A Swiss real estate property may be a favourable investment, but you should be aware of the taxation principles and consequences before taking any action.
What are the income tax consequences when owning real estate property in Switzerland?
As a rule of thumb, it can be said that any income generated from rental properties is subject to income tax. But even if you use the property as your own primary residence or holiday residence you must declare a so called deemed rental income, also known as "Eigenmietwert" in German and "valeur locative" in French, as taxable income in addition to your other income.
The deemed rental income is assessed by the cantonal tax authorities and communicated to the homeowner on a regular basis. It is generally around 70% of what the potential market rental income would be if you rented out the property.
Can I claim any maintenance expenses as a homeowner?
You can choose between a lump-sum and any actual property maintenance expenses. The lump-sum expense deduction varies between 10% to 30% (depending on construction year of the property and the canton) of the deemed or actual rental income. In case your actual property maintenance expenses exceed the lump-sum deduction, it is more favourable to consider actual expenses, which, next to, maintenance costs, can be major renovation costs (with limitations), property insurance premiums and in certain cantons property taxes. In addition to the maintenance costs, mortgage interest payments are tax deductible but not amortization payments.
Does a real estate affect my wealth tax obligation?
The value of your real estate, irrespective of its location, is considered wealth and subject to wealth tax together with your other assets. The taxable value of property situated in Switzerland is evaluated by the tax authorities on a regular basis and it is generally lower than the property market value. Out-standing mortgage balances and other loans are tax deductible and reduce the basis of the taxable wealth.
Some cantons and/or communities also apply an additional property tax, which is separate from the applied wealth tax in the annual tax return.
Tax consideration when purchasing or selling real estate properties in Switzerland
In most cantons, the purchase and sale of real estate is subject to a property transfer tax. This amounts to approximately between 0.1% to 3% of the sales price of the property. However, in some cantons the property transfer tax is waived when buying a property if you use the property as your main residence.
Any realized gain on sold properties is subject to a cantonal property gain tax if the property was owned as a private asset. There are various costs (i.e. notary costs, realtor commissions, certain renovation costs etc.) that can be offset against the property gain to lower the taxable gain. The property gain tax varies from canton to canton but in general it can be said that the longer property holding period, the lower the applied tax rate.
In addition to the property transfer and property gain tax, there are also notary fees and land registry fees charged on the transaction.
Tax planning around real estate properties
There are important considerations to be made in connection with purchasing, owning, and selling a Swiss real estate. We recommend carefully reviewing all tax relating aspects such as purchasing/selling and (re-)financing properties as well as planning and timing of renovations.
Also, a word of caution for non-Swiss citizens who are planning to purchase a property in Switzerland; the acquisition of properties in Switzerland by non-Swiss citizens is subject to statutory restrictions according to Lex Koller (Federal Swiss Act concerning the Acquisition of Real Estate by Persons Abroad) depending on your nationality, type of work/residence permit that is granted to you and the purpose of the property acquisition.
Other articles that may be of interest...
Important court ruling of the German Federal Fiscal Court relevant for Executive Employees (leitender Angestellte), resident in Germany and working in Switzerland.
Relevant for employees who are resident in Germany and working in Switzerland for a Swiss employer, having the 'executive employee' status.
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What are the considerations and potential pitfalls as the employer?
Owning real estate property in Switzerland
Tax principles and considerations for real estate property-owners in Switzerland.
Entering the Swiss market as a foreign company in a compliant manner
When a foreign company enters the Swiss market, various matters must be observed to be compliant in Switzerland. As an employer, it is important that all Swiss employer obligations are met, and the Swiss labor law is adhered to.
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