Sale of a Zurich real estate company with foreign shareholders

In the Canton of Zurich, real estate gains tax is levied on gains arising from changes in the ownership of real estate or interests therein. Legal transactions which have the same economic effect as a change of ownership with regard to the power of disposal over a property are treated as equivalent to a change of ownership of real estate (§ 216 StG Kt. ZH).

The sale by a real estate company of Zurich real property therefore triggers real estate gains tax in principle. However, if the shareholders of the real estate company consist of a company abroad, the regulations of the double taxation treaties have to be taken into account.

If, for example, the real estate company to be sold is held by a company in Germany, the rules pursuant to Art. 13 para. 1 DBA CH-D and Art. 6 para. 2 DBA CH-D are relevant. The double taxation agreement between Switzerland and Germany does not contain a special provision analogous to Art. 13 para. 4 OECD Model Tax Convention, which would allow taxation in Switzerland.

According to statements of the tax office of the City of Zurich, the provisions of Art. 6 para. 2 DTA CH-D should be sufficient according to the new practice in order to also include an economic change of ownership upon the sale of shares of a real estate company under Art. 13 para. 1 DTA CH-D and thus to tax the increase in value in the Canton of Zurich with the real estate gains tax. A special clause for real estate companies modeled on the OECD Model Tax Convention is not necessary for this purpose.

In practice, such constellations must therefore be discussed in advance with the competent tax authorities and recorded in tax rulings.