Financing of real estate companies - contribution of loans or equity?

Real estate companies are generally confronted with considerable investment sums for which a high proportion of equity capital must be raised (in accordance with the tax requirements). In practice, the issue tax is often simply accepted when financing real estate investments without examining alternative (equivalent) financing options. In concrete terms, for example, the issue tax can be optimized by financing a company with debt capital instead of equity (e.g. with a loan from the shareholder).

In the case of such (high) debt financing, the issue of hidden equity capital in accordance with FTA circular no. 6 often comes up. If the reported debt capital exceeds the debt capital permitted for tax purposes, the excess amount, which comes directly or indirectly from the shareholder, qualifies as hidden equity. Hidden equity capital is subject to cantonal capital tax in the same way as ordinary paid-up equity capital (and can be offset against profit tax in the same way as equity capital). If there is also interest on hidden equity, this must be added to the company's taxable profit for profit tax purposes. At the same time, this interest is taxable for the shareholder as investment income (provided the conditions are met with corresponding privileges). This taxation of interest can be avoided if a shareholder loan is granted interest-free. According to the practice of the FTA, the absence of interest in itself (as a hidden capital contribution) does not give rise to an obligation to pay issue tax.

With the exception of a few special features that must be taken into account (e.g. in the case of a restructuring), the above mentioned debt financing does not result in a worse position from a tax perspective, but rather the same as if investments had been made directly through an equity contribution. In this case, however, the decisive difference is that this capital is not subject to the issue tax of 1%.