Everything you need to know about property gains tax in the canton of Zug

Property gains tax in the canton of Zug: How it works

In the canton of Zug, the seller of a property must pay property gains tax if a profit is realised on the sale. Unlike in most cantons, the tax in Zug is not levied as a flat rate on the profit amount, but on the annual return.

A separate tax return must be submitted for this purpose, along with the following documents, depending on the length of ownership:

• If the property was purchased less than 25 years ago, the purchase contract must also be enclosed, including all supporting documents for deductions and any replacement purchase.

• For properties held for more than 25 years, an extract from the cantonal building insurance scheme is required. This shows the insured value from 25 years ago, which the authorities use to calculate the current market value.

The dualistic system applies. This means that only capital gains from the sale of property forming part of the private assets of natural persons are subject to tax. Capital gains from the disposal of business assets or from commercial property trading, on the other hand, are subject to corporation tax or income tax.

The tax rate is progressive: the higher the return achieved, the higher the percentage tax burden.

How is property gains tax calculated in Zug?

The calculation is based on the capital gain and the total return generated by the property.

The capital gain is calculated as the proceeds from the sale minus all investment costs, such as the purchase price, value-enhancing investments or deductible expenses.

The return can then be determined as follows:

Total return = (capital gain * 100) / investment costs

The effective tax rate corresponds to the annual return. This is calculated differently depending on the holding period:

Annual return (for a holding period of up to 5 years):

(Total return * 12) / Holding period in months

Annual return (for a holding period of over 5 years):

Total return / Holding period in years

Permitted deductions for property gains tax in detail

Purchase price:

To determine the taxable property gain, sellers may deduct the original purchase price of the property as well as all costs associated with the acquisition. This generally includes:

• Notary fees

• Land registry fees

• Land transfer tax

Value-enhancing investments:

These include all investments that have contributed to increasing the value of the property. In other words, all costs relating to renovations and modernisation, alterations or extensions.

Important: Maintenance costs or investments made purely to preserve the property’s value cannot be deducted.

Deductible expenses:

This includes the standard estate agent’s commission and any costs for advertising incurred when selling the property.

How much is the capital gains tax in Zug?

In the canton of Zug, all capital gains under 5,000 Swiss francs are tax-free. If the gain exceeds this threshold, the tax rate corresponds to the calculated rate of return.

The capital gains tax ranges from a minimum of 10 per cent to a maximum of 60 per cent.

Surcharges and reductions on capital gains tax in the canton of Zug

The length of ownership affects the amount of the final capital gains tax. Sellers who have owned their property for twelve years or more benefit from a reduction of 2.5 per cent per year on their capital gains tax.

Important: The maximum reduction is 35 per cent; furthermore, the tax rate cannot fall below 10 per cent.

Example calculation of property gains tax in Zug

Calculation of property gains tax following the sale of a property after 15 years of ownership and a capital gain of 300,000 Swiss francs in the canton of Zug:

Purchase price: CHF 800'000
Capital gain: CHF 300'000
– Deductible investments: CHF 80'000
– Other deductions, e.g. estate agent’s fees: CHF 5'000
= Taxable capital gain: CHF 215'000

Total return = CHF 215'000 * 100 / CHF 885'000 = 24.3%

Annual return: 24.3 / 15 = 1.6%

Tax relief for a holding period of 15 years: 7.5%

The effective return for tax calculation purposes in this example is therefore the minimum tax rate of 10 per cent.

The property gains tax for this property in the canton of Zug is therefore CHF 21'500.

By way of comparison: if the same property is sold again after just 9 months with the same profit, the annual return is 32.4 per cent. The effective tax amount rises to CHF 69'642 – more than three times as much.

In which cases is it possible to defer capital gains tax?

Property gains tax in the canton of Zug may be deferred in certain cases. These include:

• Transfer of ownership through inheritance

• Advance on inheritance or gift

• Transfers of ownership between spouses under matrimonial property law, to compensate for extraordinary contributions to family maintenance or in the context of divorce proceedings, provided both spouses agree.

Even in the case of a standard sale of an owner-occupied property, the tax may be deferred if the proceeds are invested within two years in a replacement property in Switzerland used for the same purpose. This allows homeowners to continue investing in residential property without having to pay a high tax bill.