Why a promotional prize draw is not “just marketing”
Prize draws, instant wins and social giveaways are common tools for Swiss SMEs seeking visibility, lead capture or loyalty rewards. From an accounting and tax perspective, however, every prize awarded is an economic event: a selling or advertising cost, a possible VAT obligation and, if the win falls within gambling law, 35% Verrechnungssteuer (withholding tax) to withhold or report to the Federal Tax Administration (ESTV).
The starting point is the Federal Act on Gambling (BGS, in force since 2019). It distinguishes between licensed gambling, lotteries and sales-promotion-linked prize draws (Verkaufsförderung). Many SME campaigns qualify for an exemption (e.g. free entry not tied to purchase, promotional sales at market conditions, or non-online skill games), but if the requirements are not met, a licence is required and the tax and supervisory regime changes.
This guide walks through the typical SME path: qualifying the campaign, handling VAT and Verrechnungssteuer, documenting draws and recording costs correctly in the books — with reference to current federal law and common practice in 2026.
Legal framework: BGS and promotional prize draws
Before buying prizes or launching the campaign, answer three questions: is the mechanism mainly based on chance or on the participant’s skill? Is entry tied to a purchase, consideration or free on the same terms? Are the rules published clearly and verifiably?
Prize draws for sales promotion may fall outside the scope of the BGS if they meet statutory examples — in particular temporary lotteries and skill games without excessive gambling risk, with entry only through purchase of goods or services at market prices (Art. 1 para. 2 let. d BGS), or with equivalent free entry for campaigns run by publishing businesses (let. e). If the campaign constitutes gambling without an exemption, the organiser must obtain a licence or authorisation from the competent authority (canton or, for major games, the intercantonal supervisory authority) and meet supervisory obligations.
Predominantly skill-based contests (quizzes, photo contests with a jury) may, if not automated, intercantonal or online, fall entirely outside the BGS (Art. 1 para. 2 let. b). You must still comply with unfair competition law (clear information, no misleading practices) and keep evidence of a fair process — useful at audit too.
| Campaign type | Typical mechanism | BGS authorisation | Tax focus |
|---|---|---|---|
| Purchase-linked giveaway | Entry tied to receipt or order | Exempt if within Art. 1 para. 2 let. d BGS | VAT on prize; possible Verrechnungssteuer |
| Random draw (social, newsletter) | Draw among entrants | Check whether licensed gambling applies | Winner documentation; withholding if BGS applies |
| Instant win | Immediate prize via code or scratch card | Close review of “lottery” character | Traceability of individual prizes paid out |
| Skill-based prize contest | Jury or objective merit criteria | Often outside BGS (let. b) if not online/intercantonal | Prize cost as marketing; VAT to analyse |
| Paid-ticket lottery | Entry for consideration | Licence mandatory | Full BGS regime; systematic Verrechnungssteuer |
VAT: prizes, giveaways and free supplies
For a VAT-registered business, buying the prize (goods or services) generally allows input tax deduction if the cost relates to economic activity — e.g. promotional materials or gift vouchers for customers. The sensitive point is the free award to the winner: this may be a taxable supply (free supply with implicit consideration or without relevant consideration under the VAT Act, MWSTG/LIVA).
Low-value prizes
Occasional promotional gifts to customers or participants of modest value are often treated as advertising expense without a separate “revenue split”. Still document the link to the campaign and, for recurring gifts to the same recipient, watch practical thresholds affecting prior input tax deduction.
In accounting, the flow usually runs from purchases (with deductible VAT) to marketing expense when assigned to the winner.
High-value prizes or in-house goods
If the prize is the company’s own products (warehouse stock) or in-house services with significant market value, you may need to treat a taxable supply at the standard rate (8.1% from 2024) or reduced rate, depending on the nature of the goods. The reference tax base is usually market price or cost, per the rules applying to the specific case.
For SMEs with e-commerce, a “catalog product” prize almost always needs tailored advice and dedicated VAT booking when the campaign closes.
Foreign or non-VAT participants: VAT on prizes delivered abroad follows place-of-supply rules; for deliveries in Switzerland to final consumers, operation qualification remains relevant. Keep rules, participant list, proof of draw and winner declaration: they are the usual support in a direct tax or federal VAT office review.
Verrechnungssteuer on gambling (withholding on prizes)
For winnings from lotteries and sales-promotion skill games subject to the BGS, federal withholding tax (Verrechnungssteuer) applies at 35% when a single win exceeds the exemption threshold (Freigrenze), index-linked: in 2026 it is CHF 1,100 for this type of game. Above the threshold, the entire win is taxable; on the taxable amount, 5% may be deducted flat as participation costs, up to a per-win maximum set by current law. The organiser usually acts as tax debtor: withhold 35% on cash prizes (form 121) or, for sales-promotion games, may use the notification procedure (form 122 for prizes in kind), subject to exemptions for certain win categories.
In SME practice, the most common mistake is handing the winner a full nominal-value prize in kind without calculating tax due, or failing to collect data needed (identity, tax domicile) for the declaration. For cash prizes withholding is straightforward; for prizes in kind, market value of the asset defines the tax base.
Recommended operational flow
- Qualify the campaign under the BGS and check whether a licence is needed before public launch.
- Include in the rules whether any prize taxes are borne by the organiser or the winner, in line with consumer law.
- When awarding the prize: calculate Verrechnungssteuer if due, book the withholding in accounts and pay or notify ESTV on time.
- Give the winner documentation useful for personal tax filing (taxable win in income).
Note: Verrechnungssteuer is separate from the winner’s income tax. A participant resident in Switzerland still declares the win in ordinary tax filing; prize withholding may be credited under current procedural rules. For foreign winners, treaties and specific ESTV guidance apply.
SME accounting: accounts, accruals and campaign close-out
Under Swiss accounting rules (Code of Obligations and, where applicable, Swiss GAAP FER), promotional campaign costs are charged to the period in which the obligation arises or the prize is paid. For future draws with prizes already purchased, accrue or book a “prizes to be awarded” liability if the obligation to winners is already certain at year-end.
| Transaction | Typical account (SME chart) | Supporting document |
|---|---|---|
| Purchase of prizes / vouchers | 6000 Advertising and marketing / giveaway inventory | Supplier invoice, deductible VAT |
| Award to winner | Debit marketing cost; warehouse outflow if own product | Draw minutes, winner email, shipment tracking |
| Prize tax withholding | Liability to ESTV / withholding clearing account | Per-win calculation, payment form |
| VAT self-invoice on own prize | Taxable revenue and VAT due (if applicable) | Internal VAT memo with market-price valuation |
| Agency / contest platform fees | 6200 External marketing services | Contract, participation reports |
At year-end close, the auditor (if appointed) will usually ask for: approved rules, proof of prize pool, reconciliation between declared entries and prizes actually delivered, and VAT reconciliation for the campaign. A winner register with date, prize value and tax status reduces the risk of late adjustments.
Compliance checklist before launch
Rules and transparency
Publish duration, how to enter, eligibility (age, CH territory), prize pool and organiser contact. For draws, keep random method and timestamps.
BGS qualification
Check whether the campaign falls under an exemption (free entry, promotional sale, non-online skill) or needs a licence. Start any application before promising a public prize pool.
VAT and prize valuation
For each prize type, determine whether a taxable supply exists and record any self-invoice at month-end campaign close.
Verrechnungssteuer and payments
Automate calculation when notifying the winner (exemption threshold per win); align ESTV payment or notification deadlines with the company tax calendar.
Data protection (nFADP)
Legal basis for processing email and social profiles, privacy notice and retention period for participant data aligned with marketing purposes and tax obligations.
Managing campaigns and entries with Accountex
A well-documented prize draw closes in minutes in the books if you separate marketing costs, tax liabilities and inventory movements from the start. With Accountex you can record supplier invoices with deductible VAT, charge awarded prizes to advertising, track withholdings to ESTV and attach rules and draw minutes to entries — so the balance sheet and VAT return stay aligned without parallel spreadsheets.
For recurring campaigns (loyalty, seasonal sales), a repeatable posting template and a monthly report on promotional spend help owners and trustees monitor BGS criteria and marketing budget through the fiscal year.