Tax in Switzerland
Swiss Property Taxes Explained
With its natural beauty, safe environment, high standard of living and position in the heart of Europe, Switzerland is a popular tourist destination. And not surprisingly, many visitors decide they would like to acquire their own piece of the Swiss mountain lifestyle dream!
We are often asked by prospective buyers about the taxation implications of owning a second home in Switzerland. Here we lay out the various Swiss taxes applicable to non-resident buyers and give some examples of the tax rates in the main cantons in which property is available for sale to non-residents – Valais, Vaud and Bern.
Swiss Property Taxation Explained
You have been given the keys to your property in Switzerland. You are keen to move in and start to make it your dream home. While tax laws in Switzerland may not be the first thing on your mind, here is what you will need to know.
Firstly, Switzerland is made up of local communes, the cantons in which they are situated and finally the Federation of the cantons. Each entity raises taxes and as a property owner you will have to submit a tax return each year from which your total tax bill will be calculated. This will be presented to you with a breakdown of what is payable to the commune, the canton and the Federal government.
Secondly, a term that I will refer to often – the tax value of your property (also known as fiscal or cadastral value). This is based on assessment criteria determined by the cantons and is significantly lower than the purchase price of the property (typically between 30-60% of the purchase value). It forms the basis of the Swiss property tax and Swiss wealth tax that we refer to below.
Swiss Property Tax
Sometimes known as land or real estate tax, this is a cantonal 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. Not every canton applies this tax, however the cantons with the majority of tourist resorts with second homes such as Valais, Vaud and Bern do. The rates range from:
- Valais – 0.010%
- Vaud – 0.015%
- Bern – 0.015%
These rates are applied to the tax value (as opposed to purchase value) of the property.
Income Tax in Switzerland for Foreigners
Homeowners pay a tax for the right to use their property. This is based on a notional “rental value” and is calculated by determining how much rent the home would theoretically yield if rented out, based on a careful assessment of market rents. From this amount running costs can be deducted as well as debt interest, even if not directly related to the property. The amount that may be deducted is based on the tax value of your Swiss property as a percentage of your total global assets (please refer to the comments on filing a tax return below).
Tax on the net amount is paid to the commune, canton and the federal government. The rates of tax differ from commune to commune but for the sake of comparison, the maximum rates of all combined are:
- Valais – 36.5%
- Bern – 41.4%
- Vaud – 41.5%
Swiss Wealth Tax
The tax value of your property is used as the base to determine your wealth tax. Debts can be deducted even if they do not relate to the property. And as is the case with income taxes, the amount deducted is based on the value of your Swiss property as a percentage of your global assets.
When you or your accountant file your Swiss tax return, total global income and wealth need to be declared in order to assess the applicable tax rate. You have a choice – if you make a global declaration you are entitled to deduct debt and debt interest. In this case the maximum tax rates are not applied (typically 50% of the maximum rate). If you do not declare your global wealth and income, you may not deduct debt and the maximum tax rates will be applied.
For reference, the maximum wealth tax rates are:
- Bern – 0.58%
- Valais – 0.63%
- Vaud – 0.79%
Switzerland Double Tax Treaties
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.
Inheritance Tax in Switzerland
Inheritance and gifts to spouses are tax free in all cantons. Transfers of ownership to direct heirs are tax free in Valais and Bern and are subject to a tax of 3.5% in Vaud.
Tax consequences on the sale of your property
Swiss Capital Gains Tax
You will not be allowed to sell your property within the first five years of ownership, unless there are mitigating circumstances such as bereavement or financial difficulties. This restriction is designed to discourage an investment in Swiss property as a form of speculation. Profit on the sale of a property is subject to Swiss capital gains tax. The rates are progressive and the longer the property is owned, the lower the tax rate. The computation for the taxable gains is the selling price less acquisition costs and costs of improvement. Therefore, it is a good idea to keep all your receipts as they may save you money in the future!
For a step-by-step guide to the property purchase process in Switzerland as well as details of the property transfer tax, land registration and notary fees payable, please refer to our Guide To Buying Property In Switzerland.
The information herein does not constitute investment advice and has been provided in good faith as a guide. Regulations, tax rates and exemptions may change. APS accepts no responsibility for its accuracy and readers should always consult their own lawyer and accountant for clarification and guidance.