower turnover limits also apply, graduated by your rate. At a net tax rate of 6.2 percent the limit is CHF 1.74 million, for example, and at 3.7 percent CHF 2.92 million. The full scale is on the FTA page on net tax and flat tax rates, which is in German.

There are also a few special cases in which the net tax rate method is not permitted, for instance under group taxation, for companies domiciled abroad, or for certain mail-order and platform models. For typical Swiss SMEs these exceptions rarely matter. The full list is in VAT Info 12, section 1.3.

Combining the net tax rate with annual filing

Since 2025 you can also combine the net tax rate method with the annual VAT return, provided your annual turnover does not exceed CHF 5,005,000 and the other conditions are met.

This combination is particularly interesting with the net tax rate. Instead of two returns a year, you file just one annual return. During the year only a single instalment set by the FTA is due, on 30 August. The final return and any balance payment follow by the end of February of the following year.

So if you pay a VAT liability regularly anyway and want as little administration as possible, check not only the accounting method but also annual filing.

The direct comparison

The matrix shows the pattern: the net tax rate method wins on effort, while the effective method can become financially more attractive as soon as high input costs come into play. Which is exactly why the question is not «which method is better» but «how high are my input costs».

Worked example: when the net tax rate costs more

Take a consultant with annual turnover of CHF 200,000 including VAT and a net tax rate of 6.2 percent.

Under the net tax rate method she owes CHF 12,400. That's it.

Under the effective method the calculation is different: CHF 200,000 gross at 8.1 percent gives output tax of roughly CHF 14,986. From that she deducts input tax. If she spent CHF 40,000 including VAT on software, office and materials during the year, that is roughly CHF 2,997 of input tax. Around CHF 11,989 remains.

In this case the effective method is a good CHF 400 cheaper, despite the extra effort. The tipping point sits at roughly CHF 34,500 of input costs including VAT per year: below that the net tax rate is cheaper, above it the effective method. Other rates shift the line, but the principle holds.

Run the numbers with your real figures from the last financial year before you switch. The rule of thumb «services mean net tax rate» is often right, but not if you license a lot of software, buy materials or are planning larger investments.

Which method typically suits whom

The limits decide whether you may choose. Your cost structure decides what you should choose.

The net tax rate method suits low input costs and a business that mainly sells time. Consulting, coaching, therapy, teaching, many trades without a large materials component: if your expenses are essentially rent, insurance and some software, the input tax share built into the flat rate can match your actual cost structure well. At the same time you save effort on the VAT return.

The effective method is favoured above all by high input costs. That is the case with a high materials share in retail or production, for instance, or when larger investments are coming up, because you can deduct the full input tax on them. In a build-up phase with high spending, this can also regularly produce an input tax surplus.

Export-oriented businesses also often benefit more from the effective method, since they can claim the full input tax deduction despite their exports being exempt with credit. Whether this actually works out cheaper than the net tax rate method, however, depends on the level of input costs.

Strongly fluctuating years are another case. The net tax rate method works with a flat industry rate, while the effective method takes your actual input tax into account. If a year with exceptionally high investments lies ahead, it is therefore especially worth running both variants with the expected figures.

What changed in 2025

Since 2025, more than two net tax rates per company can be applied. The 10 percent rule is decisive: each activity accounting for more than 10 percent of total taxable turnover uses its own corresponding rate.

At the same time, mixed industries and the former 50 percent rule have been abolished. A sports shop used to be able to report secondary activities at its main rate as long as they stayed below 50 percent of turnover. Today every activity above 10 percent is reported at its own rate. For businesses with several lines of work that means turnover has to be cleanly separated by activity in the books, or the return will not be correct.

The previous special procedures for export deliveries, notional input tax and margin taxation have also been dropped. The net tax rate for travel agencies acting purely as retailers has been removed as well. Details are on the FTA page on net tax rates from 2025, in German.

How to switch methods

You request the switch in the FTA portal under the reporting arrangements in the «VAT return» service. Since 2025, input tax corrections apply in both directions:

• From effective to net rate: you have to repay the input tax previously deducted on the current value of your goods and services. That runs through box 415 of the last return before the change.
• From net rate to effective: you can claim the tax on the current value, through box 410 of the first return after the change.

Switching to the effective method can therefore be attractive right before larger investments. Since 2025 you can also claim the tax on the current value of goods and services you already own.

VAT Info 12 governs the minimum periods and deadlines to observe, sections 2.2.2 and 3.2.2. So plan the switch in good time and have the records for the affected assets ready. Among other things, the correction needs the acquisition value and year of acquisition.

Three mistakes that cost money under the net tax rate

The first is the classic: choose the net tax rate, then invest. Under the net tax rate method you cannot deduct the input tax on a new vehicle, a machine or a shop fit-out separately, because it is already covered by the rate as a lump sum. If you are planning a larger purchase, run both variants first.

The second affects businesses with several lines of work. Since the 50 percent rule was dropped, every activity above 10 percent of turnover has to be reported at its own rate. If the books don't separate turnover cleanly by activity, that cannot be declared correctly.

The third is quiet drift. The net tax rate is requested once and then often goes unquestioned for years, even as the business changes. If you have moved from pure services to a business with high material or investment costs, you may be paying more than necessary with the wrong method. Checking once a year takes ten minutes when the figures are current.

What the method does not change

The net tax rate simplifies the VAT return, not the bookkeeping. You still have to record your turnover in full, and separately by rate if you have several activities. And you still need the receipts for your expenses for your bookkeeping, the income statement and the retention obligation.

That is exactly where Infinity, Switzerland's AI accounting software, helps. Live Accounting connects your bank account and suggests bookings in real time, Live Capture reads receipts from a photo. That way you always have the figures to compare both methods, instead of estimating once a year.

With Infinity Start you issue invoices under the net tax rate. The effective VAT return including the quarterly calculation is part of Infinity Pro. How the return then works in practice is covered in the article on VAT deadlines and the FTA portal. If you want to cut your administration further, also read our guide to the annual VAT return.

Frequently asked questions about the net tax rate

Figures instead of gut feeling

Which method is cheaper depends above all on your input costs. With continuously maintained books you can see them at any time, instead of estimating them once a year.

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