What's it about?

In principle, private capital gains are not subject to income tax in Switzerland. However, there is one exception when it comes to real estate: private capital gains arising from the sale of real estate, real estate shares or certain rights to real estate is subject to real estate gains tax. Capital gains from the sale of real estate held for business purposes are subject to real estate gains tax or income or profit tax respectively, depending on the cantonal provisions.

Not only the direct sale of a property triggers tax consequences; the sale of shares of a real estate company may also be subject to real estate gains tax or income or profit tax respectively, depending on the cantonal provisions.

In the real estate gains tax system, the taxable profit consists of the difference between the investment costs and the sale’s proceeds. The investment costs consist of the relevant purchase price and the value-enhancing investments. If the capital gain is subject to income or profit tax, the relevant tax base is calculated based on the difference between the book and the fair market value.

Real estate transfer tax must also be considered. Depending on the cantonal provisions, real estate transfer tax is levied when a real estate company is sold.

With respect to the acquisition of a real estate company, the same legal questions arise as when a property is bought directly (asset deal). The content and characteristics of rental agreements, land register restrictions and encumbrances, as well as inherited burdens and monument preservation requirements can have a significant impact on the value of the property and thus on the purchase price.

What do I have to do?

If you are planning on buying a real estate company, you need to know which deferred tax burdens you are acquiring and how these are to be considered when determining the purchase price. It is also advisable to examine the legally relevant documents as part of the due diligence process in order to avoid unpleasant surprises.

As the seller of a real estate company, it is important to know how much of the purchase price will be delivered to the tax authority.