Since the introduction of the RFFA on January 1st, 2020 and the significant reduction in the corporate tax rate, many of our clients have asked themselves whether it would not be wise to set up real estate companies to hold their properties instead of holding them directly.
In order to see the fiscal impact of these two variants, we propose two examples of these different holdings. The first is the transfer of a property held in private assets to a company and the second is the new acquisition of a property through a real estate company.
Example 1 – transfer of a private property to a real estate company
Mr. Dupont owns a villa in Chêne-Bougeries (GE) which he acquired in 1990 for CHF 660,000.00 and which he has occupied with his family since. The loan on the house was fully repaid in 2018. The couple’s income and assets are composed as follows:
| Income | ||
| Rental value | CHF | 40’000.00 |
| Flat-rate property costs | CHF | (8’000.00) |
| Other income and net deductions | CHF | 149’000.00 |
| Taxable income | CHF | 181’000.00 |
| Assets | ||
| House (value after deduction) | CHF | 396’000.00 |
| Securities portfolio and bank accounts | CHF | 3’000’000.00 |
| Social deduction | CHF | (164’000.00) |
| Taxable assets | CHF | 3’232’000.00 |
The total of the ICC and IFD taxes amounts to CHF 69’839.00 (of which CHF 660.00 as real estate tax).
The property is transferred to a real estate company at its market value of CHF 2,500,000.00 on January 1st, 2020. The capital of CHF 100,000.00 was paid up with the contribution of the property and the balance is considered as a shareholder current account. considéré comme un compte courant actionnaire. The accounts of the property company as at December 31st, 2020 are as follows
BALANCE SHEET (in CHF)
Assets
| Cash and equivalents | 23’500.00 |
| Real estate | 2’500’000.00 |
| Total assets | 2’523’500.00 |
Liabilities
| Shareholder current account | 2’400’000.00 |
| Share Capital | 100’000.00 |
| Profit of the year | 23’500.00 |
| Total liabilities | 2’523’500.00 |
P&L STATEMENT (in CHF)
| Income | |
| Rental value | 40’000.00 |
| Total income | 40’000.00 |
| Expenses | |
| Maintenance costs | 8’000.00 |
| Taxes (ICC and IFD) | 3’500.00 |
| Real estate tax | 5’000.00 |
| Total expenses | 16’500.00 |
| Profit | 23’500.00 |
The couple’s taxable items are as follows:
| Income | ||
| Other income and net deductions | CHF | 149’000.00 |
| Taxable income | CHF | 149’000.00 |
| Assets | ||
| Value of SI shares | CHF | 481’600.00 |
| Securities portfolio and bank accounts | CHF | 3’000’000.00 |
| Social deduction | CHF | (164’000.00) |
| Taxable assets | CHF | 3’317’600.00 |
After the transfer of the property, the total tax liability of the Duponts is CHF 57’644.00.
In this analysis, the cost of the transfer must also be taken into account. On the basis of a brief estimate on the website of the Chamber of Notaries, the cost would be CHF 92,773.90(we are not taking into account the cost of setting up the company).
In summary, in this situation, the taxes are as follows :
| Before transfer | After transfer | ||
| Mr and Mrs | Company | Mr and Mrs | Total |
| CHF 69’839.00 | CHF 8’500.00 | CHF 59’736.00 | CHF 68’236.00 |
This represents an annual saving of CHF 1,603.00. To amortise the costs of the property transfer of CHF 92,773.90, 58 years are required.
Example 2 – purchase of a property through a company
Mr. and Mrs. Dupont purchase a newly built villa located in Chêne-Bougeries (GE) on January 1st, 2020 for CHF 2,500,000.00 with 20% of the equity and the balance with a mortgage debt with an interest rate of 1%. The rental value of the property is estimated at CHF 40,000.00 per year. As the building meets the THPE standards, it is exempt from real estate tax for 20 years.
According to the first variant, i.e. the acquisition of the property directly, the tax situation of the spouses is as follows:
| Income | ||
| Rental value | CHF | 40’000.00 |
| Flat-rate property costs | CHF | (4’000.00) |
| Mortgage interest | CHF | (20’000.00) |
| Other income and net deductions | CHF | 200’000.00 |
| Taxable income | CHF | 216’000.00 |
| Assets | ||
| Real estate | CHF | 2’500’000.00 |
| Mortgage | CHF | (2’000’000.00) |
| Bank accounts | CHF | 200’000.00 |
| Social deduction | CHF | (164’000.00) |
| Taxable assets | CHF | 536’000.00 |
The total of the ICC and IFD taxes amounts to CHF 58’132.00.
If the spouses decide to buy the same property through a real estate company, the situation would be as follows:
The company would be incorporated with a share capital of CHF 100,000.00, the financial statements as at 31 December 2020 would be as follows:
BALANCE SHEET (in CHF)
Assets
| Cash and equivalents | 70’400.00 | |
| Real estate | 2’500’000.00 | |
| Total assets | 2’570’400.00 | |
Liabilities
| Shareholder current account | 460’000.00 | |
| Mortgage | 2’000’000.00 | |
| Share Capital | 100’000.00 | |
| Profit of the year | 10’400.00 | |
| Total liabilities | 2’570’400.00 | |
P&L STATEMENT (in CHF)
| Income | |||
| Rental value | 40’000.00 | ||
| Total income | 40’000.00 | ||
| Expenses | |||
| Maintenance costs | 8’000.00 | ||
| Mortgage interest | 20’000.00 | ||
| Taxes (ICC and IFD) | 1’600.00 | ||
| Total expenses | 29’600.00 | ||
| Profit | 10’400.00 |
The situation of the spouses with an indirect holding is as follows:
| Income | ||
| Other income and net deductions | CHF | 200’000.00 |
| Taxable income | CHF | 200’000.00 |
| Assets | ||
| Value of SI shares | CHF | 296’000.00 |
| Bank accounts | CHF | 200’000.00 |
| Social deduction | CHF | (164’000.00) |
| Taxable assets | CHF | 332’000.00 |
The total ICC and IFD taxes amount toCHF 51,737.00.
In summary, in this situation, the taxes are as follows :
| Before transfer | After transfer | ||
| Mr and Mrs | Company | Mr and Mrs | Total |
| CHF 58’132.00 | CHF 1’600.00 | CHF 51’737.00 | CHF 53’337.00 |
This represents a tax saving ofCHF 4,795.00per year.
Conclusion
In summary, the choice should ideally be made at the time of the first acquisition. However, in the case of transferring an existing property portfolio to a real estate company, the tax impacts at the time of entry (tax cost) and in the long term (tax savings) must be analysed with care.
Moreover, tax savings alone should not guide your choice towards indirect ownership. There are other parameters and issues to consider.
If you are considering this type of holding for the acquisition of a property or if you wish to have an estimate of the tax impact on the transfer of your existing properties, our experts are at your disposal.
