Ever contemplated buying a property in Switzerland? Reading further might put you off.
Providing useful information on the taxation of property in Switzerland is daunting. Given that the country effectively has 26 different systems – one for each canton – it is virtually impossible to say anything on the subject that can be used in every situation. Every canton has so much autonomy in fiscal matters that they all have their own rules. Things are further complicated because taxes are levied at federal, cantonal and municipal levels.
Nevertheless, here are some hints that may help guide you through Switzerland’s taxation minefield. Depending on the situation, some of the taxes mentioned apply to residents as well as to non-resident property owners. The following tax elements deal specifically with private property transactions, not corporate business ones. Nor do they refer to some of the restrictions that apply to foreigners buying property in Switzerland.
Basically, there are eight different types of taxes and charges:
Real Estate Transfer Tax: This tax differs from canton to canton and ranges from 0.2% to 3.3% of property value. Since January 2005, however, the transfer tax has been abolished in Zurich. But here are some fees worth mentioning:
Registration Fee: This amounts to 0.25% of property value and is paid to the Land Registry Authority.
Notary Fee: This depends on each canton, but generally represents 0.1% of property value.
Property Tax: Sometimes known as land or real estate tax, this is a cantonal or communal tax on land and buildings. It is payable by persons who are recorded in the land register as the owners or users of a property. Generally speaking, the rates range from 0.05% to 0.3% on the full taxable value of the property, i.e. without taking account of any related debts or mortgages. The property is taxed at its location irrespective of where the owner lives. Certain cantons (ZH, SZ, GL, ZG, SO, BL and AG) do not levy this tax.
Swiss Tax on Rental Income: Rental income is taxable. Nevertheless, administration costs invoiced by third persons, necessary maintenance and improvement costs, as well as interest payments in respect of loans, are deductible. This type of tax can also apply to non-residents.
Rental Value Tax: All homeowners in Switzerland must pay an income tax on their home. This tax is called the Rental Value Tax and is calculated by determining how much rent the home would theoretically yield if rented out. At the same time, you can deduct mortgage interest payments and other costs for the upkeep of the property.
Wealth Taxes: Swiss residents pay taxes on their wealth, including the property they own. Property assets are typically valued at a value around 80% of their market value. Personal debts, mortgages, bank loans and overdrafts are all deductible, as well as certain personal deductions and allowances.
Capital Gains Tax: Profit on the sale of a property is subject to a capital gains tax to reduce speculation. The rates are usually progressive and the longer the property is owned, the lower the tax rate. A shorter owning period means a higher tax. The computation for the taxable gains is the selling price, less acquisition costs and costs of improvement. Therefore it is very important to keep all the receipts you have relative to your property as they may save you money in the future!
If you live outside Switzerland, then normally you should not pay tax in your country of residence on a property situated in Switzerland. This however depends on the Double Tax Treaty between Switzerland and your country of residence. The principle normally followed is that property is taxed in the country where the property is situated.
If planning to buy – or sell – a property, it goes without saying that it is wise to gain professional advice. Furthermore, it is also worth considering the economics of it all, whether it is actually worth buying something, or whether it might, in the long run, be better to rent. But that’s another story.
By Ludo Schockaert
Ludo Schockaert is a tax advisor for International Tax Consult in Nyon.