Foreign Real Estate: Declaration and Taxes

Anyone resident in Switzerland who owns a house in Italy, a seaside apartment abroad or a plot of land across the border often faces one doubt: does it have to be declared? The answer is yes, almost always. But declaring does not necessarily mean paying taxes in Switzerland on that asset. The mechanism is particular and worth understanding, because omission is not an option while double taxation is, as a rule, avoided.

The principle: worldwide income and wealth

A person with tax domicile in Switzerland is, in principle, taxable on their total income and wealth, wherever generated. This includes real estate located abroad: both its value (wealth tax) and the income it generates — actual rent or the imputed rental value of a property available for use.

So far this would seem to be double taxation, since the property is already taxed in the State where it is located. But here the Swiss rule comes into play.

The exemption with progression reservation

For real estate abroad, Swiss tax law applies, as a rule, the exemption: the value and income of the foreign property are not taxed in Switzerland. Taxing power over the property belongs to the State in which it is located.

There is, however, a decisive qualification: the exemption occurs with progression reservation. This means that the value and income of the foreign property, although not taxed, are taken into account to determine the rate applicable to the rest of the income and wealth taxable in Switzerland.

In practice:

• The foreign property does not increase the Swiss taxable base.
• But it pushes up the rate at which the other Swiss income and wealth are taxed, given the progressive nature of the taxes.

That is why it must still be declared: without indicating the value and income, the authority cannot correctly calculate the rate.

What to report in the tax return

The following must be reported in the tax return:

• The value of the property, according to the valuation criteria required by the Canton.
• The income: the rent received if it is let, or the imputed rental value if it is available to the owner.
• The related charges: mortgage interest and maintenance expenses, which contribute to the calculation according to the rules for the allocation between Switzerland and abroad.
• Any mortgage debts, which also follow a proportional allocation.

Even a second home that is not let therefore generates items to be declared, through the imputed rental value.

The mistake of believing that “it’s abroad anyway”

The widespread idea that a property outside Switzerland stays off the Swiss tax radar is dangerous. With the automatic exchange of information and the growing cooperation between tax administrations, transparency over cross-border assets has increased significantly. Failure to declare exposes you to tax reassessments, interest and penalties, as well as complicating any regularisation procedures.

Declaring correctly, on the contrary, is almost always fiscally neutral or advantageous on the asset itself, given the exemption mechanism: there is no real economic reason to hide it, only a risk.

Coordination with the foreign State

The obligations in the State where the property is located remain to be managed; that State taxes the asset according to its own rules: local property taxes, taxation of rental income, and any capital gains taxes in the event of a sale. The double taxation conventions allocate the competence between the two countries, generally assigning to the State of location the right to tax the property.

Anyone who owns real estate in more than one country must therefore reason on two fronts together: the correct declaration in Switzerland and the local obligations. A frequent mistake is to take care of one and neglect the other.

A topic to manage methodically

Foreign real estate, the allocation of income and debts, the progression reservation and the obligations in the foreign State make the subject more technical than it seems. A correct declaration protects against disputes and, often, avoids paying more than due because of allocation calculation errors.

How we help you

We handle the correct declaration of your real estate abroad, the allocation of income and charges, and the coordination with the obligations in the foreign State. Let’s put your international taxation in order.