VAT: flat-rate or effective? Which should I choose for my company?

VAT? When you set up a new company in Switzerland, one of the first tax decisions is choosing the right VAT scheme. Entrepreneurs need to weigh up effective VAT against flat-rate VAT, a choice that has a direct effect on bookkeeping, cash flow and business administration. For this reason, it is essential to look carefully at which option is more advantageous given the company's structure and needs.

Effective VAT: how it works

Under the standard method, the business charges VAT to customers on every sale and, at the same time, deducts the VAT paid on purchases. At the end of the tax period, the company pays the Confederation the difference between VAT collected and VAT paid.

Advantage

• You can deduct all the VAT on purchases, including large expenses (machinery, fittings, professional services).
• Greater accounting transparency.
• Advantageous for businesses with significant purchase costs.

Disadvantage

• More complex administration, with a requirement to keep precise records of sales and purchases.
• Takes more time and often needs the support of a fiduciary or accounting software.

Flat-rate VAT: how it works

The simplified method, known as flat-rate VAT, lets a business apply a flat percentage set by the Federal Tax Administration (FTA) to its revenue. In this case, VAT on purchases is not deducted: the calculation is based solely on income.

A particularly interesting feature of this scheme is that the business invoices the customer at the standard VAT rate (currently 8.1% in 2025), but pays the state only the reduced percentage set for its sector. This means the company keeps the difference as extra income.

For example, if a consultancy falls under a flat rate of 5.1%, it will invoice the customer at 8.1% but pay the FTA only 5.1%. The 3% difference stays with the business as additional margin.

The up-to-date list of rates by sector is available on the FTA's official website:
2025 flat-rate VAT table (PDF)

Advantage

• Much simpler administration, with no need to track VAT on purchases.
• Possibility of extra income from the gap between VAT invoiced and VAT paid over.
• Ideal for small businesses and start-ups that don't want to be weighed down by complex bureaucracy.

Disadvantage

• You cannot recover VAT on major investments.
• Can be less cost-effective for businesses with high expenses (machinery, technology, logistics).
• Fixed percentages that don't always reflect actual profit margins.

Which should you choose for your company?

The choice between effective VAT and flat-rate VAT depends on several factors:

• Company size: small start-ups and SMEs often choose flat-rate VAT to cut red tape and gain an extra margin.
• Level of investment: if your company needs to buy machinery, servers or expensive equipment, effective VAT lets you recover the tax paid.
• Sector of activity: some sectors have very favourable flat rates, others less so.
• Time and administrative resources available: if you don't want to deal with complex bookkeeping, flat-rate VAT can make life much simpler.

A practical example

• A consultancy start-up with low costs (shared office, cloud software, online subscriptions) will probably find flat-rate VAT more cost-effective, also benefiting from the extra margin on the rate difference.
• A manufacturing or e-commerce business, on the other hand, investing in logistics, warehousing and supplies, will benefit from the effective scheme, as it can deduct VAT on major purchases.

Support from easy4you

The choice of VAT scheme affects your accounts for years. easy4you supports entrepreneurs in setting up their company, handling administration and making accounting decisions, including assessing the most suitable VAT scheme.

With our administration and finance services, we help you:

• Assess which tax scheme is more cost-effective for your sector.
• Keep your books in a simple, secure way.
• Optimise costs and cut red tape.

Conclusion

Setting up a company in Switzerland requires attention to legal form as well as to the VAT scheme. Choosing flat-rate VAT or effective VAT can significantly change the day-to-day running and profitability of your business. With the right support, you can make an informed choice and get your business off to a solid start with optimised tax management.

If you're unsure which to choose, we'll guide you to the right choice for your company.