In-depth article
Property companies · Comparing structures · Germany–SwitzerlandGerman GmbH or Swiss AG for Swiss property?
When a German company plans to invest in Swiss property, a common question is whether the property should be held directly by a German GmbH or through a Swiss AG or GmbH as a property company. The decision involves more than corporate income tax and the tax treaty. It also affects Swiss property taxation, distributions, financing, disposals, controlled foreign company (CFC) taxation and, in particular, the Lex Koller.
The starting question
A Swiss AG is not automatically the better property structure
A Swiss company may initially seem the natural choice when the investment property is also located in Switzerland. For tax purposes, however, the location of the property company alone does not determine the best structure.
Where a German GmbH owns the property directly, the Swiss property remains an asset of the German company. With a Swiss AG or GmbH, the German company instead holds shares, while the property belongs to the Swiss subsidiary.
This creates two fundamentally different tax structures.
Two basic models
Direct ownership or a Swiss subsidiary
The tax analysis begins with identifying who should become the legal and economic owner of the property, rather than with the label GmbH or AG.
- The German GmbH acquires the Swiss property directly
- The German GmbH establishes or acquires a Swiss AG/GmbH
- The Swiss company acquires and manages the property
- Profits later flow to Germany as dividends or sale proceeds
Comparing structures
Direct ownership by a German GmbH or a Swiss property company?
| Issue | German GmbH owns the property directly | Swiss AG/GmbH owns the property |
|---|---|---|
| Owner | German GmbH | Swiss subsidiary |
| Swiss taxation | Swiss taxation of the property located in Switzerland and the income it generates | The Swiss company’s profits are subject to Swiss corporate taxation |
| German tax position | The property’s profit or loss remains directly attributable to the German GmbH; the treaty relief method must be assessed | The German GmbH holds shares in a Swiss company; distributions and exit transactions require separate assessment |
| Transfer of profits | No dividend distribution is needed between the property and the German GmbH | Distribution from the Swiss subsidiary to the German parent |
| Sale | The German GmbH sells the property | An asset sale or a sale of the shares may be possible; the tax consequences differ |
| German Foreign Tax Act (AStG) | Direct ownership alone does not create a foreign subsidiary | German CFC taxation may become relevant where passive income is subject to low taxation |
| Administration | Cross-border property taxation within a single company | An additional Swiss company, financial statements, tax returns, governance and compliance obligations |
Lex Koller
A Swiss AG does not automatically remove acquisition restrictions
Before choosing a tax structure, it is necessary to establish whether the intended Swiss property may be acquired through the proposed company at all.
Under the Lex Koller, not only foreign companies but also companies with their registered office in Switzerland may qualify as persons abroad if they are controlled by persons abroad.
A Swiss AG wholly owned by a German GmbH, for example, is therefore not exempt from acquisition restrictions simply because its registered office is in Switzerland.
German GmbH
A company with its registered office in Germany generally qualifies as a person abroad for the purposes of the Lex Koller.
Swiss AG with a German parent
A Swiss company may also be regarded as foreign-controlled. A Swiss registered office alone therefore does not resolve the acquisition issue.
Distinguish residential property from property used as business premises
Residential property may be subject to substantial acquisition restrictions. Under current Swiss law, property serving as business premises for an economic activity is treated differently. The competent cantonal authority determines whether authorisation is required in the particular case.
Option 1
The German GmbH owns the Swiss property directly
With direct ownership, the German GmbH itself acquires the Swiss property. There is no separate Swiss subsidiary between the investor and the property.
Switzerland may tax income from property located in Switzerland under Article 6 of the Germany–Switzerland tax treaty. This rule expressly also applies to immovable property belonging to a business.
On the German side, the property’s profit or loss remains part of the German GmbH’s tax position. It is then necessary to determine how the Swiss taxation is taken into account in Germany under the treaty article governing relief from double taxation.
Direct ownership
The property and its financing sit directly within the German company.
Swiss taxation
Switzerland has its own right to tax the income from the property.
Germany
The German GmbH must incorporate the Swiss profit or loss into its German tax analysis.
Asset sale
A subsequent sale generally takes place at the level of the German GmbH.
Letting property does not automatically create an active Swiss permanent establishment
Where the activity consists solely of letting property, it should not be assumed without further analysis that the income is excluded from the German tax base under the treaty exemption for permanent establishments. The treaty relief method requires separate assessment, particularly in cases of passive letting.
Option 2
The property is held through a Swiss AG or GmbH
Under this structure, the German GmbH establishes or acquires a Swiss corporation. The Swiss company becomes the owner of the property, rather than the German parent.
This separates the property level from the shareholder level. Ongoing property income is initially taxed at the level of the Swiss company. Distributions, intragroup financing or a subsequent sale of the shares then introduce a further cross-border tax layer.
Separate taxable entity
The Swiss company is legally and fiscally separate from its German parent.
Distributions
Profits generally pass from the Swiss subsidiary to the German parent through dividends.
German shareholder level
Dividends and share disposals require assessment, in particular, under section 8b of the German Corporate Income Tax Act (KStG), together with the relevant trade tax requirements.
Swiss withholding tax
Distributions by a Swiss company may raise Swiss withholding tax and treaty issues.
German CFC taxation
A Swiss property company may create risks under the AStG
Interposing a Swiss corporation does not automatically mean that its ongoing profits remain entirely outside German taxation until a later distribution.
Where a Swiss company is controlled by German taxpayers, sections 7 et seq. of the German Foreign Tax Act (AStG) must be assessed. In particular, passive property letting combined with a low Swiss tax burden on income may make CFC taxation a decisive factor when choosing the structure.
Control
The first step is to determine whether the German shareholders control the Swiss company within the meaning of the AStG.
Type of income
The specific property activity must be classified under the categories of the German Foreign Tax Act.
Low taxation
It is also necessary to determine whether the foreign income is subject to low taxation within the meaning of the AStG.
A Swiss AG should not be assessed solely by its Swiss tax rate
A seemingly tax-efficient Swiss property company may become considerably less attractive from a German perspective if its passive income is taxed in Germany on an ongoing basis under the CFC rules.
Financing
Equity, bank borrowing or shareholder loans?
The choice of legal structure cannot be separated from the financing. A Swiss property company will generally require equity or debt financing.
Bank financing
Swiss mortgages, security arrangements and loan-to-value requirements may influence the structure.
Equity
A capital contribution to a Swiss subsidiary increases the basis in the shareholding and commits capital at company level.
Shareholder loans
Interest, arm’s-length terms, withholding tax issues and Swiss thin capitalisation rules require separate assessment.
Exit
The best structure also depends on the eventual sale
A structure should not be assessed solely by reference to the period of ongoing letting. The eventual exit is often more significant from a financial perspective.
Selling the property
In an asset sale, the company that owns the property sells the Swiss property directly. Swiss property taxes and real estate gains taxes must be taken into account.
Selling the company
Where a Swiss property company is used, a share sale may also be considered. The tax, property-related and Lex Koller consequences require separate assessment.
Choosing a structure
Which factors favour each structure?
| Factor | Direct acquisition by a German GmbH | Swiss property company |
|---|---|---|
| Simplicity | Generally more favourable | An additional company layer |
| Local Swiss organisation | Less developed | Generally stronger |
| Several Swiss properties | Possible | A property or portfolio structure may offer advantages |
| Separation of liabilities | The property is held directly within the German GmbH | Separation between the German parent and the Swiss property company |
| AStG risk | No Swiss subsidiary | Requires separate assessment at an early stage |
| Lex Koller | Must be assessed | Must also be assessed; a Swiss registered office does not automatically resolve the issue |
| Exit flexibility | Primarily an asset sale structure | An asset sale or a sale of the shares may be possible |
No single structure is best in every case
The decision depends in particular on whether residential or commercial property is being acquired, how many properties are planned, how the investment will be financed, whether profits will be distributed or reinvested, and the intended exit.
Further topics
Coordinating property and business structures
Property structuring also involves broader questions about businesses and shareholdings. The related guides below cover those general corporate tax issues in more detail.
Property between Germany and Switzerland
Buying, using, letting, financing and selling Swiss property.
Explore property topicsGerman companies investing in Switzerland
Swiss subsidiaries, permanent establishments, section 8b KStG, the AStG and transfer pricing.
Read the guideBusinesses & shareholdings
German and Swiss companies, shareholdings, permanent establishments and cross-border business structures.
Explore business topicsGermany–Switzerland structuring advice
German GmbH or Swiss company for your property investment?
We compare direct investment with a Swiss property company from a German tax perspective, taking into account the tax treaty, corporate income tax, Swiss withholding tax, CFC taxation, the Lex Koller, financing and the eventual exit.
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