1) Taxation by owning Swiss real estate
Income tax consequences of owning Swiss real estate
On owner-inhabited real estate, income tax will be due on what is called the "deemed rental value" of that real estate.
Known as "Eigenmietwert" in German and "valeur locative" in French, this value is taxed in addition to your other income.
The amount of the deemed rental value is communicated to the owner of the real estate by the cantonal tax authorities. It is generally around 70% of what the potential rent income would be if the property were to be rented out at current rental market rates.
On rented real estate, the actual rental income is subject to income tax.
What real estate expenses can be deducted from taxable income?
Costs for maintenance, renovation and insurance premiums can be deducted from the taxable income. It is either the actual costs which are deducted - which may significantly reduce one's overall income - or, for privately owned real estate, a lump sum in the range of 10% - 30% (depending on age and canton) of the deemed rental value may be deducted.
Interest paid on private debts are tax deductible in Switzerland. This also includes interest on mortgages.
Wealth tax in Switzerland
As Switzerland applies a net wealth tax, any real estate that one owns is subject to wealth tax. Similar to the deemed rental value, the value of the real estate is estimated by the tax authorities. They generally value real estate at around 30% below market value.
Mortgages and other loans are negative wealth and can be deducted from the basis of the net wealth tax.
Some cantons and/or communes apply an additional real estate tax, which is separate from the common net wealth tax.
2) Taxation on purchase and sale of real estate in Switzerland
In most cantons, the purchase and sale of real estate is subject to real estate transfer tax. This amounts to approximately 0.1%-3% of the current market value of the real estate.
Unlike capital gains on securities, gains realized by selling real estate are subject to real estate gain tax at cantonal level. The tax is due on the realized gain (i.e. selling price minus purchase price and investments).
The real estate transfer tax varies from canton to canton and in general the longer a real estate was held, the lower the tax is.
In addition to the taxes above, notary fees and charges from the land registry office will be due.
3) Are foreigners allowed to buy real estate in Switzerland?
Only Swiss citizens, foreign residents from EU/EFTA states, and other foreign nationals holding a Swiss residency permit C are allowed to buy real estate in Switzerland.
This is based on a law called "Lex Friedrich".
4) Tax planning when buying real estate
As outlined above, there are several important points to consider in connection with the real estate tax deductibles. We recommend carefully considering tax and legal aspects of planning and timing pending renovations and the funding/refunding of mortgages.