In Switzerland, the legal framework distinguishes between two main categories of real estate funds: direct funds and indirect funds. This distinction has significant tax implications, which need to be taken into account when structuring the investment. Depending on the investment objective pursued, the choice of one or the other formula can produce very different effects.
Real estate assets can be held in one of two ways. In the case of a direct ownership fund, the assets are held directly by the fund. Conversely, an indirectly-owned fund uses a structure in which investors hold shares representing a fraction of the assets under management. From an operational point of view, this distinction has no impact on how shares are acquired or recorded in the accounts.
In terms of taxation, the differences are substantial. Direct funds are subject to direct taxation at fund level, which means that investors are not taxed on dividends distributed. Similarly, units held are not taken into account when calculating wealth tax, and capital gains are not taxed at investor level. Indirect real estate funds, on the other hand, pass on the entire tax burden to investors. They are therefore subject to income tax, wealth tax and capital gains tax.
This absence of direct taxation for unitholders in direct funds is due to the fact that the tax burden is borne by the fund management company itself. This is reflected both in the distributions paid out to investors and in the fund’s net performance.
Finally, it should be noted that real estate funds, whether direct or indirect, are accessible to non-resident investors. On the other hand, direct ownership of real estate in Switzerland remains very difficult for these same investors.