52ND UIA CONGRESS

Bucharest - Romania
October 29-November 2, 2008

 

 

TAX LAW

Friday, October 31, 2008

 

REAL ESTATE TAXATION

 

QUESTIONNAIRE

 

Dr. Daniel U. Lehmann
Bär & Karrer AG, Brandschenkestrasse 90, 8027 Zurich, Switzerland
Tel +41 58 261 50 00 / Fax +41 58 261 50 01
d.lehmann@baerkarrer.ch

 

© UIA 2008

 

1UIA Congress, October 2008, Bucharest (Romania)

Questionnaire

The upcoming UIA congress in Bucharest (Romania) in October 2008 will focus on the taxation of real estate. The purpose of the present questionnaire is to analyze, for each jurisdiction represented at the Congress, the regimes of taxation of cross-border real estate ownership and transactions.

Name of Author(s)

Daniel Lehmann

Corresponding state

Switzerland

 

Introductory remarks:

The following situations have to be analyzed: The taxation of acquiring, holding and transferring real estate, whereas the person – whether an individual, a legal entity or a real estate fund, is domiciled in another state than the real estate property is located (cross-boarder situation).

Two possible scenarios have to be examined, i.e. scenario (i) where the real estate is located in your own jurisdiction and (ii) where the residence of the owner of the real estate is in your jurisdiction.

In addition, in case the real estate owner is an individual, the answer has to distinguish between a private asset and a business asset. Furthermore, the real estate may be a residential property or a business property. Finally, a distinction may be made between a structure where the property is owned directly or indirectly (through the ownership of the shares of a real estate company).

The questionnaire invites the participants to present in some brief answers the tax consequences in the different scenarios mentioned above.

The questionnaire is split into a section (i) dealing with the taxation of a transfer of real estate, into a section (ii) dealing with the taxation of ongoing ownership of real estate and into a section (iii) dealing with other objects of taxation. For all those situations, each type of tax shall be covered.

As an introduction, some basics of civil law topics are raised in order to summarize the underlying civil law system relevant for the taxation of real estate in the different jurisdictions. Additionally, general questions on some basics of tax law topics are addressed and a chapter regarding a general overview over some taxes is available.

 

Overview:

 

CIVIL LAW

 

  TAX LAW

General Questions

Specific Questions

Civil Law

 

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Hereafter, some civil law questions are raised in respect of the state where the real estate is situated.

How is real estate property defined according to the law of the corresponding state?

Pursuant to article 655 section 2 of the Swiss Civil Code (CC CH), immovable property includes (i) land and houses, (ii) independent and permanent rights entered in the land register, (iii) mines and (iv) co-ownership shares of immovables.

Is there a public register stating the ownership of a real estate property
(land register)?

A land register is kept of rights over immovable property (article 942 section 1 CC CH).

If there is a land register, what is the nature of the register and what are the legal effects of a registration with the register?

The land register is a public register visible for every person.
The registration with the land register causes the acquisition of ownership of land and is deemed to be the act of transfer of ownership (article 656 section 1 CC CH).

Is the land register a national or a regional register? – Which authority is in charge of the land register, how is the register kept?

For the purpose of land register, the cantons are divided into areas. Properties are entered in the register of the particular area in which they are situated (article 951 CC CH). The land register is kept by the district registries (article 953 section 1 CC CH).

Which form has to be observed when the ownership on land is transferred (e.g. public deed, notarization)?

A contract for the transfer of ownership of land is void unless duly notarized by a notary of the canton where the real estate is situated (arcitle 657 section 1 CC CH).

Who is entitled to acquire real estate property in the corresponding state? Are there any limitations applicable to persons without residence in the state of the real estate property?

Entitled to acquire real estate is every person legally capable to act (individuals, legal entites, funds).

The Swiss federal law (Federal Act on the acquisition of real estate by foreign resident persons, “Lex Koller”) provides several restrictions to the acquisition of residential property, such as property rights and/or similar rights applicable to persons living abroad, i.e. (i) persons domiciled in Switzerland but without any right of settlement in Switzerland, (ii) persons living abroad, (iii) legal entities domiciled abroad and (iv) legal entities domiciled in Switzerland provided that more than one third of the capital and votes are controlled by a person living abroad.

In the corresponding state, how is real estate preferably acquired / held / transferred? Directly (asset deal / asset property) or indirectly (share deal / asset property)? According to civil law, what are the reasons for such structuring? (cf. also hereafter, page XX question according to tax law)

From a civil law perspective, an asset deal causes a change of ownership registered in the land register whereas a share deal is a change of shareholder (change of control) only.

For warranty and liability reasons, the purchaser prefers an asset deal, whereas the seller might prefer a share deal. However, for secrecy reasons, the purchaser might accept a share deal in case he/she does not want to appear in the land register.

 

Is there a statutory mortgage (legal lien) securing the tax liability, due on the transfer of the ownership of real estate?

In some cantons, a statutory mortgage (legal lien) is provided by the cantonal tax law. If the cantonal tax law provides for a statutory mortgage securing real estate taxes on the real estate property, the statutory mortgage is, as an exception to the general rules, valid without registration in the land register.

 

 

 

Tax Law

 

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General Questions

 

Acquisition of real estate

In the corresponding state, is real estate property preferably acquired directly (asset deal) or indirectly (share deal)?
From a tax point of view, what are the advantages / disadvantages of an acquisition of real estate by way of an asset deal or a share deal? Especially, are there any advantages of a share deal regarding inheritance and gift taxes, or with respect to real estate capital gains taxes etc.?

 

Purchaser: With respect to real estate acquired as business assets, the asset deal allows to capitalize the full purchase price (as opposed to lower book value) and to make tax effective depreciation on the property.

Seller: Generally, share deals are more attractive for sellers, given that they may realize a tax-exempt capital gain, if certain conditions are met. The taxation of hidden reserves on the real estate assets may often be deferred in share deals. In some cantons, real estate capital gains taxes may also be triggered on indirect transfer of real estate, i.e. in the case of a change of control in real estate companies holding Swiss real estate.

With respect to properties held as private assets, Swiss real estate is usually transferred by way of asset deals.

Separation of operational business and real estate property

Provided that the real estate is held by a company domiciled in the state of location of the real estate, and provided that the company is performing operating activities/ conducting a business, how is the ownership of the assets of the company usually structured?
I.e., are real estate assets separated from the operating business (two separate companies under the same control)?
And, what are the drivers behind such structuring? Civil law (ring fencing) and/ or tax reasons, other reasons?

Although there is no general trend to hold real estate separate from the operating business, such separation is often seen, mainly for the following reasons:
Ring fencing (OpCo/PropCo model):

  1. real estate is not liable for operating assets
  2. operating assets are not liable for mortgages on real estate properties

Facilitating sale of business: It is easier to sell two light entities separately, or to keep the shares of the real estate company, than to sell one heavy entity comprising the business and the properties.

What is the definition of a transfer of real estate?

Is there a taxation upon change of ownership in accordance with civil law(asset deal)?

According to Swiss tax law, in principle, different taxes may be triggered in the event of a legal transfer of title in real estate, i.e. in particular if the transfer of ownership is registered in the land register.

Is there a taxation upon indirect transfer of real estate, in particular in the event of a change of ownership in a real estate company (change of control, share deal)?

The transfer of the majority of shares of a real estate company (change of control) triggers, in some cantons, the real estate capital gains tax, and, in a number of cantons, the real estate transfer tax.

Does the law of the corresponding state provide for a deferral of, or exemption from, taxation in certain cases? In what situation (e.g. upon succession; upon donation to the spouse / descendant; upon disposal of the shares of a real estate company)?

Real estate capital gains tax

Real estate capital gains tax is generally not levied and is deffered upon transfer of ownership:

  1. in case of a tax neutral reorganization
  2. in case of a direct degree of relationship (succession, donation)
  3. in case of succession/donation to the spouce
  4. in case of replacement of existing asset (reinvestment of proceeds for the acquisition of a new asset)

Corporate income tax

Corporate income tax is generally not levied and deferred:
- upon a tax neutral reorganization (such as mergers, demergers)

Real estate transfer taxes

Real estate transfer taxes are generally not levied and an exemption is provided:

  1. upon a tax neutral reorganization

Inheritance and gift tax

Inheritance and gift tax is generally not levied and deferred:

  1. in case of a direct (close) degree of relationship (spouses, descendants)

Other taxes

N/A

Relevant time


What time or what civil act is relevant for the taxation of the acquisition of real estate (time of conclusion (signing), time of completion (closing) or time of registration?

Real estate transfer axes and real estate capital gains taxes are triggered upon registration with the land register.

Depreciation and amortization


Depreciation and amortization of real estate.

No tax effective depreciation is admitted for properties held as part of a person’s private wealth. With respect to business properties, the Swiss Federal Tax Administration issued a Circular providing for the different depreciation rates applicable to different depreciation rates applicable to different types of assets. No depreciation is available on value of the land (as opposed to the value of the building). The taxpayer can opt for either the straight line depreciation method or the declining balance method.

 

Tax Overview

Taxes relevant to real estate taxation in the corresponding state

Real estate capital gains tax

 Real estate capital gains may be subject to cantonal real estate capital gains taxes. Real estate capital gains are realized upon change of ownership and upon economic change of ownership of a real estate company (change of control, sale of majority of shares).

In all cantons capital gains on private assets are taxed separately. On the contrary, capital gains on business assets are in some cantons subject to income and corporate income tax (dualistic system) and in other cantons taxed separately with the real estate capital gains tax (one single tax for real estate capital gains on private and business assets; therefore called monistic system).

In the monistic system, the increase in value of a property is subject to real estate capital gains tax and calculated as follows: Market price (in case of disposal: the sales proceeds) minus the acquisition costs (including subsequent investments increasing the value of the property), Depreciation and amortization of fixed assets are – if realized – subject to corporate income tax (recapture of depreciation).

In de dualistic system, private capital gains are taxed like in the monistic system as described above. Capital gains on business assets are subject to income and corporate income tax (both the increase in value and recaptured depreciation).

The real estate capital gains tax is levied by the cantons and/or cummunes but not by the Swiss Federation. The tax rate thus differs from canton to canton. The tax rate is progressive and decreases in dependence of the holding period. At a holding period of ten years, the rate is of 10 to 30 percent on average, but may be up to 35 percent in some cantons.

Income tax (corporate and individual income taxes)

Real estate capital gains are only subject to income taxes in cantons with a dualistic system. Accordingly, real estate capital gains from business assets are subject to income tax. As outlined above, capital gains realized on private properties are not subject to income taxes.

The income tax is levied on the federal, the cantonal and the communal level. The overall tax burden however differs from canton to canton. On average, the tax rate of a company (shich is in principle a flat rate) is in total of 15 to 30 percent (pre-taxe rate). An individual is subject to income tax of a rate of up to 40 percent (progressive taxe rate).

Real estate transfer taxes

In most cantons (but e.g. not in Zurich), a tax on transfers of real estate is levied (real estate transfer tax). The taxable event is the transfer of title of real estate, in some cantons also indirectly a transfer of shares (real estate company; economic change of ownership). Taxpayer is generally the transferee, in some cnatons the transferee and the transfereor. As a rule, there is a joint and several liability of seller an buyer.

An exemption from the real estate transfer tax is available in some special cases, notably upon succession and tax-neutral reorganization.

The real estate transfer tax is levied by the cnatons. The tax rate thus differs significantly from canton to canton. On average, the tax ranges from 1 to 3 percent.

Inheritance and gift tax

Inheritance/donation of real estate may trigger the inheritance or gift tax under some condition.s Object of taxation is every transfer of ownership due to inheritance or donation. Taxpayer is genreally the recipient of the inheritance or donation, irrespective of his or her residence.

The inheritance and gift tax is levied by the cantons. The tax rates thus differ significantly from canton to canton. Moreover, the rate depends on the relationship between the reciipient and the donator/decedent. On an average, the tax payer may pay taxes of a rate from 5 to 25 percent.

Net wealth tax

All cantons levy a net wealth tax on all movable and immovable assets of an individual. Debts are deductible.

The tnet wealth tax is levied by the cantons. The tax rates and the thresholds thus differ from canton to canton. As a principle, the rate increases with the net wealth vaue. In most cantons the rate may go up to 0,5 percent.

Special tax on immovable property

Some cantons levy a special tax on immovable property. Taxpayer is the owner of the real estate. The tax is due once a year.

The tax on immovable property is levied by the cantons. The tax rate thus differs from canton to canton. On average, the rate is in gerneral below 0,2 percent, whereas the rate is lower in case the owner of the real estate is an individual.

Value added tax (VAT)

The sale of properties is, in principle, exempt from Swiss VAT. Accordingly, no input VAT can be claimed for expenses oir investments related to real estate. However, it is possible to opt for VAT, except for the value of the land, if the buyer of the real estate is registered for VAT purposes and agrees to such VAT option. The same holds true with respect to revenues earned on real estate (in particular rents9:

VAT is levied on the federal level. The standard tax rate is 7,6 percent.

Other taxes

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Double Taxation Treaties (DTT)


Under the double taxation treaties concluded by the relevant jurisdiction, which State is entitled to levy a tax on income derived from real estate?

Generally, according to the Double Taxation Treaties (DTT) concluded by Switzerland, the right of taxation of real estate as well as income derived from immovable property and capital gains derived from disposal of real estate is allocated to the state where the real estate is situated.

The provision applies to individuals an legal entities.

Which State is entitled to levy a net wealth/ net equity tax on immovable property?

Immovable property may be taxed by the state where the real estate is situated.

Which State is entitled to levy a tax on capital gains derived by the alienation of immovable property

Gains derived from the alienation of immovable property may be taxed in the state where the real estate is situated.

Methods for the elimination of international double taxation under the treaties concluded by the relevant country (tax credit/ imputation or exemption method):

Under all tax treaties concluded by Switzerland, Switzerland applies the exemption method to income derived from immovable properties, including real estate capital gains. The exemption method is also applicable under Swiss domestic law (unilateral measures to avoid international couble taxation). The Contracting States, however, apply either the tax credit or the exemption method.

Specific Questions

Introduction/ Instructions:

Below you find 12 different cases. The criteria to distinguish the cases are the following:

  1. Owner of the properties: Individual ("I"), real estate company ("REC") or (other) legal entity ("LE")
  2. Type of property: Residential ("Res") or Business ("Bus")
  3. Type of deal: Asset deal ("AD") or Share deal ("SD")
  4. Type of wealth to which property or shares belong: Private ("Pr"), Business ("Bus") or Business of a legal entity ("BLE")

 

The following table gives an overview of the 12 cases:

Case No.

Owner

Type of property

Type of deal

Type of wealth to which properties/ shares belong

1

I

Res

AD

Pr

2

REC

Res

SD

Pr

3

I

Bus

AD

Pr

4

REC

Bus

SD

Pr

5

I

Res

AD

Bus

6

REC

Res

SD

Bus

7

I

Bus

AD

Bus

8

REC

Bus

SD

Bus

9

LE

Res

AD

BLE

10

REC

Res

SD

BLE

11

LE

Bus

AD

BLE

12

REC

Bus

SD

BLE

 

It must be noted that the above criteria have been elected from a Swiss legal and tax perspective. It may be possible that in your jurisdiction other criteria are more relevant. For this purpose, under all cases listed below, the specific situation of your jurisdiction can be described in the section "Comments".

The 12 cases have been put into the following three sub-sections:

  1. Real estate is part of private wealth of an individual: Cases 1 –4.
  2. Real estate is a business asset of an individual: Cases 5 – 8.
  3. Real estate is an asset of a legal entity: Cases 9 – 10.

 

Each case contains a Part A asking for the tax treatment if your jurisdiction is the country where the real estate is located. Part B deals with the situation where your jurisdiction is the country of residence of the owner, or shareholder of the real estate company, as the case may be.

Within the questionnaire, the taxation upon transfer of the ownership of real estate (e.g. by way of a sale) will be covered as well as the ongoing taxation of real estate (i.e. recurring taxation such as income and wealth taxes).

I. Real estate is part of private wealth of an individual

 

 

Case 1

 

Part A (Your jurisdiction is the country where real estate is located)

 

Description

Country of taxation

Taxation in the state where the real estate is located

Type of asset

Residential property

Owner of the real estate

The property is part of private wealth of an individual.

Property / Deal

Single property
Asset deal

Taxation upon transfer of the ownership of real estate

Real estate capital gains tax

The transfer of ownership is subject to real estate capital gains tax in all cantons. No tax is levied at federal level.

Income tax

No income tax is due.

Real estate transfer tax.

In most cantons, a real estate transfer tax is due. Taxpayer is generally the purchaser, the purchaser and the seller being jointly and severally liable for the payment of the tax.

Inheritance and gift tax

If the ownership of the real estate is transferred as a result of inheritance or of a donation, the inheritance or gift tax is levied if the canton, where the real estate is ituated, provides for an inheritance or gift tax (only canton of Schwyz has no inheritance and gift tax) and provided that no exemption applies (succession to the spouse/the descendants). Taxpayer is the recipient of the inheritance or donation.

Other taxes (VAT, etc.)

No other taxes are triggered.

Ongoing taxation of real estate

Net wealth tax

A net wealth tax is due.

Income taxes: Taxation of rental income, imputed rental value, deductibility of interest

Income from private properties (rental income and/or imputed rental income) is subject to personal income taxes at cantonal/communal and federal level. Interest is generally deductible, although there are limitations at federal level.

Other taxes

There is a special annual real estate tax, if the canton, where the real estate is situated, levies such a tax. The tax amounts are not significant.
Interest paid on a loan secured by Swiss real estate may be subject to a special withholding tax if the recipient of the interest is not resident in Switzerland and if no exemption from such tax is provided by an applicable DTT.

Comments

No comments.

 

Part B

 

Description

Country of taxation

Taxation in the state of residence of the owner of the real estate

Type of asset

Residential property

Owner of the real estate

The property is part of private wealth of an individual.

Property / Deal

Single property
Asset deal

 

Taxation upon transfer of the ownership of real estate

Real estate capital gains tax (RECGT)

Pursuant to the DTT Switzerland has concluded, the right to tax real capital gains is allocated  to the state where the real estate is located. Accordingly, no RECGT is levied in Switzerland.

Income tax

Pursuant to the DTT Switzerland has concluded, he right to tax real estate gains is allocated to the state where the real estate is located. Accordingly, no incom tax is levied in Switzerland.

Real estate transfer taxes (RETT)

No RETT is levied on the transfer of real estate located outside Switzerland.

Inheritance taxes

Pursuant to the DTTs Switzerland has concluded, the right to tax the inheritance or donations of real estate is allocated to the state where the reale estate is located. Accordingly, no inheritance tax is levied in Switzerland. In the absence of a DTT, according to Swiss Federal Supreme Court practice, Switzerland provides for a unilateral exemption from Swiss inheritance taxes if an effective double taxation resulted.

Gift taxes

The DTTs relating to the avoidance of international double taxation regarding inheritance taxes are not applicable to donations. According to Swiss Federal Supreme Court practice, Switzerland provides for a unilateral exemption from Swiss gift taxes if an effective double taxation resulted.

Other taxes (VAT, etc.)

N/A

Other taxation (other than upon holding or upon disposal)

 

 

Comments

No comments.

 

Case 2

 

Part A

 

Description

Country of taxation

Taxation in the state where the real estate property is located

Type of asset

Residential property

Owner of the real estate

The real estate is indirectly held by a real estate company. The company is domiciled in the state where the real estate is located. Its shares are part of private wealth of an individual.

Property / Deal

Shares of a real estate company
Share deal

Taxation upon transfer of the ownership of real estate

Real estate capital gains tax: Is there a real estate capital gains tax on the sale of shares of a real estate company?

If so, is the buyer of the shares entitled to claim a step-up in tax basis for a later asset and/ or share deal?

 

In the monistic and in the dualistic system, in case of a sale of the shares of a real estate company owned by a person holding the property as part of its private wealth, the real estate capital gains tax is due (economic change of ownership/change of control). For real estate gains tax purposes, the sale of the shares allows the purchaser to claim a step-up in tax basis for a subsequent asset or share deal, i.e. the cost basis relevant for a subsequent deal is increased accordingly.

 

Cf. also Case 2, Part B.

Corporate income tax

In the monistic and in the dualistic system, no corporate income tax is due on the sale of a real estate company. Deferred income taxes are transferred to the purchaser of the shares. No step-up in tax basis is available, i.e. the income tax basis remains unchanged.

Real estate transfer taxes.

Cf. Case 1, Part A. For real estate transfer tax purposes, in most cantons the sale of the shares in a real estate company is treated in the same way as the sale of properties.

Inheritance and gift tax

Cf. Case 1, Part A. For Swiss inheritance and gift tax purposes, the shares of a real estate company are treated like movable property. The same treatment is applicable under the DTT concluded by Switzerland.

Other taxes (VAT, etc.)

N/A.

Ongoing taxation of real estate

Net wealth tax, net equity taxes

The shares of the real estate company are part of taxable wealth in the hands of the shareholders. For wealth tax purposes, the shares in a real estate company are treated as movable property.

The equity of the real estate company is subject to the net equity tax applicable to all Swiss companies.

Corporate income taxes.

The profits of a real estate company are subject to corporate income taxes at federal, cantonal and communal level. Interest payments are, in principle, deductible, however subject to thin capitalization rules if loans are granted by related parties. Further, interest payments to related parties must be at arm’s length. Any excess interest payments are disallowed for corporate income tax purposes and recharacterzized as a hidden profit distribution, subjct to the Swis withholding tax at a rate of 35%.

Other taxes

Open and hidden dividend distributions made by the real estate company are subject to the Swiss withholding tax at a rate of 35%. Swiss resident persons may claim a full refund of the sithholding tax provided that they declare the dividends as taxable income in their annual income tax returns. Foreign resident persons may reclaim the Swiss withholding tax in accordance with applicable DTTs.

Other taxation (except upon holding or upon disposal)

 

Comments

No comments.

 

Part B

 

Description

Country of taxation

Taxation in the state of residence of the (indirect) owner of the real estate property.

Type of asset

Residential property

Owner of the real estate

The real estate is indirectly held by real estate company. The shares are part of private wealth of an individual.

Property / Deal

Shares of a real estate company.
Share deal.

Comments

Further to answers given unter case 1, part B, the DTTs Switzerland has concluded characterize the disposal of shares in a real estate company (i) either as the sale of movable property (ii) or as the sale of immovable property. As a rule, the right of taxation of movable property is allocated to the state of residence of the owner of the shares. On the contrary, the right of taxation of immovable property is allocated to the state where the real estate is located.

In case the specific DTT allocates the right of taxation of the sale of shares in a real estate company to the state where the owner of the shares is domiciled, Switzerland is not allowed to levy any real estate capital gains tax. On the contrary, in case the domestic law of the state where the owner of the shares is domiciled does not provide for a taxation of the sale of shares in a real estate company, in particular due to the paricipation exemption, the capital gains realised by this desposal are not taxed. Moreover, a step-up in tax basis may be available in some cantons.

 

Case 3

 

Part A

 

Description

Country of Taxation

Taxation in the state where the real estate property is located.

Type of asset

Business property (e.g. store, warehouse, office building)

Owner of the real estate

The property is part of private wealth of an individual.

Property / Deal

Single property
Asset deal

Comments

Case 3 does not have any practical relevance under Swiss tax laws, as there is no significant difference between residential (Case 1) and business (Case 3) properties from a Swis tax point of view. An important difference between residential and business properties, however, exists with respect to the authorization required for the acquisition of Swiss real estate by non-Swiss resident persons (“Lex Koller”, see above).

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

 

 

Case 4

 

Description

Country of taxation

Taxation in the state where the real estate property is located.

Type of asset

Business property (e.g. store, warehouse, office building)

Owner of the real estate

The real estate is indirectly held by a real estate company. The shares are part of private wealth of an individual.

Property / Deal

Shares of a real estate company.
Share deal

Comments

There is no significant difference between residential (Case 2) and business (Case 4) properties from a Swiss tax point of view. An important difference between residential and business properties, however, exists with respect to the authorization required for the acquisition of Swiss real estate by non-Swiss resident persons (“Lex Koller”, see above).

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

 

 

II. Real estate is a business asset of an individual

 

Case 5

 

Description

Country of Taxation

Taxation in the state where the real estate property is located.

Type of asset

Residential property

Owner of the real estate

The property is part of the business asset of an individual.

Property / Deal

Single property
Asset deal

Comments

Comment for Switzerland:
As a rule, there is no significant difference between a business asset held by an individual and by a company from a Swiss tax point of view. Reference can be made to the tax treatment of Case 2 (residential property held by a real estate company). Income derived from business assets held by an individual is subject to social security contributions.

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No comments.

 

Case 6

 

Description

Country of taxation

Taxation in the state where the real estate property is located.

Type of asset

Residential property

Owner of the real estate

The real estate is indirectly held by a real estate company. The shares of the real estate company are part of the business assets of an individual. The company is domiciled in the state where the real estate is located.

Property / Deal

Shares in a real estate company
Share deal

Comments

Comments for Switzerland:
Reference is made to (Case 2). Some cantons do not levy a real estate gains tax is the shares of the real estate company are part of the business assets of the shareholder.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

Capital gains realized upon disposal of shares in a real estate company belonging to the business of a Swiss individual are, as a rule, subject to income tax and social security contributions. No income tax may be levied by Switzerland if an applicable DTT allocates the right to tax such capital gain to the country where the real estate is located.

Case 7

 

Description

Country of taxation

Taxation in the state of the real estate property

Type of asset

Business property (e.g. store, warehouse, office building)

Owner of the real estate

The property is part of the business asset of an individual.

Property / Deal

Single property
Asset deal

Comments

Comment for Switzerland:
Reference is made to (Case 5). Business properties are treated like residential properties for Swiss tax purposes.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No comments.

 

Case 8

 

Description

Classification

Taxation in the state of the real estate property

Type of asset

Business property (e.g. store, warehouse, office building)

Owner of the real estate

The real estate is indirectly held by a real estate company. The shares are part of the business assets of an individual.

Property / Deal

Share property
Share deal

 

Comments

Comment for Switzerland:
Reference is made to (Case 6). Real estate companies holding business properties are treated like companies holding residential properties for Swiss tax purposes. Some cantons do not levy a real estate gains tax if the shares of the real estate company are part of the business assets of the shareholder.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No special comments. See (Case 6).

 

III. Real estate is an asset of a legal entity

 

Case 9

 

Description

Classification

Taxation in the state of the real estate property

Type of asset

Residential property

Owner of the real estate

The belongs to a legal entity.

Property / Deal

Asset property
Asset deal

 

Comments

Comment for Switzerland:
Reference is made to (Case 2). Generally, legal entities are taxed in the same way as real estate companies.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No comments.

 

Case 10

 

Description

Classification

Taxation in the state where the real estate property is located.

Type of asset

Residential property

Owner of the real estate

The real estate is indirectly held by real estate company. The company is domiciled in the state where the real estate is located. Its shares belong to a legal entity.

Property / Deal

Share property
Share deal

 

Comments

Comment for Switzerland:
Reference is made to (Case 6).

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

If the owner of the shares of the real company is resident in Switzerland, the capital gain realized on the disposal of the shares may be eligible for the participation relief granted on the sale of qualifying shareholdings. The participation relief is subject to a one year minimum holding period. If an applicable DDT provides for a taxation in the country where the underlying real estate is located, Switzerland would have to exempt such capital gain, irrespective of any holding period.

 

Case 11

 

Description

Classification

Taxation in the state of the real estate property

Type of asset

Business property

Owner of the real estate

The property belongs to a legal entity.

Property / Deal

Asset property
Asset deal

 

Comments

Comment for Switzerland:
Reference is made to (Case 9). Business properties are, in principle, treated like residential properties held by a legal entity.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No comments.

 

Case 12

 

Description

Classification

Taxation in the state where the real estate property is located

Type of asset

Business property

Owner of the real estate

The real estate is indirectly held by a real estate company. The shares belong to a legal entity.

Property / Deal

Share property
Share deal

Comments

Comment for Switzerland:
Reference is made to (Case 10). Business properties owned by a real estate company are, in principle, treated like residential properties owned by a real estate company the shares of which are held by a legal entity.

 

Part B

 

Are there any comments regarding the taxation in the state of residence of the owner of the real estate?

No comments.