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In Switzerland, landlords not only have expenses such as transfer tax and property gains tax, but also have to pay tax on their rental income. Because this is income. In this article, you will find out what is included in rental income, how it is taxed, how much tax is payable on rental properties and how the tax office actually finds out about rental income. We also look at which expenses you can deduct from your tax bill as a landlord in order to save money.
What is included in the rental income?
The legal basis for taxation is the Swiss Federal Law on Direct Federal Tax (DBG; Art. 32). The law also states that both recurring and non-recurring income in connection with the property is subject to income tax.
So if you rent out your property, this rental income is taxable. This also applies if you rent out commercial property or charge a rent. Accordingly, you must declare all income that you earn from real estate in your tax return.
It is best to ask your tax advisor to help you pay tax on the income from your property. This will reduce the amount of work involved in filing your tax return and ensure that you don’t make any mistakes.
How is rental income taxed?
Income such as rental income is subject to income tax in Switzerland. This applies to both commercial and private landlords. In addition, even if you rent out the property temporarily, you must pay tax on the income. The receipt of rent is the decisive factor here.
In Switzerland, the federal government always levies a “direct federal tax”, also known as income tax. In addition, the individual cantons also charge income tax in the form of “state tax”. There is also the “municipal tax” levied by the municipalities. Both the state and the municipalities use tax rates as factors, while the cantons are allowed to decide on the rates themselves.
How high are taxes on rental income in Switzerland?
Article 36 of the DGB sets out the rates for direct federal tax. These apply to income tax. However, there are other tax rates for state tax, which are based on the statutory tax rate and a periodically redefined tax base.
As is almost always the case, the tax rate is progressive. The more you earn from your property, the higher the tax you pay on the rent you earn. You can find an overview of the various tax rates for the taxation of rental properties in Switzerland here.
You can ask your tax advisor what tax rate you should expect. As the rent is income, your personal income tax is applied here. However, this may be higher due to the rent. Personal factors such as marital status, number of children, religion and place of residence have an important influence on the tax rate.
Example calculation for the taxation of rental income
As a taxpayer, you must always pay tax on your total income for the whole year. Total taxes vary depending on the canton and municipality. The following calculation example shows you what this might look like:
Mr. X has an annual income of CHF 60,000. He also owns a property that he rents out. As a result, he earns an additional CHF 14,000 per year. He must therefore declare CHF 74,000 in his income tax.
The following factors influence the tax amount of Mr. X:
- Marital status
- Place of residence
- Deductible costs
This could result in a tax rate of CHF 7,128 if Mr. X lives in Zurich, is single and childless, has no religious affiliation and spent CHF 2,000 on property maintenance costs in 2019.
In this calculation example, the taxes are broken down as follows:
- Cantonal tax: 2,890 francs
- Municipal tax: 3,439 francs
- Church tax: 0 francs
- Personnel tax: 24 francs
- Direct federal tax: 775 francs
Tip: The Federal Tax Administration’s tax calculator will help you determine the amount of income tax you are likely to pay.
How does the tax office find out about the rental income?
As a landlord, you are obliged to report all income to the tax office in your income tax return. Both commercial and tax offices are very experienced in this area and can answer any questions you may have. It is in your own interest to pay tax on rental income correctly to avoid penalties.
As soon as you receive a second property, the tax office will assume that you are earning rental income from one property. Your membership of a landlords’ association and the costs incurred from letting are also a clear indication to the office that you are letting.
What happens if I do not pay tax on rental income?
Tax avoidance is not prohibited in Switzerland. This is the case, for example, if you rent out the property to family members at low prices. This means that you do not have to pay tax on the imputed rental value, but only on the low rental income. In this case, you should expect to pay additional tax, whereby the burden of proof lies with the tax office.
Note that tax avoidance is not the same as tax evasion. This consists of criminal tax evasion. If you conceal your rental income and deliberately provide false or incomplete information, this is a punishable tax offense under Art. 175 DGB.
Important: You will be corrected for tax evasion, but penalized for tax avoidance. Therefore, always report the rental to the tax office.
What can I deduct from tax on rental income?
As a landlord, you have to pay tax on rental income, but you can also deduct various expenses from your tax bill. The following items are particularly important for saving tax:
- Maintenance costs: Operating costs that you have to pay as a landlord are included in this cost item. These include value-preserving measures, garbage and wastewater charges and, depending on the canton, often also garden maintenance.
- Costs of renovating newly acquired properties: New properties that you first have to renovate are attractive from a tax perspective. This is because you can deduct a large proportion of the expenses from your tax bill when renting out as a private individual, which means you may no longer have to pay tax on the rental income.
- Management costs: Management by third parties, which private landlords often use, is also tax-deductible. This also includes compensation for the caretaker and the costs of debt collection.
- Mortgage interest: These expenses are often counted as maintenance costs. They are tax deductible.
- Insurance premiums: As a private landlord, you can also deduct expenses for property tax and home insurance from your taxes.
- Costs for estate agents and advertisements: Expenses for re-letting a property are common costs that can give you tax relief.
- Costs such as bank charges, telephone costs, postage: keep receipts for even “smaller” expenses, as these can quickly add up to a considerable sum.
- Investments in energy efficiency: Expenditure on energy-efficient heating or modern insulating windows can be claimed against tax. It is important that the investments serve to save energy and protect the environment.
However, please note that you can only ever deduct value-preserving work from your tax bill. Value-enhancing measures such as the addition of a conservatory or the construction of a pool are not recognized by the tax office. New roof coverings or renovations, on the other hand, serve to maintain value and are therefore tax-deductible.
On the other hand, if you carry out value-enhancing work, you can reduce the taxable gain on the property if you sell it at a later date. So keep the invoices for the work in order to benefit later.
Taxes depending on the type of rental
A certain tax rate applies depending on how you rent out your property. We would be happy to advise you on when and how taxes apply – simply contact our experienced team.
This overview shows you when which taxes are to be expected:
- Renting: With a classic rental, you do not live in your home yourself. This means you do not have to calculate the imputed rental value in your taxes.
- Letting to close relatives: Depending on the canton, you may have to pay tax on the imputed rental value instead of the rental income if the rent is lower than the imputed rental value. This means that you ultimately pay the standard tax rate.
- Renting via online platforms: When renting by the day or week via platforms such as AirBnB, the income also counts as income. Bear in mind that a tourist tax is often added by the municipality. In your tax return, you can deduct the time during which the property was rented out from the imputed rental value.
- Letting co-ownership: The same tax rules apply to condominiums and other shared properties as to other properties.
- Subletting: As you are not making a profit here, but are being supported in paying your own rent, you do not have to declare the sublet.
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All data are without guarantee. The information on these Internet pages has been carefully researched. Nevertheless, no liability can be accepted for the accuracy of the information provided.