Why should you declare (in your Swiss tax declaration) also your house abroad?

Wherever you live, you pay income taxes on all worldwide taxable incomes. The same is valid as well for wealth taxation on mobile assets such as on investment portfolios. This general rule, however, has a limit when it comes to foreign real estate properties. This because of double taxation agreements Switzerland has signed in the last years with most of the countries around the world.

Income and Wealth

Any income from foreign real estate and wealth is not subject to Swiss cantonal and municipal taxes or direct federal tax. Only the country where the real estate is located is allowed to charge taxes on it. But this income will nevertheless affect your Swiss tax bill since both, the value of a property as well as the earnings or imputed rental value, are taken into account to determinate the applicable rate to your Swiss tax return.

Application

Effective use of the real estate is present if the owner holds the property as “continuously available”, even without ever having lived there during the tax period. This because Swiss tax law assumes that the owner takes economic advantage of continuous availability of the property. The taxation of imputed rental value is only remitted if the property is not inhabited because no tenant could be found, although evidence of this will be required. The ownership of a foreign property, which the owner keeps continuously at his disposal, raises a tax liability for the full rental value. If such a property is temporarily rented, this sets the taxable income on a pro rata basis in a proportion comprising of rental income and rental value.

Deductions

Normally there are also debts and debt interest on mortgages attached to a foreign property. These will be distributed according to the location of assets in each country and subject to an international tax distribution. Usually you can also deduct costs for maintenance and renovation from your gross rental income or your imputed rental value. In some cantons it is allowed that the deductible costs for maintenance, insurance and management of the property exceeds the gross rental income, or imputed rental value. The result is a “surplus production cost” representing actually a loss. In some cantons these maintenance costs are considered as “income minus income from abroad” which means that these expenses are fully tax deductible.

Disclaimer

Please note that this is just a simple and rough overview to explain the system of taxation of foreign properties in Switzerland. The information contained in this article does not constitute advice and does not replace a visit to a qualified tax consultant.