What are my income tax consequences when owning a Swiss real estate?
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 favorable 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. I
n addition to the maintenance costs, mortgage interest payments are tax deductible but amortization payments are not.
Does owning property in Switzerland affect my wealth tax obligation?
The value of your property, 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. Outstanding 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 estates 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 reno-vation costs etc.) that can be offset against the property gain in order 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 estates
There are important considerations to be made in connection with purchasing, owning and selling 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.