Commercial real estate trading - Federal Court regularly considers trading activity to be fulfilled

Be careful when selling rented properties (or a property that is already rented out) - there is a risk of being classified as a commercial real estate trader, particularly by the Zurich Cantonal Tax Office. The Federal Supreme Court regularly supports this assessment.

In addition to property gains tax, direct federal taxes and social security contributions are also levied in such cases.

As the Federal Supreme Court ruled in a Zurich case at the beginning of 2025, a holding period of around 25 years, the practically complete absence of value-enhancing investments and the constant declaration as private assets (without reclassification by the authorities during the holding period) does not prevent the tax authorities from qualifying the gain on the sale of the property as "commercial" and thus as income from self-employment.

According to established case law, the indications of commercial real estate trading (i.e. for taxable business assets) consist of (i) systematic or (i) the systematic or planned approach (by actively increasing the value, by realizing a project or by acquiring an already realized project in order to sell it as soon as possible at a profit by taking advantage of the market situation), (ii) the frequency of the transactions, (iii) the proximity of real estate trading to the main activity of the taxable person, (iv) the use of special expertise, (v) the short period of ownership, (vi) the use of substantial borrowed capital to finance the transactions or (vii) the reinvestment of realized profits in similar properties.

Each of these indications, together with others, but possibly also alone, may be sufficient to assume self-employment in commercial real estate trading. In practice, it is therefore necessary to take an overall view and weigh up the fulfilled vs. unfulfilled characteristics. As some recent Federal Supreme Court rulings show, even in the case of a very long period of ownership and a lack of systematic/planned action - which would per se argue against commercial real estate trading or commercial nature - there is no guarantee that the sale of the property will be qualified as a sale of private assets if other indications are fulfilled at the same time.

Particular caution is required in the case of high external financing (i.e. already more than 2/3 of the property), special expertise or professional proximity to the real estate sector as well as the use of the property to provide employment for one's own company (e.g. for administration). In case of doubt, it is recommended to clarify the tax consequences in advance by means of a ruling with the tax authorities so that there are no nasty surprises afterwards.

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