SWITZERLAND Law and Practice Contributed by: Francis Nordmann, Johannes Bürgi, Christian Eichenberger and André Kuhn, Walder Wyss Ltd
is subject to Swiss federal, cantonal and munici - pal corporate income tax in the canton and the municipality where the property is located. The aggregate corporate income tax rate varies depending on the location of the property. If the property held by an individual investor qualifies as a business asset (and not as a private asset), social security contributions may be triggered on top of this. The tax is assessed based on a tax return filed by the Swiss or foreign investor. No withholdings apply. Interest accrued on debt funding is deductible, which is also true with respect to shareholder or other related party advances. However, thin capitalisation rules apply and the amount of the debt funding and the interest rate applied should remain within the periodically published safe harbour limits. Otherwise, a constructive distribution may be assumed that would not allow for an income tax-effective deduction and trigger the (dividend) withholding tax of 35%. Buildings may be depreciated over their useful lifetime, and the depreciation deductions may be deducted from taxable income. The straight line or the reducing balance depreciation method may be chosen freely. Land cannot be depreciated, but a blended rate may be applied if land and building values are not split and do not have separate book entries. Safe harbour depreciation rates are available for the depreciation methods and the blended rate. In the event of a sale of the property, recaptured depreciation deductions are subject to corporate income tax. Accordingly, depreciation deduc - tions that do not reflect real losses of value lead to a mere income tax deferral. In general and with due regard to the current negative inter - est rate environment, in a share deal scenario deferred income taxes are fully deducted from the purchase price as a deferred liability.
Interest paid on mortgage-secured funding advanced by a bank (or other lender) outside Switzerland to a Swiss borrower is subject to a local interest withholding, with the applicable rate depending on the location of the property securing the loan. The interest withholding is not levied if the investor is a resident of a benign treaty jurisdiction where the interest clause in the treaty excludes taxation in the source country. The holding of a property in Switzerland is also subject to Swiss wealth tax (for individual inves - tors) or capital tax (for corporate investors), the maximum rates for which vary significantly between the different cantons and municipali - ties. Appreciation gains realised on the disposal of properties are subject to taxation. One of the following two systems applies, depending on the cantonal regime: • the monistic system, where any appreciation gain, be it on a private or a business asset, is subject to a separate cantonal and municipal real estate capital gains tax – this system applies in the cantons of Zürich and Bern, amongst others; or • the dualistic system, where any appreciation gain realised on the disposal of a business asset remains subject to corporate income tax (and no real estate capital gains tax is levied) – this system applies in the cantons of St Gallen and Zug, amongst others. While corporate income tax is a flat tax that applies regardless of whether the property dis - posed of was held for a short or long period, progressive tax rates apply under real estate capital gains tax. If the holding period was less than one year, some cantons and municipalities levy a real estate capital gains tax of 60% (on
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