Planning measures of public authorities can significantly increase the value of real estate. The duty on the surplus value of real estate (“Mehrwertabgabe”) aims to tax this surplus value of real estate with up to 50%. The implementation of the duty in the cantonal law is mandatory for the cantons. Geneva, Lucerne, Schwyz, Zug and Zurich, which do not fulfil the requirements of federal law, have a temporary prohibition to zone in land as from 1 May 2019.

As part of the revision of the Federal Act on Spatial Planning (“Bundesgesetz über die Raumplanung”; SR-700) in 2012, the cantons were obliged to introduce a duty on the surplus value of real estate until 1 May 2019; otherwise, no land can be assigned to construction zones. The Federal Council decided to halt the zoning of the cantons of Geneva, Lucerne, Schwyz, Zug and Zurich as these cantons did either not introduce yet a duty on the surplus value of real estate in case of a zoning in of land into building land or their cantonal regulation does not fulfil the requirements of the federal law. The ban on zoning in in these cantons will apply from 1 May 2019 and last until the requirements of the federal law are met.

The Federal Act requires cantons to implement a duty of 20% at minimum on the rezoning of land from agricultural land into construction zones. Optionally, the cantons may increase the rate or levy also a duty on the rezoning of land within the construction zone (i.e. change from industrial use to residential use) or zoning up within the same construction zone (i.e. higher exploitation).

The duty is of great practical relevance as the rate can amount up to 50% depending on the canton. Based on case law, even a total burden together with the real estate capital gains tax of 80% of the added value was not classified as a confiscatory taxation.

For the purposes of the real estate capital gains tax, the duty on the surplus value can be deducted as an expense from the real estate capital gain. This should ensure to partially avoid overtaxing the increase in value of real estate. However, as the levy is only offset against the assessment basis for the real estate capital gains tax and is not credited against the real estate capital gains tax due, at least a partial economic double taxation cannot be avoided.

The duty on the surplus value is triggered when the planning measure comes into force. However, the duty is only levied when the land either is sold or the property is built over. This means that the payment only has to be made when the added value is actually realised.

Among other definitions, the cantonal legislations have to consider how the added value has to be determined and which costs can be deducted. As the cantons have considerable freedom in designing the calculation and the rate of the duty on the surplus value, differences between the cantons are inevitable. The costs of a possible duty on the surplus value should therefore be examined at an early stage on the basis of the specific cantonal and/or communal legislation as well as the corresponding practice and case law. This means that as soon as a planning measure is registered or a new zoning or rezoning is due, it is strongly recommended to determine the amount of the duty in advance in order to avoid unpleasant surprises.

If you want to read more about the duty on the surplus value of real estate see here our article published in Expert Focus in German: Download Mehrwertabgabe_Weder_Bussmann.

Diego Weder - Director, Head of Real Estate Tax Switzerland

Diego is leading the Swiss Real Estate Tax Practice of Deloitte in Switzerland. He has more than 17 years of professional experience in particular in the area of Real Estate Tax advice for for real estate funds, real estate companies, investment foundations as well as pension funds. He is a Swiss certified tax expert and holds a Master in law from the University of Zurich, Switzerland.

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Anna Bussmann - Manager, International Tax

Anna is a Swiss Certified Tax Expert and a Swiss lawyer with more than 6 years of experience in Swiss corporate taxation. The customer portfolio Anna is advising includes a wide range of national and international clients with Swiss real estate.

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