Property-related taxes Advisor

Property ownership can result in a variety of taxes. These are generally determined by the location of the property – namely, in the canton where the property is located. This means that one person owning property in various cantons may be liable to pay taxes to different cantons. In such cases, different cantonal taxation systems come into effect, with the result that the taxation of property can easily become a rather complicated issue.



This guide aims to provide an overview of the tax implications of property ownership and property transactions. The main focus is on private property. Your local Engel & Völkers advisor will be happy to assist you or recommend experts.

1. Taxes on private property

Properties held as private assets may result in the following types of tax:


Income tax
Income from privately held property is subject to income tax, which is levied by the Swiss government, the cantons and the municipalities. Income includes rental income, in particular – or, if you live in the property yourself, the imputed rental value. In return, all maintenance costs and financing costs (in particular, mortgage interest and early repayment costs incurred) can be deducted; what cannot be deducted are any expenses increasing the value of the property that were only declared as capital expenses at the time of a sale that was subject to capital gains tax.


Wealth tax
Private property is subject to wealth tax. Debts owed on the property may be deducted from wealth tax. The wealth tax is levied at the cantonal and municipal level. The government itself does not levy any wealth tax.



Capital gains tax
This is a cantonal (sometimes municipal) tax that is due whenever a profit is made on the sale of a property. The amount that is taxable is the actual profit made at the time of the sale. Possible profits from any sale are not taxable at a national level. Private property is thus subject exclusively to capital gains tax. Capital gains tax also recognises various tax deferral mechanisms (such as inheritance, division of matrimonial property, replacement purchase). These can mean that the property is only taxed upon a future change of hands.

2. Taxes in case of change of ownership

Real estate that is being transferred may result in the following types of tax


Property transfer tax
Property transfer tax is a purely cantonal or municipal tax. As its name implies, it is paid when a property changes hands from a previous to a new owner. All cantons recognise different property transfer scenarios that are either exempt from tax or subject to a privileged rate (such as inheritance, division of matrimonial property, replacement purchase). In some cantons, there is no property transfer tax. Some cantons only charge a fee according to a fixed tariff (compensation for expenses not subject to taxes) or they charge this in addition to the property transfer tax.


Property tax
Property tax is also a cantonal or municipal tax that is payable annually in a few individual cantons or municipalities and based on the fair market value. In contrast to wealth tax, debts owed on the property cannot be deducted from property tax and the full fair market value is taxed.


VAT
Provided that a property is for private use only, VAT is not due on either the sale or on letting the property. As a result, no input tax deductions can be made for investment or operating costs or for administrative costs. New builds differ in the following ways: If a property sale occurs before construction begins, this constitutes taxable real estate. If the sale or service contract is only signed once construction has begun, the supply of the property is tax-exempt. If property is used for commercial purposes and the landlord/buyer is subject to VAT, he/she may choose to subject the leasing or sale to VAT; in such cases, input tax may be claimed. If property is used by the owner for corporate purposes and the owner is subject to VAT, input tax may also be claimed. The VAT regime in relation to property is complex, and expert advice from a tax specialist may lead to significant cost optimisations in some cases.

3. Private person as a commercial property handler

If a natural person is taxed as a commercial property handler, the property is taxed as if it were a business asset. This can have a significant impact on the tax burden of the individual and significant implications for social security. There is no general definition of what constitutes a “commercial nature”, rather, it is based on criteria and indices in Swiss jurisdiction. The tax authorities apply this to specific cases and have a significant room for manoeuvre in applying the categorisation. Some indices include:


- Number of sales and purchases
- Short periods of ownership
- Excess third-party financing
- Proximity to place of business or specific expert knowledge (e.g. architects, real estate agents and property managers)
- Necessity of making a profit from property transactions as a means of subsistence


Overall project realisation in particular can become complicated (including through joint beneficiaries) through the creation of a commonhold and the subsequent sale of the individual units, as well as the sale of several multi-dwellings units or individual property units within a short space of time.

4. Property as a business asset

If properties are held by a legal person (or a natural person as a business asset), they are generally subject to normal taxation on profits (income) and capital (wealth). In several cantons, property ownership requires intercantonal tax allocation.


The taxation of the sales profit is applied by some cantons as part of the normal cantonal taxation on profits (income), which is known as the monistic system (LU, OW, GL, ZG, FR, SO, SH, AR, AI, SG, GR, AG, TG, VD, VS and NE), while the remaining cantons remove capital gains from taxation on profits (income) and register them under capital gains tax (the recontributed depreciation is also recorded under taxation on profits [income tax] in these cantons). For property held as a business asset, depreciation is permitted in the scope of the actual loss of value of the rates of depreciation recognised under tax law. What must be taken into account is that all transactions between the company and its owner or persons closely associated with the owner must take place at fair market conditions.


Tax-optimising acts, such as renting your own property at reduced rent, or transferring it to become a private asset for a low price, are thus only possible in very limited circumstances. The distribution of profits of a legal person to the owner in the form of dividends is also subject to income tax, transferring the property from being a business asset to a natural person as a private asset represents a realisation of revenue under tax law and therefore is taxable.


Due to the concrete owner strategy, individual cases must be carefully checked to see whether it would be more advantageous for the property to be held by a legal person instead of as a private asset.