SWITZERLAND Law and Practice Contributed by: Joseph Merhai, Thomas Pasquier and Laurent Schenker, Aegis
2.6 Definition of Permanent Establishment Domestic Definition Swiss domestic tax law contains an express defini - tion of a permanent establishment. In principle, a permanent establishment is a fixed place of business through which the business activity of an enterprise (or the activity of a person exercising an independ - ent profession) is performed in whole or in part. The statutory examples include a place of management, a branch, a factory, a workshop, a sales office, a permanent representation, a mine or other place of extraction of natural resources, and a building site or construction/installation project that continues for at In cross-border situations, the applicable DTA defini - tion of permanent establishment is generally decisive for the allocation of taxing rights, and Switzerland’s treaty practice is largely aligned with Article 5 of the OECD MTC. There is no systematic deviation from the OECD MTC; deviations are rather treaty-specific and depend on the negotiation power with Switzerland and its respec - tive treaty partner. In practice, differences may arise in relation to: • the construction site threshold (which may differ from 12 months in certain treaties); • treaty-specific extensions, such as service perma - nent establishment concepts in some agreements; and least 12 months. Treaty Provision • the detailed drafting of agency and anti-fragmen - tation rules as treaties are updated in line with international standards. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property In Switzerland, income from immovable property is, in principle, taxed in the canton where the property is located. For Swiss tax resident individuals, rental income from Swiss real estate (and, under the current system, the notional rental value for owner-occupied property) is included in taxable income at the federal, cantonal and communal levels, while the property
itself is generally subject to cantonal and communal wealth tax. Swiss voters abolished the taxation of notional rent - al value in 2025, simultaneously restricting certain deductions. Entry into force is planned for 2029. Gains realised on the sale of Swiss real estate are taxed at the cantonal level. Private individuals are sub - ject to a specific real estate capital gains tax on the disposal of Swiss real property, whereas gains real - ised through a commercial real estate activity (or by corporate taxpayers) may fall under ordinary income/ profit taxation or under cantonal real estate gains tax rules, depending on the cantons. For non-resident individuals, Swiss real estate typical - ly triggers limited tax liability in Switzerland. As a rule, Switzerland taxes the non-resident on Swiss-source rental income (and, currently, the notional rental value) and on Swiss real estate capital gains in the canton of situs, subject to any limitations or allocation rules under the applicable DTA. For Swiss residents, immovable property abroad is generally not taxed but is typically taken into account to set the applicable tax rate. Treaty provisions usually confirm the situs principle reflected in Article 6 of the OECD MTC. In addition, some DTAs concluded by Switzerland depart from the OECD MTC approach for immova - ble property held through real estate companies. For example, the Switzerland–France DTA gives France the right to tax shares in a French real estate com - pany ( société civile immobilière , or SCI), while Swit - zerland must, in principle, exempt income and gains that are allocated to France under the treaty. However, the treaty also provides that the exemption is granted only if the taxpayer can show that the relevant income, capital gains or wealth elements have been effectively taxed in France. In substance, the SFSC considers that it is a “subject- to-tax” clause: Switzerland grants the exemption only if effective taxation occurs in France; otherwise, Swit - zerland may tax the SCI shares (including for wealth tax purposes).
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