Income tax
The property-related share of income tax is calculated based on the rental value of the property in which the owner lives and corresponds to the income that could be generated by renting it out. In Geneva, the rental value never usually exceeds 20% of the taxpayer’s total gross income. It depends on several factors: living space, layout, location, state of disrepair, etc. In the case of a primary residence, the rental value can be reduced by 4% per year of consecutive occupancy, up to a maximum of 40%, at both the municipality and canton levels. It is also possible to deduct mortgage interest and maintenance expenses from the total taxable income.
Wealth tax
Real estate owners are also taxed on their wealth. In this case, what counts is the net tax value of the owner's real estate. Most of the time, the tax value corresponds to the market value less any debts related to the property. This is determined by the location, nature and method of acquisition of the real estate in question. If it is owner-occupied, the wealth tax can also be reduced by 4% per year of consecutive occupation, up to a maximum of 40%.
Supplementary real estate tax
Finally, there is a supplementary real estate tax on buildings. For the entire duration of ownership, this type of asset is taxed at the rate of 0.1% of its tax value [3]. The 4% deduction does not apply to this tax, and property-related debts cannot be deducted either. However, if the building boasts high or very high energy performance (denoted by the acronyms HPE or THPE respectively), a 20-year exemption from this tax can be obtained. If the owner is a legal entity with its head office in the canton of Geneva or elsewhere, the following tax rates apply: 0.1% on buildings used by companies for their own operations, 0.15% on buildings rented out by not-for-profit associations or foundations, and 0.2% on properties rented out by profit-making companies.
Taxation of real estate companies
In the case of a building owned by a real estate company, the tax is double. The real estate company is first subject to tax on its net profit, of around 24%, once any possible deductions have been made. This corresponds to the rent collected after deduction of the charges and the rent collected by the shareholders according to market prices. However, it should be noted that, following reforms of the tax and AVS system (known as the RFFA), this tax will be lowered to 13.99% as of 1 January 2020. Companies are also taxed on their capital. Meanwhile, shareholders are taxed on dividends according to the scale applicable in Geneva, and are subject to wealth tax at the maximum rate of 1% of the tax value of the shares owned. The building is also subject to supplementary property tax (up to 0.2% if rented out).
Taxation of capital gains
When selling real estate, you will also be subject to capital gains tax. This is calculated based on the number of years in which you have owned the real estate. In Geneva, this is as follows:
These rates are considerable, and can be very limiting when an owner wants to sell a property.
Summary
Both the acquisition and ownership of real estate assets significantly changes the rate at which an individual or business is taxed in the long term. If you have any further questions on this subject, please feel free to get in touch with us and our team will be more than happy to help.