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Direct sale of real estate
Resident individual
Capital gains
Gains realised on private immovable property are not subject to tax at the federal level (tax free capital gain). However, special rules apply to capital gains arising from the sale of real estate. Indeed, they may be taxed separately from other income and subject to a cantonal/municipal property gains tax. The tax is levied on the capital gain (selling price minus the purchase price and improvement costs) and the tax burden falls on the seller. In some cases, cantons will exempt capital gains falling under a certain threshold; or exempt capital gains made on real estate held for more than a certain number of years. Years of own occupation may also count twice in some cantons. On the other hand, the tax burden usually increases in case of short term holding.
VAT / transfer tax
As a basic rule, the supply and lease of immovable property are exempted from VAT. However, companies and individuals registered to VAT can by option submit the sale to VAT, which will have as impact that input VAT related to the acquisition, maintenance and improvement of the property will be deductible. Options is not possible when the real estate is used exclusively for private (residential) purposes.
Transfer tax applies in case of acquisition of legal or economic ownership of Swiss real estate and is usually due by the buyer. The market value of the property will be taxed against at a rate of between approx. nil and 3.3% depending on location. However, various local specificities may apply.
Deferral of tax
Capital gains tax on real estate will generally be deferred if a primary home is sold and income from the sale is re-invested in a replacement property in Switzerland that serves the same purpose within two years. Similar rules apply in case of inheritance, gifting and change of ownership due to divorce.
Losses
Commercial losses incurred by independent professionals may be carried forward for seven fiscal years and may be set off against any income, including capital gains on the sale of properties. Individuals with no independent activities cannot offset a potential capital loss on the sale of a property against other income.
Non-resident individual
Non-resident individuals are treated in the same manner as resident individuals. Their limited taxation in Switzerland will stop at the time of sale of the property, assuming they have no more limited liability in Switzerland. A tax return has to be filed up to the date of sale of the property. Taxes will be levied on a pro rata basis.
Resident company
Capital gains
Capital gains are treated as ordinary business income and are part of a company’s taxable profit. However, depending on local cantonal legislation, special rules apply to capital gains arising from the sale of real estate. Indeed, they may be taxed separately from other income and subject to a cantonal/municipal property gains tax. The tax is levied on the capital gain (selling price minus the purchase price and improvement costs) and the tax burden falls on the seller. In some cases, cantons will exempt capital gains falling under a certain threshold; or exempt capital gains made on real estate held for more than a certain number of years. On the other hand, the tax burden usually increases in case of short term holding. In cases where the sale price exceeds the book value, depreciations performed on the acquisition price will be taxed together with the ordinary income (so-called ‘wiedereingebrachte Abschreibung’) and only the part of the profit exceeding the acquisition value (minus improvement costs and acquisition costs) will be subject to the special real estate capital gain tax. The situation can be quite complex in cases where a company resident in a canton which taxes real estate capital gains together with the ordinary income has a property in another canton which levies a special capital gains tax on the sale of properties. Specific intercantonal tax allocation rules aim to avoid double taxation.
VAT / transfer tax
As a basic rule, the supply and lease of immovable properties are exempted from VAT. However, companies registered to VAT can by option submit the sale to VAT, which will have as impact that input VAT related to the acquisition, maintenance and improvement of the property will be deductible. Options is not possible when the real estate is used exclusively for private (residential) purposes.
Transfer tax applies in case of acquisition of legal or economic ownership of Swiss real estate and is usually due by the buyer. The market value of the property will be taxed against at a rate of between approx. nil and 3.3% depending on location. However, various local specificities may apply.
Deferral of tax
Income tax, respectively capital gains tax on the sale of a real estate will generally be deferred if a property used for business purpose is sold and income from the sale is re-invested in a replacement property (other commercial asset being reserved) in Switzerland that serves the same purpose within two to five years (depending on cantonal practice). By ‘property used for business purpose’ it is meant a property that serves the business of the company, such as its own offices, a plant, a storage, etc. A property which is used as an investment, for renovation and resale or for rental income mainly will not qualify for a deferral of the capital gain. Corporate restructuring (change of legal form, mergers, de-mergers) will also trigger a deferral of the tax on capital gains.
Losses
Commercial losses may be carried forward for seven fiscal years and may be set off against any income, including capital gains on real estates.
Non-resident company
Non-resident companies are treated in the same manner as resident companies, since non-resident corporations holding real estate in Switzerland are deemed resident for tax purposes through economic affiliation. However, one should always keep in mind that with a foreign entity owning a property in Switzerland, there is a potential conflict of taxation of the profit in both countries. Thus, double tax treaty provisions on the sale of properties have to be analysed on a case-by-case basis to ensure which country has the right to tax the profit from the sale of the property.
Indirect sale
Resident individuals
Capital gains
Private investors do not pay capital gains tax on profits earned through the sale of assets held in their private wealth. However, specific rules may prevent tax-free capital gains for Swiss resident individual shareholders under certain conditions. For individuals holding investments in their business assets, capital gains are taxed as income arising from their professional activity and social security contributions will be due. Moreover, at cantonal level, special rules apply to capital gains arising from the sale of so-called real estate companies. Indeed, economic change of ownership of properties might also trigger taxation, which is the case when shares in a real estate company are transferred. In general, only the transfer of all or the majority of the shares in a real estate company will trigger the capital gain tax. However, depending on local legislation, a sale of only one share is sufficient to trigger the real estate capital gain tax.
VAT / transfer tax
The sale of shares is excluded from VAT.
Economic change of ownership regarding properties might also trigger a transfer tax, which is the case when shares in a real estate company are transferred. In general, only the transfer of all or the majority of shares in a real estate company will trigger the transfer tax. However, some cantons do also tax the transfer of minority holdings.
Deferral of tax
Usually there is no deferral possible in case of sale of shares in a real estate company by an individual (private or business asset). Specific cases could be negotiated with the local tax authority by advance ruling assuming they present sufficient similarities with the deferral granted in case where the individual owns directly the property.
Losses
Commercial losses may be carried forward for seven fiscal years and may be set off against any income, including capital gains on the sale of a real estate company.
Non-resident individual
Non-resident individuals are treated in the same manner as resident individuals. However, depending on the set-up, notably if the entity holding property in Switzerland is a Swiss entity or a foreign entity and depending on the rules set in the applicable double tax treaty, the capital gain related to the sale of the shares of the company may or may not be subject to Swiss taxation rules. Each treaty has its specific rules and grant the right to tax to either Switzerland or to the foreign country. Each case has to be analysed individually.
Resident company
Capital gains
Companies benefit from participation relief on capital gains if they sell at least 10% of the shares
of the company, while they have held the 10% participation for at least one year. However, the sale of shares in a so-called real estate company may be subject to the special real estate capital gain tax at cantonal level.
Deferral of tax
There is usually no deferral for the sale of shares. However, a deferral may be requested if the investment in the real estate company met the same conditions as for the capital gain exemption above.
Losses
Commercial losses may be carried forward for seven fiscal years and may be set off against any income, including capital gains.
VAT / transfer tax/stamp tax
Sale of shares is exempted from VAT.
Economic change of ownership of properties might also trigger a real estate transfer tax. Such transfer happens when shares in a real estate company are transferred. In general, only the transfer of all or the majority of shares in a real estate company will trigger the transfer tax. Some cantons do however also tax the transfer of minority holdings.
Transfer of securities involving a Swiss securities dealer (companies holding for more than CHF 10Mio of investments as per their last balance sheet) triggers a stamp tax (0.15% on the transfer of Swiss investments and 0.3% on foreign investments).
Non-resident company
Non-resident companies are treated in the same manner as resident companies, since non-resident corporations holding real estate in Switzerland are deemed resident for tax purposes through economic affiliation. However, one should always keep in mind that with foreign entities owning property in Switzerland, there is a potential conflict of taxation of the profit in both countries. Thus, double tax treaty provisions on the sale of shares/properties have to be analysed on a case by case basis to ensure which country has the right to tax the profit from the sale of the real estate company.
Direct transfer intra concern - Swiss real estate to Swiss company
Resident Company
Capital gains
An individual holding a property as a business asset (partnership) could transfer this property in a tax neutral way to a corporate entity provided it constitutes a ‘business unit’. The application of this rule is largely different from one tax authority to the other. The basic definition of a business unit for real estate is the following:
- Properties are rented to group companies or third parties.
- At least one person (external or internal) is in full time charge of management the properties.
- The property income represents at least 20 time the costs for the employee in charge of the property management.
There is a blocking period of five years for an individual during which he can’t sell the shares of the acquiring entity. If he does, income tax and real estate capital gain tax may be due.
Provided the transfer of the property can qualify as a tax neutral restructuring, the transaction will be tax neutral for all taxes involved with the transfer of properties (VAT, transfer tax, capital gain tax, income tax, stamp tax, etc.).
A corporate entity can transfer real estates to another Swiss company in a tax-free manner provided the property transferred does constitute a ‘business unit’ (see definition above). If it does not, then capital gain tax, resp. income tax will be due (see rules defined above for the sale of a property by a corporate entity). The tax neutrality is granted to all taxes involved with the transfer of properties.
Non-resident company
Non-resident companies are treated in the same manner as resident companies, since Swiss real estate held by a foreign company is considered to be a permanent establishment in Switzerland. It is important to consider that no withholding tax applies to profits realised by a permanent establishment (similar to a branch) but that once the property is transferred to a Swiss company, the profits realised with the property will be subject to Swiss withholding tax when distributed.
Indirect transfer intra concern - Swiss real to Swiss company
Resident company
Capital gains
Investments of at least 20% in subsidiaries can be transferred tax free to another Swiss entity provided both entities can be seen as direct or indirect affiliates of one common corporate entity. This entity can be in Switzerland or outside Switzerland.
If the 20% condition is not met, then the transfer will be considered to happen at fair market value for tax purposes. For Federal tax, the participation exemption will be granted and basically no tax should apply at the sale of such investment. However, for cantonal and communal tax purposes, local rules will apply. Some cantons will apply the same rules as the federal law, others will levy the special capital gain tax, depending on their legislation.
No VAT is due on the transfer or sale of investments.
Real estate transfer tax may apply depending on local legislation if the conditions for a tax neutrality are not reached.
Non-resident company
The right to tax the transfer of the Swiss real estate company may be allocated to Switzerland or to the foreign country depending on the applicable double tax treaty. Provided that Switzerland has the right to tax, cantonal and communal capital gain tax may apply depending on local legislation. The same remark can be made for transfer tax.
Direct transfer intra concern - Swiss real estate to foreign company
Resident company
Capital gains
No tax neutral transfer is possible. Income tax and/or property capital gain tax will be levied, including transfer stamp tax and VAT if opted for. See previous comments on the taxation of capital gains in Switzerland.
Deferral tax
Taxation on the real estate capital gains can be deferred for up to three years provided the property was serving a business purpose (plant, own offices, etc.). If it was only rented out as investment property, no deferral is applicable.
Non-resident company
Non-resident companies are treated in the same manner as resident companies, since Swiss real estate held by a foreign company is considered to be a permanent establishment in Switzerland.
Indirect transfer intra concern - Swiss real estate to foreign company
Resident company
Capital gains
The transfer of Swiss real estate companies to a foreign entity cannot happen in a tax neutral way. The transfer will happen at fair market value for tax purposes. Income tax and/or property capital gain tax will be levied, including transfer stamp tax and VAT if opted for. See previous comments on the taxation of capital gains in Switzerland.
Deferral tax
Taxation on the real estate capital gains can be deferred for up to three years provided the property was serving a business purpose (plant, own offices, etc.). If it was only rented out as investment property, no deferral is applicable.
Non-resident company
The right to tax the transfer of the Swiss real estate company may be allocated to Switzerland or to the foreign country depending on the applicable double tax treaty. Provided that Switzerland has the right to tax, cantonal and communal capital gain tax may apply depending on local legislation. The same remark can be made for transfer tax.
Transfer of Swiss real estate to a EU company
Switzerland is not part of the EU. Though Switzerland has large agreements with the EU, there is nothing specific in the field of tax neutrality in case of restructuring or real estates. Ordinary Swiss taxation rules/double tax treaty rules will apply.
