Does the Canton of Geneva have a step-up mechanism for SIALs?

Yes. The Canton of Geneva does not have a step-up mechanism for the sale of shares in real estate companies. The conditions are as follows: The sale resulted in taxation at a rate higher than 0% => capital gains subject to real estate profits and gains tax (IBGI); SIAL submits the request before the tax on the transaction becomes effective; The seller waives their right to tax confidentiality regarding their IBGI tax liability on the sale of the shares. => deferred tax for cantonal and municipal taxes (ICC) at the SIAL level is eliminated to the extent of the capital gain actually subject to the IBGI (→ hidden reserve taxed in its “tax balance sheet”).

What does “step-up” mean in the context of SIAL?

The “step-up” allows, upon the sale of shares in a SIAL, for a proportional increase in the value of the real estate held by the company on its tax balance sheet to reflect the price paid for the shares. Specifically, when a shareholder acquires shares at a price higher than the book value of the underlying property, the step-up allows, under certain conditions, for the revaluation of the property’s tax basis. Thus, in the event of a subsequent sale of the property by the SIAL, income tax is calculated on the difference between the sale price of the property and this revalued amount, rather than based on its book value. This mechanism aims to prevent economic double taxation of the same capital gain: once when the former shareholder disposes of the shares (in the form of real estate gains tax) and a second time when the company sells the property. In principle, the step-up applies only to cantonal and municipal taxes. The conditions for applying the step-up vary depending on the canton in question and the circumstances of the specific case.

Is SIAL beneficial for estate planning?

It depends on the specific circumstances. Shares in a SIAL are generally classified as personal property, which means that their transfer is taxable at the domicile of the donor or the deceased, rather than at the location of the property. For a Geneva resident transferring shares to their children, who are also domiciled in Geneva, this may result in no gift or estate tax at all, whereas the transfer of a condominium unit located in the Canton of Vaud would have been subject to local taxation at a rate of between 3.5% and 7%. For a taxpayer resident in Vaud with property in Valais or Geneva, the reasoning is logically reversed.

What is the tax burden involved in "removing" an apartment from a SIAL?

The liquidation of a real estate investment company can result in a significant tax burden. The amount of this burden depends, in particular, on the shareholder’s status (individual or corporation) as well as the size of the stake held in the SIAL. In practice, several taxes may apply: Under the SIAL, a capital gains tax may be due on the capital gain from the property, which is the difference between its market value and its book value; From the shareholder’s perspective, the amounts distributed upon liquidation may be subject to income tax or corporate income tax, depending on the circumstances; In some cases, a withholding tax (35%) is also levied. In addition to these taxes, there are transaction-related costs, such as notary fees, land registry fees, and, in some cantons, transfer taxes. Given the complexity of the applicable rules, it is recommended that you assess the tax implications before proceeding with a liquidation to avoid any unpleasant surprises.

Does a shareholder of a SIAL pay the rental value?

No. The rental value applies only to real estate held directly by the owner. A shareholder in a SIAL, on the other hand, pays rent to the company. This rent generates profit at the SIAL level, which will eventually result in a taxable dividend distribution to the shareholder. Note that the rental value has been repealed effective December 31, 2028.

Does SIAL enjoy preferential tax treatment in Switzerland?

No. Since the special tax status was repealed in the early 2000s, SIAL has been treated as an ordinary corporation (SA/Sàrl). It is subject to income and capital taxes, with no special tax regime.

What is a SIAL, and how does it differ from a PPE?

A SIAL (tenant-shareholder real estate company) is a corporation or limited liability company whose shareholders are also tenants of a dwelling owned by the company. Unlike in a condominium (PPE), the shareholder does not own a unit registered in the land registry, but rather holds shares in the company that owns the building. This distinction has significant tax implications at every stage of the property’s lifecycle.

What does the new tax asymmetry introduced by this reform entail?

The reform creates an imbalance for individuals: interest earned on assets (which generates income) will remain taxable, while interest paid on personal debt will no longer be deductible from taxable income.

FAQs 5 -

Does the Canton of Geneva have a step-up mechanism for SIALs?
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What does “step-up” mean in the context of SIAL?
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Is SIAL beneficial for estate planning?
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What is the tax burden involved in "removing" an apartment from a SIAL?
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Does a shareholder of a SIAL pay rental income tax?
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Does SIAL enjoy preferential tax treatment in Switzerland?
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What is a SIAL, and how does it differ from a PPE?
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What does the new tax asymmetry introduced by this reform entail?
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