Real Estate Abroad: How Are Properties Taxed in Switzerland?

Many Swiss residents own real estate abroad – whether a vacation home in Italy, an apartment in Germany, or an investment property in France. But how does such ownership affect the Swiss tax return?

Even though foreign properties are not directly taxed in Switzerland, they still have tax implications. This article explains how foreign properties must be declared, what the so-called rate-determining effect means, and the role of double taxation agreements (DTA).

Principles of Taxation

Worldwide Tax Obligation

Anyone who is tax resident in Switzerland is subject to worldwide taxation. This means:

• All income and assets must be declared on the tax return, including foreign properties.

Tax Allocation

Since real estate is usually taxed where it is located, Switzerland applies a tax allocation. The property itself is taxed abroad but affects the Swiss tax rate.

Rate-Determining Effect

Meaning

The foreign property is not directly taxed in Switzerland, but it increases taxable income and assets to determine the tax rate.

Example

A taxpayer in Zurich owns a vacation home in Italy with an imputed rental value of CHF 12,000. This amount is not taxed in Switzerland but increases the tax rate applied to the remaining income.

Declaration on the Tax Return

Income

• Rental income from abroad: Must be declared on the tax return.
• Imputed rental value for self-used properties: Also declarable, even if taxed abroad.

Assets

• Foreign property values must be included in total assets.
• Valuation is based on market value or local tax values.

Deductions

• Maintenance costs and mortgage interest may be declared but usually only affect the rate determination.

Double Taxation Agreements (DTA)

Purpose

Double taxation agreements prevent the same income or assets from being taxed twice – both abroad and in Switzerland.

Practice

• Taxation rights for real estate usually lie with the country where the property is located.
• Switzerland considers the values only for rate determination.

Special Cases by Country

Germany

Property values are taxed in Germany. In Switzerland, they are only relevant for rate determination.

Italy

Vacation homes in Italy are subject to Italian property tax (IMU).

France

Rental income or second homes may incur additional local taxes (taxe foncière, taxe d’habitation).

Practical Examples

Example 1: Vacation Home in Italy

A married couple from Zurich owns a vacation home in Italy. The imputed rental value is taxed in Italy but must be declared on the Swiss tax return, increasing the tax rate.

Example 2: Rented Apartment in Germany

A taxpayer in Basel earns CHF 20,000 in rental income from an apartment in Germany. This income is taxed in Germany but increases the progression rate in Switzerland.

Common Mistakes and Tips

Common Mistakes

• Failing to declare foreign properties
• Assuming only Swiss properties need to be declared
• Not attaching proof of foreign taxes

Tips

• Always declare foreign property values completely
• Keep and attach foreign tax assessments
• Check double taxation agreements
• Seek professional advice if unsure

Conclusion

Foreign properties are not directly taxable in Switzerland but must be fully declared. They affect the Swiss tax rate through the rate-determining effect and can increase the Swiss tax burden.

Properly declaring foreign properties and considering double taxation agreements avoids problems with tax authorities and allows for optimized international tax planning.