VAT rise: the OECD’s message to Swiss SMEs

The OECD urges Switzerland not to become complacent about its strong economic performance. In its latest report on the country, the organisation recommends boosting public revenue, notably through an increase in value-added tax, and gradually linking the retirement age to changes in life expectancy.

For SMEs, the self-employed and accountancy firms, the issue is not merely a political one. A change in VAT directly affects selling prices, contracts, invoicing systems, cash flow and, in some cases, profit margins. Even though no final decision has been taken at this stage, the message is clear: businesses would be well advised to anticipate the operational implications of a potential increase.

A robust economy, but budgets under pressure

According to RTS, the OECD believes that the Swiss economy is holding up well against international uncertainties and forecasts growth of 2 per cent in 2026, followed by 1.4 per cent the following year. This favourable assessment is accompanied, however, by a warning: public finances remain sound, but several areas of expenditure are likely to place a greater strain on budgets in the future.

The areas cited by the organisation are familiar to businesses: an ageing population, healthcare, pensions, defence, housing, banking regulation and productivity. Econostrum also notes that the OECD commends the stability of Switzerland’s institutions, public finances and labour market, whilst acknowledging that several reforms cannot be postponed indefinitely.

Against this backdrop, VAT is once again at the centre of the debate. The tax is particularly sensitive for households, as it is levied on consumption. But it also has very practical implications for businesses: they are the ones who charge the tax, declare it, pay it to the authorities and bear the administrative burden when the rules change.

The standard rate would rise from 8.1 per cent to 8.6 per cent

RTS reports that the OECD supports the Federal Council’s proposal to temporarily increase the standard VAT rate by 0.5 percentage points in order to finance additional expenditure on security and defence. The standard rate would thus rise from 8.1% to 8.6%.

The OECD also points out that the Swiss standard rate, set at 8.1 per cent, remains low by international standards. This assessment does not mean that an increase would have no impact on businesses. VAT is a consumption tax: in principle, a business charges VAT on its customer’s invoice, recovers the VAT paid on its own business purchases to the extent permitted, and then pays the balance to the tax authorities. In practice, the transition from one rate to another can lead to timing effects, invoice adjustments and commercial trade-offs.

For an SME selling to private customers, the key issue is the final price. If the business passes on the full increase, the customer pays more. If it maintains the price inclusive of all taxes to remain competitive, the increase reduces the net profit share accruing to the business. In sectors where prices are publicly displayed, negotiated in advance or difficult to change, the impact may therefore result in direct pressure on profit margins.

For a business that works mainly with customers who are themselves liable for VAT, the economic effect may be less apparent, as the customer can generally reclaim the input tax depending on their circumstances. However, the administrative burden remains: quotations, orders, advance payments, partial deliveries, framework agreements and credit notes must all be handled with precision to avoid discrepancies in the accounts.

Invoices, contracts, till records: preparations for the change must begin early

A VAT increase is not simply a matter of changing a rate in a software programme. It requires a review of the entire sales and accounting process. In particular, SMEs should identify long-term services, recurring contracts, subscriptions, work invoiced in stages and sales for which payment has been received before full completion. It is often these situations that give rise to the most sensitive issues when there is a change in the rate.

It is prudent to review the terms and conditions and current contracts: are prices quoted excluding VAT or inclusive of VAT? Is there provision for automatic adjustment in the event of a statutory change to VAT? Will quotes sent out today remain valid after a new rate comes into force? Vague wording can turn a tax change into a commercial dispute.

Systems must also keep pace. Invoicing software, ERP systems, online shops, till terminals, quotation templates, price lists, accounting interfaces and reporting tables must be capable of applying the correct rate at the right time. For an accountancy firm, the challenge will be to coordinate these adjustments with clients early enough to avoid a spate of corrections when the VAT return is filed.

Cash flow deserves particular attention. VAT collected does not belong to the business: it must be remitted. When a rate increases, the amount collected on sales also increases, which can give a misleading impression of available liquidity. Rigorous management requires a clear distinction to be made between net turnover, VAT due and actual margin, particularly in businesses with high volumes of cash receipts.

Selling prices and margins: the commercial judgement of business leaders

For an SME manager, the first decision will not be an accounting one, but a commercial one: should prices be adjusted, should the increase be absorbed in full or in part, or should certain fixed-price packages be reviewed? The answer depends on the sector, bargaining power, customers’ price sensitivity and the cost structure.

In low-margin sectors, even a small change in the net price can have a significant impact. Freelancers and small businesses that charge flat rates must be particularly careful: a flat rate quoted inclusive of VAT may become less profitable if the rate increases and the final price remains unchanged. Conversely, invoicing exclusive of VAT with a clear indication of the tax generally makes the adjustment more transparent for the customer.

Communication must not be overlooked. A VAT increase decided at a political level may be misunderstood by customers if it suddenly results in higher prices. Explaining that the adjustment stems from a legal change, clearly distinguishing between the pre-tax price and the tax itself, and updating marketing materials helps to minimise misunderstandings. Businesses operating in the retail sector, the hospitality industry, personal services or subscription-based models should anticipate the need for this educational effort.

For exporting businesses, the issue arises differently depending on the nature of the transactions, the place of supply and the applicable rules. It would be unwise to generalise: each transaction must be analysed in accordance with the relevant VAT rules. This is typically an area where the support of an accountancy firm or a VAT specialist can help avoid the new rate being applied mechanically to transactions that require special treatment.

Later retirement: another signal for HR planning

The OECD report is not limited to VAT. The organisation also recommends encouraging more people to continue working beyond the age of 65 and gradually linking the retirement age to increases in life expectancy, according to RTS. Econostrum notes that the OECD has been advocating this approach for Switzerland for several years.

For businesses, this debate has implications for workforce planning. Demographic ageing is already influencing recruitment, skills transfer, work organisation and occupational pensions. Should the legal framework change, employers would need to review certain processes: planned departures, employment contracts for experienced staff, part-time working policies, continued employment, coordination with social security schemes and internal communication.

However, international recommendations should not be confused with applicable law. The OECD sets out economic policy recommendations; the Swiss authorities remain free to follow them or not. For an SME, the most sensible approach is therefore to monitor actual policy decisions rather than immediately changing its practices solely on the basis of a report.

The same reasoning applies to VAT. Until a measure is adopted with its precise terms and conditions, businesses cannot finalise their arrangements. They can, however, draw up an inventory of the relevant contracts, check the flexibility of their systems, simulate the impact on prices and raise awareness amongst their accounting and sales teams.

The OECD report thus acts as an early warning signal. Switzerland retains some room for manoeuvre, but the funding requirements linked to an ageing population, healthcare and defence are bringing indirect taxation back onto the agenda. For SMEs, the right response is neither a completely wait-and-see approach nor rushing into action: it is methodical preparation, so that any potential VAT increase can be absorbed without administrative disruption or unpleasant surprises regarding profit margins.