Real estate abroad – taxes in Switzerland?

I couldn’t help but wonder … can a relationship even work without open communication?

If you hide something important in a relationship, you’re laying the groundwork for mistrust and jealousy. That is exactly what could happen with romantic Switzerland: the Swiss tax office wants to know if you have fallen for a property abroad. So do you have to pay more tax in Switzerland if you own a house or condo in a different country? Not directly, but you can't keep your real estate a secret either. Or should we call it ‘real love estate’?

We explain why you need to declare your foreign real estate correctly – so that Switzerland can trust you fully. And what this means for your Swiss taxes.

Hot topic: Foreign property vs. taxes in Switzerland

Misunderstandings are part of any relationship. Perhaps this applies to you and Switzerland too? It certainly holds true for many people who live in Switzerland but have set their hearts on a property abroad. They believe that Switzerland doesn’t need to know about it because they’re already paying taxes elsewhere.

So, first things first, to ensure your property doesn’t become a source of dispute: if you own real estate abroad, you must declare this in your Swiss tax return. It doesn’t matter whether you rent out the property or use it yourself, or whether you inherited it or bought it.

Why Switzerland wants to know about your real estate

So, is Switzerland jealous that you own property abroad? Not really, because the Swiss tax authorities have no objection – if you are open and honest. This is fundamentally important because your worldwide assets and income are taxed in Switzerland.

Real estate, however, is a special case: because it is immobile, it is usually taxed where it is located. Switzerland does not levy a second tax on your property abroad. But it is considered when determining your tax rate. It is therefore quite possible that you will end up paying more tax in Switzerland as a result. But that is not direct taxation!

How does owning property abroad affect Swiss tax liability?

Many property owners worry about high additional taxation, but this fear is usually unfounded. After all, taking foreign assets into account does serve a clear purpose when determining the tax rate. The best way to explain how this works is with a simplified example:

• Two people each have a taxable income of CHF 100,000 in Switzerland.

• One of them also receives CHF 10,000 in rental income from abroad.

• That means that one person is in a higher tax bracket than the other.

• This person is therefore taxed at the rate applicable to someone with an income of CHF 110,000. However, tax is only payable on the CHF 100,000 earned in Switzerland.

  
  

In real life, this isn’t calculated on a flat-rate basis, but as part of an ‘international tax allocation’. That sounds complicated, but it’s much easier to deal with over a glass of Prosecco in the comfort of your own property! And you won’t have to calculate your tax rate yourself anyway if you have a personal tax boutique by your side.

Transparency does not lead to double taxation …

So, many people think their honesty will be punished with significantly higher taxes. But we cannot stress this enough: there is normally no double taxation on foreign property! Even if it might feel that way at first.

For your tax rate to be drastically increased by foreign real estate, you’d have to own a luxury penthouse in New York or half a block in Barcelona. And in that case, it might be fair that you pay higher taxes in Switzerland, don’t you think?

There may even be the opposite effect: in some circumstances, owning a property abroad can actually have a positive impact on your Swiss tax rate. For example, if you are facing high renovation costs, this could reduce your tax bill. At the very least, that makes it truly fair!

At taxum AG, we’re happy to help you calculate the tax implications of your property abroad. After all, international tax matters are our specialty. Simply arrange a consultation with us – there are no strings attached.

… but keeping secrets can be pricey

In both love and taxes, silence is often worse than being direct, open and honest. Because once the truth comes to light, trust is lost. The same applies if you conceal your foreign property from the Swiss tax authorities:

Problems often only arise when the property is sold. Suddenly, the proceeds end up in a Swiss bank account, but the asset was never declared. The Swiss tax authorities will then want to know where the money came from – and will discover a property that has long been a secret. That can end up being very costly indeed.

It is (almost) never too late for open communication

Have you just discovered an error in your tax return – perhaps one that has been going on for years? There’s no need to panic, but it is time to take action. After all, even when it comes to your tax affairs with Switzerland, many issues can be resolved if you are honest about them. If alarm bells are already ringing, it’s better to contact us today rather than tomorrow.

Because if you act quickly – before the Swiss tax authorities notice your mistake – you may be able to make use of the voluntary disclosure. With a bit of luck, you might get off without a penalty, but Switzerland’s trust in you will still be damaged. After all, you can only make use of the voluntary disclosure without penalty once in a lifetime.

If the tax office has already become aware of your foreign property, it is often too late to make a voluntary disclosure. In most cases, a formal back-tax procedure will be initiated. In addition to the unpaid taxes, you will then also have to pay a penalty.

Trusting is good, but declaring is better!

Switzerland actually treats you as a partner it can trust: you are allowed to declare your income and assets yourself. This makes it all the more important not to jeopardise that trust. Do not conceal any property abroad to pay less tax in Switzerland. A breach of trust is much worse – and will have far greater consequences for you too. We at taxum AG are happy to help you declare your income and assets in Switzerland and abroad correctly. After all, we know how to lay your cards on the table and still come out on top.

And just like that … your real estate abroad no longer weighs so heavily on your conscience.