Real Estate Ownership Under SIAL or PPE: Which Structure Is Most Tax-Efficient in Switzerland?

Purchasing real estate in Switzerland involves much more than simply choosing between two forms of ownership: condominium ownership (PPE) and the limited liability company of tenant-shareholders (SIAL) entail tax liabilities that can vary significantly over the lifetime of the asset. Using a practical example, this article provides a schematic overview of the concrete issues facing any taxpayer—whether a resident of Geneva or Vaud—who is considering purchasing, transferring, or liquidating real estate held in so-called “direct” (e.g., PPE) or “indirect” (e.g., SIAL) ownership. Our team specializing in real estate taxation provides daily guidance on these decisions.

What is a SIAL, and why does this vehicle exist in French-speaking Switzerland?

A SIAL (shareholder-tenant corporation) is a standard corporation under Articles 620 et seq. of the Swiss Code of Obligations (CO), in which the shareholders are also tenants of a dwelling owned by the corporation. Its origins are straightforward: prior to January 1, 1965, Swiss law did not recognize the condominium regime. This type of structure, which can be found in Geneva or in certain ski resorts in Vaud, had its special tax status abolished at the dawn of the 2000s: a SIAL is now treated as an ordinary commercial company, without any special tax regime. Many SIALs were liquidated when the special tax status was abolished. Others have survived or have been established since then, and often face a significant deferred tax liability, which will eventually catch up with the shareholders.

In practical terms, holding property under the SIAL regime involves acquiring shares in a corporation (SA) or limited liability company (Sàrl), rather than a condominium unit registered in the land registry. This distinction, which may seem technical, has significant tax implications at every stage of the property’s lifecycle.

1. Acquisition: Understanding Deferred Tax Liabilities

Let’s consider the specific case of a 21-square-meter studio in Villars-sur-Ollon (VD), whose shares are being offered at CHF 115,000. The price per square meter (≈ CHF 5,500) is significantly lower than the CHF 10,000/m² observed for a comparable condominium in the same area. This discrepancy is partly due to the deferred tax liability inherent in the SIAL: to “transfer” the apartment out of the company and become its direct owner, the shareholder will have to bear several layers of taxation.

Sample SIAL balance sheet as of December 31

To understand these calculations, the SIAL balance sheet is an essential starting point. The figures below will serve as an illustration. In our example, the studio holds 30 shares out of 1,000, or 3% of the share capital:

Recalculation of the market value of the studio based on the share price

To determine the value of the property, the purchase price of the shares serves as the starting point. The cash attributable to the 30 shares (on a pro rata basis) must be subtracted from this amount, and debt must be added. The reasoning behind this is simple: the value of the shares reflects the company’s equity, not the gross value of the property. A SIAL that has taken out a large mortgage will see its equity—and thus the value of its shares—automatically reduced, even if the underlying property is worth more.

Cumulative deferred tax liability associated with removing the apartment from the SIAL

Net income:

Unlike the Canton of Geneva, the Canton of Vaud does not have a “step-up” mechanism for the sale of shares in real estate companies. Under certain conditions, this mechanism allows for the creation of a taxable hidden reserve on the SIAL’s tax balance sheet and reduces the tax burden (ICC income tax) in the event of a subsequent partial or total liquidation of the SIAL.

2. Income and Wealth Tax: SIAL vs. PPE—Which System Is More Favorable?

Rental value: a structural advantage for SIAL

An owner of a condominium unit who lives in the property is subject to the rental value (through December 31, 2028), a notional income added annually to their taxable income. A shareholder in a SIAL is not directly subject to this: the rental value applies only to properties held directly.

However, the shareholder must pay rent to the SIAL that covers at least the current expenses plus a return of 6% of the share capital (ATF 102 IB 166). This rent generates a profit within the SIAL, which will eventually result in a dividend distribution. The major advantage: the shareholder controls the timing of the distribution and thus the timing of the tax recognition of the income, which is not possible with the rental value, which is automatically taxed each year. It should be noted that cantonal practices may vary significantly regarding the determination of this theoretical rent.

Comparison of figures: rental value of a condominium vs. SIAL income

Holding shares through a SIAL is more advantageous for an individual shareholder who is a Swiss tax resident and holds a non-qualified stake (less than 10% of the share capital) in this specific case, since the rental value—or taxable income derived from the shares—is similar for the ICC and lower for the IFD.

Wealth tax: a significantly reduced tax base

Important note: In the event of a significant transaction—defined as the sale of approximately 10% of the share capital over a 12-month period (Section 2(5) of CSI 28)—the tax valuation of the securities is adjusted based on the sale price, with effect for all shareholders, including those who have not sold their shares. The Canton of Geneva, for its part, bases the valuation for wealth tax purposes on the sale price of the shares in the relevant block, regardless of any representative transaction.

3. Donations: Where are taxes levied, and how can you minimize the tax bill?

The issue of tax residency is central to transfers of property without consideration. The fundamental rule is:

• PPE → based on the location of the property (gift tax levied by the canton where the property is located).
• SIAL shares → classified as personal property by the vast majority of cantons, taxable at the donor’s place of residence.

Example: a gift from a Geneva resident to his son (also a Geneva resident)

Assumption: CHF 300,000 direct deductible has already been used

Important note: This benefit may be reversed depending on the valuation rules applicable in the donor’s country of residence or if a comparable transaction occurs within 12 months of the gift (which could have a retroactive effect on the taxable base).

4. Inheritance: SIAL’s Key Advantage in Estate Planning

The fundamental rule regarding tax jurisdiction for estate taxes follows the same logic:

• A condominium unit located in the Canton of Vaud constitutes a special tax jurisdiction for Vaud inheritance tax (Art. 11, para. 1, letter a of the Vaud Tax Code), even if the decedent was domiciled outside the canton.
• SIAL shares, classified as personal property, are taxable only in the deceased’s place of residence (Art. 11, para. 1, item 2, LMSD). If the deceased’s place of residence is Geneva and the conditions for exemption are met, no inheritance tax is due.

Special feature: the allocation of debts in an inter-cantonal estate

Unlike gifts (where debts can be objectively linked to the transferred asset), debts are allocated on a pro rata basis according to the gross assets located in each tax jurisdiction in the context of an inter-cantonal estate. A mortgage on a property in Vaud will not be deducted in full from its value for the purposes of the Vaud tax base, but will be allocated among the tax jurisdictions.

Case study: Deceased resident of Geneva, property in Ollon (VD)

Assumptions: Assets excluding the PPE estate = CHF 1,000,000; total liabilities = CHF 100,000; the CHF 1,000,000 exemption per heir has already been used.

Summary: SIAL or PPE: Which structure should you choose?

Conclusion: A Multidimensional Analysis Is Essential

Owning a property through a SIAL can offer real tax advantages, such as potentially lower wealth taxes, no rental value, and optimization of inter vivos and estate transfers; however, these advantages come at a cost: a potentially significant tax burden upon the liquidation of the SIAL, more restrictive financing, and a heavier administrative burden. The taxpayer’s canton of residence, the heirs’ tax residence, the structure of the SIAL’s balance sheet, and the presence or absence of a step-up mechanism (Geneva vs. Vaud) are all factors that can alter the conclusion.

Any decision to acquire, transfer, or liquidate an asset held in a SIAL must be subject to a prior, case-by-case tax analysis. The team at PANCHAUD Tax & Legal SA is available to assist you with this process.

Cedric Panchaud is an attorney, holds a doctorate in law, is a licensed notary, and is a certified tax expert. He regularly speaks at continuing education seminars (ISIStax, OREF/EXPERTsuisse). This article is provided for informational purposes only and does not constitute legal or tax advice.

© PANCHAUD Tax & Legal SA, a firm specializing in real estate taxation in Geneva, is here to assist you.