| Ramzi Chamat
The canton of Geneva has recently introduced a new fiscal practice aimed at preventing double taxation in the case of real estate transactions. This modification, known as the "step-up," offers innovative possibilities to various actors in the real estate market, particularly during the acquisition of a real estate company (SI). The purpose of this article is to shed light on this new practice and its potential impact on real estate transactions in the Geneva region.
| Ramzi Chamat
The tax landscape of real estate in Geneva is undergoing a significant transformation, marked by the introduction of notable reforms in the management and taxation of real estate companies. Now, in Geneva, an innovative mechanism named the "step-up" can be applied under certain conditions to avoid double taxation on real estate capital gains. This evolution offers a range of opportunities, especially for real estate companies, by altering tax modalities and introducing unprecedented flexibility in the transfer of shares. The "step-up", far from being a mere technical adjustment, is part of a broader approach aimed at enhancing the attractiveness of the Geneva real estate market by optimizing the tax framework. This article delves deeply into the implications, opportunities, and conditions of this new mechanism, illuminating its stakes in the current tax context of the canton of Geneva.
Traditionally, the sale of shares of a real estate company owning a property in the canton of Geneva by a natural person is considered an economic transfer of the property itself. This transaction is mainly subject to real estate gains tax based on the difference between the selling price attributed to the Geneva property and its acquisition cost.
If the real estate company subsequently sells the property (asset deal), the real estate gain is taxed again through profit tax at the level of the real estate company, leading to potential double taxation of the same capital gain.
To counteract this double taxation, the Geneva Tax Administration now allows, under certain conditions, the application of the "step-up" mechanism. This process allows for adopting the selling price attributed to Geneva buildings in the event of the subsequent sale of assets by the real estate company. A charged latent reserve can be recognized in the tax accounts of the real estate company, thus neutralizing the accounting gain upon the dissolution of said latent reserve.
This approach is already admitted in several Swiss cantons, validated by two Federal Court decisions, and introduced in Geneva to make the acquisition of a real estate company more attractive than before.
The application of this mechanism is, however, subject to various conditions such as the declaration of a charged latent reserve on the buildings in the tax accounts of the real estate company, the effective levy of a tax on real estate gains during the transfer of the real estate company's shares, and the validation of the application of the "step-up" mechanism by transmitting decisive information to the tax authorities.
This new fiscal practice presents significant opportunities for actors in the real estate market and provident institutions, facilitating the transfer of a real estate company's shares by individuals and offering increased flexibility in contractual negotiations and real estate holding strategies.
In summary, innovation and adaptation are at the heart of recent fiscal developments in the real estate sector in Geneva. The "step-up" mechanism marks a strategic turning point in the approach to the double taxation of real estate capital gains in the canton of Geneva. By offering a solution to counter subsequent imposition of real estate gains, it paves the way for new perspectives for real estate company owners, thus facilitating share transfers while avoiding redundant tax burdens.
However, it is crucial for the actors in the real estate market and for provident institutions to deeply understand the application conditions and implications of this innovative mechanism. The impact of this mechanism can prove to be considerable, notably in contractual negotiations and real estate transactions involving the sale of real estate companies.
The successful implementation of the "step-up" will largely depend on the cooperation and transparency between sellers and purchasers in transferring pertinent information, as well as the rigorous application of the conditions stipulated by the Geneva Tax Administration. This mechanism aligns with a broader ambition of strengthening Geneva's attractiveness as a marketplace and real estate hub by establishing an optimized tax environment and making real estate transactions more fluid and flexible.
In the long run, the introduction of the "step-up" could serve as a model for other Swiss cantons, illustrating how fiscal innovations can contribute to energizing the real estate market and creating a more balanced and conducive ecosystem for investors, owners, and general real estate market actors.