VAT increase to fund the army: +0.5 points proposed by the Federal Council, what impact for Geneva SMEs?

On 24 June 2026, the Federal Council presented its revised proposal to fund the army through a VAT increase. Originally planned at +0.8 points, the increase has been reduced to +0.5 percentage points for the standard rate, following consultations with the cantons and business circles. The standard rate would thus rise from 8.1% to 8.6%, the special rate (accommodation) from 3.7% to 4.0%, while the reduced rate for food and medicines remains unchanged at 2.6%. The measure is limited to 12 years, compared to 10 in the original proposal, with all additional revenue allocated to defence spending.

For Geneva SMEs, this reform involves concrete operational changes. The VAT rate applied to invoices will increase from 8.1% to 8.6% for most services (consulting, accounting, IT, training, etc.). Businesses will need to update their invoicing systems, existing contracts, quotes and price lists. Contracts concluded before the entry into force mentioning a 'VAT included' price require careful attention to determine who bears the increase.

The impact differs depending on whether the SME invoices end consumers or taxable businesses. For B2B sales, the client recovers the VAT through input tax deduction: the increase is therefore neutral for them, only cash flow is temporarily affected. For B2C sales (retail, restaurants, services to individuals in Geneva), VAT is a real cost for the final consumer. SMEs active in these sectors will need to pass on the increase in their prices or reduce margins to remain competitive.

Consider a Geneva fiduciary firm (like MVO Fiducia) with annual turnover of CHF 800,000 subject to the standard rate of 8.1%. Currently, it charges CHF 64,800 in VAT per year to its clients. At the new rate of 8.6%, this amount would rise to CHF 68,800 — an additional CHF 4,000 in VAT collected annually. If its own suppliers (software, rent, external consultants) are also subject to the new rate, deductible VAT will increase proportionally, partially neutralising the cash-flow effect.

A major pitfall concerns long-term contracts and subscriptions. A Geneva SME that signed a CHF 12,000 per year IT maintenance contract in 2025 at a 'VAT inclusive' price must determine whether the VAT increase is borne by the company or chargeable to the client. Safeguard clauses in commercial contracts are crucial here. Similarly, accounting and invoicing software must be updated before the effective date, otherwise incorrect VAT rates on invoices could expose the business to tax back-payments.

The parliamentary process is underway. Following the Federal Council's message of 24 June 2026, the matter will be examined by the Federal Chambers before being submitted to a popular vote, probably in 2027 or 2028. Entry into force is envisaged for 1 January 2029, at the same time as the abolition of the rental value. According to the official federal administration communiqué of 24 June 2026, the armaments fund with borrowing capacity enjoys near-unanimous support. The current rates set by the VAT Act (SR 641.20, Art. 25) will be amended by this reform.

At MVO Fiducia, we closely monitor this reform and its implications for Geneva SMEs. Once the new rate is adopted, we will update your invoicing systems, analyse the impact on your existing contracts and optimise your VAT cash flow. Our team supports you in anticipating this change to avoid unpleasant surprises. Contact us for a personalised VAT audit of your situation.