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Property abroad

, 4 minutes

Teresa and Michael wants to finally realise their long-standing dream of buying a holiday apartment on the Mediterranean coast of Spain. The apartment is to be used by both them and their children, and then rented out in their old age.

© Adobe Stock, faber121

But before embarking on this dream step, Teresa and Michael want to clarify the following questions: Do they have to declare the Spanish property in their Swiss tax return? And if so, what impact will this have on their tax bill?

Below we set out the following key points that Michael and Teresa should bear in mind from a tax perspective when acquiring a property abroad:

Declaration obligation in Switzerland

In principle, properties are taxed in the place where they are situated. However, this does not mean that you need not declare your foreign property in your Swiss tax return. Quite the opposite: the tax value of the property and any income generated by it are used as rate-determining factors. In other words, they have an impact on the tax rate applied in Switzerland.

Specifically, this means that the imputed rental value (i.e. the notional income value, even if a property is only used by the owner) and any rental income from the Spanish property will be factored into your total (global) income. This income figure is used to determine the tax rate that will apply to your income in Switzerland. This also holds true for wealth tax: The tax value of your foreign property is taken into account for determining the tax rate applied to your assets in Switzerland.

An illustrative example for income tax

 With a foreign propertyWith no foreign property
Net income, SwitzerlandCHF 100’000CHF 100’000
Net income from property in SpainCHF 10’000CHF 0
Taxable income, SwitzerlandCHF 100’000CHF 100’000
Rate-determining incomeCHF 110’000CHF 100’000
Average tax rate*5,952%5,766%
Tax burden in SwitzerlandCHF 5’952CHF 5’766

* Municipality of Zug, married, no religious affiliation

Important – debts and debit interest

As part of the international tax allocation process, debts and debit interest are divided proportionally between Switzerland and abroad, in keeping with the location of the assets in question. For example, if you have a mortgage on your home in Switzerland, a proportion of both the outstanding debt and the debit interest is assigned abroad. As a consequence, the net income and assets on which tax is payable in Switzerland will rise. The debt and debit interest relating to the property in Spain are only deductible in Switzerland when determining the tax rate.

As an example: If the taxable value of the Spanish property amounts to 5% of your total taxable assets, 5% of your debts and debt interest are allocated abroad. The taxable assets and income in Switzerland will then increase by these amounts, which have been reassigned abroad. As Canton Zug (like most cantons) applies progressive taxation, your assets and your income in Switzerland will (typically) be taxed at a higher tax rate. In other words, acquiring a foreign property may have significant repercussions for your tax bill in Switzerland.

What values should be declared?

When it comes to declaring the property abroad, the same principles that apply in Canton Zug are used here too. For income tax purposes, the imputed rental value and/or actual rental income should be declared. For wealth tax purposes, the tax value of the property is the relevant figure. This is typically the purchase price.

Deduction of maintenance costs

Just like in Switzerland, you can claim a deduction of the (actual or flat-rate) maintenance costs of your foreign property. The net income figure is what determines the income tax rate in Switzerland. If the net income from the property is negative – due to renovation work, for example – the income figure relevant for tax purposes will decline, as will the tax rate that applies to you in Switzerland.

Be aware of the repercussions before purchasing a property

The topic of foreign property ownership is complex and is given only rudimentary treatment in this article. Accordingly, the repercussions of a foreign property purchase for your Swiss tax calculation cannot be distilled into a single figure but should be clarified in the overall context of your individual situation. I recommend that you obtain detailed information about the tax repercussions prior to acquiring a holiday home abroad. That way you will avoid nasty surprises and can enjoy your foreign seaside home to the full.

NB: If you also have a bank account abroad, don’t forget that this should also be declared in your tax return.

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Pavla Polackova

Pavla Polackova

Pavla Polackova has worked as a tax advisor for ZugerKB since 2017. She draws up tax returns for our clients, advises them on tax matters and helps them optimise their tax situation. In her spare time she likes to keep moving – jogging, swimming or hiking. She’s also a great reader.


Categories: Future

Tags: Private pension provision , Taxes


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