How to purchase real estate in Switzerland as a foreigner?
Clients consider buying real estate in Switzerland for numerous reasons: lifestyle, quality of life, holiday purposes, a permanent home, education, relocation for business reasons, investment and security. This page has been compiled as a guide for potential purchasers of property in Switzerland. It does not seek to provide or replace legal advice which you should obtain, nor is it intended to have any contractual effect.
All of the various reasons for the purchase of real estate have very different consequences, not only from a tax and legal point of view, but also regarding succession, financial structuring and asset allocation. In addition, the costs for the acquisition, the holding and the sale are different depending on each specific case. The political, legal and economic stability of Switzerland as well as the stable Swiss Franc (CHF), are the main reasons for a strong and long term investment in Swiss property. This is supported by the very high quality of life that Switzerland has to offer with low crime rates, outstanding construction, superior education and excellent medical facilities. The procedure to acquire, hold and sell real estate and its taxation are primarily regulated by cantonal and communal laws.
01. RESTRICTIONS FOR THE ACQUISITION OF REAL RESTATE IN SWITZERLAND
02. TAX IMPLICATIONS OF TAKING UP RESIDENCY AND INHERITANCE TAX
03. PURCHASE OF A SECONDARY RESIDENCE BY NON-RESIDENTS
04. MAJOR REGIONS IN SWITZERLAND
05. PURCHASE OF COMMERCIAL PROPOPERTY
01. Restrictions for the acquisition of real estate in Switzerland
According to the federal law regarding the acquisition of real estate by persons abroad (also referred to as ‘Lex Koller’), the purchase of residential real estate is restricted in Switzerland for foreign citizens.
According to the federal law regarding the acquisition of real estate by persons abroad (also referred to as ‘Lex Koller’), the purchase of residential real estate is restricted in Switzerland for foreign citizens:
- Prohibited : Purchase of residential property by a foreign, non-resident citizen outside the designated secondary property areas.
- Quota system : Purchase of a secondary residence by a person without a residence permit.
- Without restriction : Purchase of residential property by a UE/AELE citizen with a B or C residence permit.
- One property only as main residence : Purchase of residential property by a citizen from a country that is a non-member of the UE who holds a temporary B permit.
- Without restriction : Purchase of residential property by a citizen from a country that is a non-member of the UE who holds a permanent C permit.
- Without restriction : Commercial real estate.
02.Tax implications of taking up residency and Inheritance tax
There are no restrictions for the purchase of residential real estate in Switzerland by EU citizens (permits B or C). Non-EU citizens need to wait for a permanent residence status (permit C) to purchase residential real estate other than their principal residence.
With the exception of Zurich and Schwytz, all cantons deduct transfer rights from the purchase price or from the fiscal value of the property. In most cantons, the buyer is subjected to transfer rights, whereas in some cantons half of this tax is paid by one or both parties, according to the purchase contract terms. The rate of the transfer rights is calculated differently in each canton and generally varies between 0,5 % and 3 % of the purchase price. Most cantons also favour land register rights at a few-tenths of 1 %, which can go up to 1 % in certain exceptional circumstances. In some cantons, the solicitor invoices his services by the hour, whereas in others the fees are calculated as a percentage equivalent to a few-tenths of 1 % of the purchase price. Traditionally, all real estate agency fees are paid by the seller, unless there is a previously existing agreement or if the buyer signs a study mandate for a customised study.
With the exception of Zürich and Schwyz, all cantons levy a transfer tax on the purchase price or the tax value of the property. In most cantons the purchaser is liable for the transfer tax, whereas in some cantons 50% tax is paid by both parties or by one party according to the purchase contract. The transfer tax rate is calculated differently in each canton and varies in general between approximately 0.5% and 3%.
In addition, most cantons levy a land register fee of a few tenths of a per cent, reaching 1% in exceptional cases. In some cantons, the notary charges for his services according to the time spent, and in others, fees are based on a percentage of a few tenths of a per cent of the purchase price. Traditionally, all real estate agency fees are paid by the seller unless agreed in advance or if a buyer signs a search mandate to provide a bespoke search service.
In general, according to Swiss law, a B permit holder has the status of a fiscal resident in Switzerland. According to Swiss tax law, worldwide income and worldwide wealth are taxable in Switzerland and have to be declared. As taxes are levied on a federal, cantonal and communal level, the tax rates vary in each commune and are progressive.
The lowest maximum income tax rates are at approximately 20%, the highest at around 42%. In addition to the worldwide income, a deemed rental value of the Swiss real estate will be taxed as income in Switzerland. On the other hand, maintenance costs and mortgage interests are fully deductible from the taxable income. Worldwide movable assets and real estate in Switzerland are subject to cantonal and communal wealth taxes. Wealth tax is levied on net assets, consequently mortgages and other loans are deducted from the tax value of assets. Net assets are taxed at progressive rates which reach a maximum between approximately 0.1%-1% depending on the cantonal and communal tax rates.
For non-Swiss citizens without any gainful activity in Switzerland, a large number of cantons provide for a taxation according to the rental value (typically multiplying the annual rental value by 7) of the Swiss property as well as the living costs and does not consider a client’s worldwide income. Furthermore, tax authorities require a minimum tax burden of at least CHF 400,000 to grant lump sum taxation in the case of real estate with a relatively low tax value. For reference, this lump sum taxation is also called (Pauschalbesteuerung, forfait fiscal, tassazione globale).
03.Purchase of a secondary residence by non-residents
According to the Lex Koller law, purchasing a secondary residence is subject to the following conditions :
- Purchase autorisation delivered by the competent authorities
- Only in a touristic commune (village)
- Within the annual permit quota for each canton/commune (Village)For private use only. The owner is authorised to lease his/her property only on a periodic and non-permanent basis
- 200 sq. m. maximum of floor space (in certain cases this limit can be increased up to 250 sq. m.)
- 1000 sq. m. maximum of land (in certain cases this limit can be increased up to 1500 sq. m.)
In the whole of Switzerland, only 1,500 holiday home purchase authorisations are granted to non-residents each year. The Swiss government allocates the regional quotas according to the number of tourism facilities and new developments as well as the proportion of land. The cantons Valais, Grisons, Berne, Ticino and Vaud receive an allocation between 140 and 330 authorisations each, the other cantons receive less than 100.If the seller/buyer has acquired his/her inheritance as a foreigner under the quota regime, there will be no need to apply for another authorisation and the purchase won’t fall within the actual quota.
In Switzerland each property’s value is estimated on a regular basis by the communal or cantonal authorities to determine a deemed rental value for the income tax and a tax value for the wealth tax.
As part of owning real estate in Switzerland the owner becomes personally liable for income and wealth taxes in connection with the property.
Usually, holiday homes are taxed based on the deemed rental value and tax value at the rates applicable to worldwide income and wealth. For the sake of simplicity, the tax authorities may agree to apply maximum tax rates without declaration of worldwide income and wealth. The tax rates are the same as those for Swiss tax residents Some cantons also impose a lump sum tax for holiday homes. In general, mortgage interest and maintenance costs are not deductible.
In some cantons a sale is only allowed after a minimum holding period (typically 5 years). The capital gain is taxed on a cantonal and in some cantons on a communal level as well. The tax rates are progressive depending on the amount of realised capital gain and on the holding period, varying from approximately 10%-50%.
As authorisation to acquire real estate as a non-resident person is granted to the property and not the person, no new authorisation according to Lex Koller should be necessary for donation or inheritance, as long as the recipient is not already an owner of a holiday home in Switzerland. The inheritance from a deceased person who was resident abroad does not generally fall under Swiss inheritance law. However, for the change of property ownership property Swiss laws may apply. In addition, real estate in Switzerland is subject to the cantonal inheritance tax (subject to each individual’s circumstances, please seek advice).
In March 2012, the Franz Weber initiative was accepted by the Swiss people in order to limit the construction of new secondary residences in tourist areas to a maximum of 20 % of the buildable area of the commune.
This limit has currently been exceeded in over 500 touristic communes. Therefore, no new building permits are granted, except those for permanent residents. This measure indicates a potential increase in the value of secondary residences due to the significant decrease of availability anticipated over the next five years.
04.Major areas of Switzerland
05.Purchase of commercial property
The purchase of commercial real estate is not subject to restrictions for foreigners, therefore no residence permit or purchase authorisation is required. The property may be used for the owner’s business or can be rented out to generate revenue. Commercial real estate may also be purchased solely as an investment.The costs and procedures for the purchase of a commercial property are quite similar to those of residential real estate. An indirect investment through a Swiss or foreign company, trust or foundation structure is possible and in some cases recommendable for tax, legal or succession planning purposes.
06.Financing and structuring of purchase of real estate
Financing the acquisition by cash purchase is one possibility. Swiss banks usually grant mortgages of up to 80% of the property value based on their own valuation. For luxury real estate and holiday homes, mortgage financing up to 60% is usually available. The interest level in Switzerland is one of the lowest in Europe.
Holiday homes may only be acquired directly by the beneficial owner. A married couple is allowed to acquire only one holiday home in Switzerland. A purchase of a holiday home by children is authorised, provided that they are over 18 years old and are using their own assets. Residential real estate for a principal residence is usually purchased directly by the permit B or C holders. In certain cases, a Swiss or foreign entity can be used as legal owner of the property but the permit B or C holder has to be the main beneficial owner. Purchase through a trust or a foundation is possible as long as the beneficial owner of the structure is entitled to own real estate in Switzerland. Commercial or residential real estate as investments are frequently acquired using a Swiss or a foreign legal entity. The choice of the structure and its jurisdiction depends mainly on the residence of the beneficial owner, the financing and the time frame of the investment.
As a first step a buyer should analyse whether a property can be purchased as a holiday home or only as a principal residence with a residence permit.
For the acquisition of a holiday home an application for the purchase needs to be filed with the relevant authorities. Depending if there is remaining quota in the current year, authorisation will be granted within a few months or, if not, possibly in the subsequent year.
The purchase of a property for taking up residence may only be finalised after issuance of the residence permit. Should a holiday home authorisation or a residence permit be applied for, a
letter of intent or a preliminary purchase agreement between the seller and the buyer can be entered into in a first step.
Usually this kind of contract has a time restriction/limit and a reservation fee is payable to the seller.
The notary will need the following documents to legalise the purchase contract :
- Authorisation to purchase a holiday home by the canton
- Resident permit for main residency
- Confirmation of a Swiss bank for the financing of the purchase
- Passport of the beneficial owner
- Authorisation in favour of the notary to withhold transaction costs and taxes from the purchase price
The purchase can be finalised in 2 to 6 months, depending on the paperwork that is required. The transfer of ownership only becomes effective once the new owner is registered with the land register.
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