Real Estate Abroad: How Are Properties Taxed in Switzerland?

Many Swiss residents own real estate abroad – whether a holiday home in Italy, an apartment in Germany, or an investment property in France. But how does such ownership affect the Swiss tax return?

Even though foreign real estate is not directly taxed in Switzerland, it still has tax implications. This article explains how foreign properties must be declared, what the so-called rate-determining effect means, and what role double taxation agreements play.

Note: On 28 September 2025, the Swiss electorate approved the abolition of the imputed rental value (Eigenmietwert). The new rules are expected to come into force no earlier than 2028. Until then, existing provisions remain unchanged. The abolition concerns owner-occupied properties – the impact on the declaration and rate-determining effect of foreign real estate will become clear with the concrete implementation. The principle of worldwide tax liability and the obligation to declare remain in place.

Principles of Taxation

Worldwide Tax Liability

Anyone who is tax-resident in Switzerland is subject to worldwide tax liability. This means: All income and assets must be reported in the tax return – including foreign real estate.

Tax Allocation

Since real estate is generally taxed where it is located (the situs principle), Switzerland applies the exemption method with progression reservation. The property itself is taxed abroad, but it influences the tax rate in Switzerland (rate-determining effect). This applies to both income tax and wealth tax.

Rate-Determining Effect

Meaning

The foreign property is not directly taxed in Switzerland, but it increases the total income and wealth used to determine the applicable tax rate. Since Swiss income and wealth taxes are progressive, this can lead to a higher tax rate on the remaining income and wealth taxable in Switzerland.

Example

A taxpayer in Zurich owns a holiday home in Italy with an imputed rental value of CHF 12,000. This amount is not taxed in Switzerland but increases the tax rate applied to the remaining Swiss income.

Declaration in the Tax Return

Income

• Rental income from abroad: Must be declared in the tax return, even though it is taxed abroad.
• Imputed rental value for self-used properties: Also subject to declaration. Since no official cantonal imputed rental value exists for foreign properties, it is typically estimated based on the achievable market rent.

Wealth

• Property values must be listed as part of total wealth.
• For foreign properties, the market value is generally used since no cantonal tax value exists. Some cantons also accept the tax value determined abroad, provided it can be documented.
• Mortgage debt on the foreign property can be deducted as a liability.

Deductions and Debt Interest Allocation

Maintenance costs and mortgage interest may be declared in the tax return, but for foreign properties they generally only affect the rate determination.

Important: The so-called debt interest allocation (Schuldzinsenverlegung) must be observed. Debt interest (e.g. mortgage interest) is allocated proportionally between domestic and foreign assets. If you have a mortgage on a Swiss property but also own real estate abroad, a proportional share of the debt interest must be assigned to the foreign property. This share reduces the debt interest deductible in Switzerland.

Double Taxation Agreements (DTA)

Purpose

Double taxation agreements prevent income or wealth from being fully taxed both abroad and in Switzerland.

Practice

• The right to tax real estate income and wealth lies with the situs state (the state where the property is located) under most DTAs.
• Switzerland applies the exemption method with progression reservation: Foreign property values are exempt, but considered for the purpose of determining the tax rate.
• If excessive taxes were paid abroad (e.g. withholding tax on rental income), a refund may be claimed in the foreign country under the applicable DTA.

Specifics for Different Countries

Germany

Real estate income and values are taxed in Germany. In Switzerland, they are only considered for rate determination purposes. Germany levies income tax on rental income and annual property tax (Grundsteuer) on the property value.

Italy

Property owners in Italy must pay the Italian municipal property tax (IMU). For self-used holiday homes, a notional income is also calculated under Italian law. The IMU is not creditable as a tax in Switzerland, as Switzerland applies the exemption method.

France

Rental income or second homes in France may incur additional local taxes, in particular the taxe foncière (property tax payable by the owner). The taxe d'habitation for second homes has been abolished in most municipalities but may still be levied in certain municipalities with tight housing markets (zones tendues).

Practical Examples

Example 1: Holiday Home in Italy

A couple from Zurich owns a holiday home in Italy with an estimated imputed rental value of CHF 12,000 and a market value of CHF 400,000. The imputed rental value is taxed in Italy but must be declared in the Swiss tax return. It increases the tax rate in Switzerland on the remaining income. The market value of CHF 400,000 increases the tax rate for wealth tax.

Example 2: Rented Apartment in Germany

A taxpayer in Basel earns CHF 20,000 in rental income from an apartment in Germany. This income is taxed in Germany but increases the progression rate in Switzerland. Additionally, due to the debt interest allocation, she must assign a proportional share of her Swiss mortgage interest to the German property, which reduces the debt interest deductible in Switzerland.

Common Mistakes and Tips

Common Mistakes

• Failing to declare foreign real estate or declaring it incompletely in the Swiss tax return.
• Wrongly assuming that only Swiss properties need to be reported.
• Not providing documentation for taxes paid abroad.
• Ignoring the debt interest allocation, leading to an incorrect distribution of deductions.
• Forgetting the imputed rental value for self-used foreign properties.

Tips

• Always declare property values and income in full – even if taxed abroad.
• Keep tax assessments and payment receipts from abroad and include them with the tax return.
• Review the applicable double taxation agreement and its exemption provisions.
• Calculate the debt interest allocation correctly or have it calculated professionally.
• In case of uncertainty, seek professional tax advice with international experience.
• Monitor developments regarding the abolition of the imputed rental value and its impact on foreign real estate.

Conclusion

Foreign real estate is not directly taxable in Switzerland, but it must be fully declared in the tax return. It affects the tax rate through the rate-determining effect and can thus increase the tax burden in Switzerland. Additionally, the correct debt interest allocation must be observed, as it affects the amount of debt interest deductible in Switzerland.

The approved abolition of the imputed rental value will also have implications for the taxation of foreign real estate. Until the new rules come into force (expected no earlier than 2028), existing provisions apply. Those who correctly declare their properties, consider the double taxation agreements, and observe the debt interest allocation will avoid problems with the tax authorities and can optimize their international tax planning.