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Swiss Property Laws for Foreign Investors: Understanding Lex Koller

Switzerland’s real estate market has long been attractive to international investors, offering stability, high-quality properties, and potential for appreciation. However, foreign investment in Swiss real estate is significantly regulated by the Federal Act on the Acquisition of Real Estate by Persons Abroad, commonly known as “Lex Koller.” This comprehensive guide explores the intricacies of this important legislation and its implications for foreign investors.

1. Introduction

The Swiss real estate market is one of the most stable and reputable in the world. However, the Swiss government maintains tight control over foreign property ownership through carefully constructed legal regulations. Understanding these regulations, particularly Lex Koller is crucial for any foreign investor considering real estate investments in Switzerland.

2. What is Lex Koller?

Lex Koller, enacted in 1983, is a federal law in Switzerland designed to restrict foreign nationals’ acquisition of real estate. The primary objective of this law is to prevent excessive foreign ownership of property and to maintain a balanced real estate market for Swiss residents.

The law operates on a negative definition, specifying the types of real estate transactions that require special authorization for foreigners. Specifically, transactions that meet all the following criteria must seek this authorization:

  • The purchaser is a foreign non-resident;
  • The real estate incurs an authorization obligation based on its intended use;
  • The right acquired in the purchase is considered as an acquisition of property within the scope of Lex Koller.

Any real estate transactions that do not meet these criteria are not subject to the special authorization requirement and can be conducted more easily. This ensures that foreign involvement in the Swiss property market is controlled and regulated to maintain the integrity of the domestic real estate landscape.

Historical Context

This law was introduced to address concerns over foreign speculation in the Swiss real estate market and its potential impact on the accessibility of housing for local residents. Over the years, it has been amended to adapt to changing economic conditions but has remained steadfast in its core goal of protection.

3. Key Restrictions Under Lex Koller

Purchase Limitations

Foreign investors face several significant restrictions:

  • The purchase of residential real estate is generally prohibited unless special permission is obtained. Foreign investors not residing in Switzerland must apply for authorization when purchasing property for residential use. However, if the buyer is a citizen of an EU/EFTA country or a non-EU/EFTA country with a C residence permit in Switzerland, they can purchase property without special permission.
  • Investments in commercial real estate may be allowed under certain conditions. Investment in properties used for business purposes or facilities such as restaurants, medical clinics, or commercial enterprises will not require special permission. However, if the property combines both commercial and residential purposes, the purchase may require authorization in exceptional cases.
  • Holiday homes in tourist areas must comply with annual quotas set by the cantons. The purchase of holiday apartments by non-Swiss citizens must adhere to a national quota. Only 1,500-holiday apartments per year can be sold to foreign non-residents, with significant variation in the number available in each canton. For example, Valais has a quota of 330 apartments per year, while cantons like Appenzell Ausserrhoden, Uri, Nidwalden, Obwalden, Glarus, Jura, and Schaffhausen have only 20 apartments per canton. Therefore, any transaction involving a holiday apartment must fall within the relevant quota. In recent years, most cantons have had enough capacity within their quotas.
  • Regarding land size quotas: The land area must not exceed 1,000 square meters, and the net living area must not exceed 200 square meters. The living area is defined as all habitable rooms with heating, including saunas, swimming pools, and hobby rooms, but excluding balconies, staircases, cellars, and attics.

Territorial Application

This law applies throughout Switzerland, although enforcement may vary by canton. Some tourist areas have specific regulations for holiday homes, while larger cities generally impose stricter controls on foreign real estate purchases.

Switzerland’s federal structure allows cantons to determine their regulations on foreign property ownership, leading to significant differences between regions. Some cantons, like Geneva and Vaud, apply strict regulations to prioritize local residents and control housing supply, while cantons like Zug and Valais have more investor-friendly policies, facilitating property purchases, especially second homes. As a result, foreign investors must conduct thorough due diligence and seek legal advice to understand the specific regulations and restrictions in each canton.

4. Exemptions and Permissions

Several important exemptions exist under Lex Koller:

  • Primary residences for EU/EFTA nationals with Swiss residence permits: Foreign nationals who live and work in Switzerland on a long-term basis (such as those holding a B or C permit) can buy property for their primary residence. However, the property must be used as their main residence, and they cannot rent it out without permission.
  • Purchase of Holiday Homes in Certain Cantons: Some cantons, like Valais, Vaud, and Graubünden, allow foreigners to buy holiday homes, but with limitations on property size and region. The property size is generally capped, often at around 200 square meters of living space, and the location is restricted to certain tourist areas.
  • Inheritance: Foreigners who inherit property in Switzerland are often permitted to retain ownership, even if they don’t reside in Switzerland. However, they cannot increase their holdings or buy additional properties under this exception.
  • Commercial properties used for legitimate business operations: Foreign investors are typically permitted to acquire commercial real estate for business purposes. However, they must demonstrate that the property will be used commercially and not for residential use. This exception makes Switzerland an attractive destination for corporate investments.

Application Process

To obtain a real estate purchase permit, foreign investors must:

  1. Submit Official Registration Documents
    Submit the registration documents to the competent authority of the canton (state) where the real estate is located.
    Provide all necessary documents, including a description of the property, its intended use, and evidence of compliance with legal regulations.
  2. Explain the Purpose of the Property Purchase
    Clearly explain the purpose of purchasing the property to ensure compliance with Swiss regulations.
    For non-residential properties, investors must demonstrate that the investment brings economic benefits or promotes business development in the area.

5. Compliance and Penalties

Lex Koller, a Swiss law designed to restrict foreign ownership of real estate in Switzerland, has strict regulations. Failure to comply with Lex Koller can lead to serious legal consequences as follows:

  • Transactions may be declared void: Real estate transactions that violate Lex Koller will have no legal effect.
  • Property ownership may be revoked: Buyers or sellers may be required to return the property or the sale proceeds.
  • Significant financial penalties: Violating parties may face substantial fines, including statutory penalties or compensation for damages if the actions cause harm to third parties. The specific penalty amount depends on the property value and the extent of the violation.
  • Criminal liability in severe cases: In cases involving fraud, concealment of information, or intentional violations of Lex Koller, the parties involved may face criminal charges. This could include imprisonment or other harsher punitive measures.

6. Practical Implications for Investors

To navigate the restrictions under Lex Koller and optimize investment opportunities in Switzerland, foreign investors should consider the following strategies:

  • Focus on Commercial Real Estate Investments: Commercial properties, such as offices, warehouses, or manufacturing facilities, are generally subject to fewer restrictions compared to residential properties. This offers a viable option for investors aiming to leverage Switzerland’s economic growth potential.
  • Partner with Swiss Entities: Engage in joint ventures or partnerships with Swiss companies to mitigate legal risks. Local entities can provide legal support and help ensure compliance with Lex Koller regulations.
  • Explore Indirect Investment Options via Real Estate Funds: Invest through real estate funds or other financial instruments rather than directly owning property. This approach not only ensures compliance but also offers diversification and greater liquidity.

These strategies help foreign investors access the Swiss real estate market legally and minimize Lex Koller violation risks.

7. Conclusion

Lex Koller imposes strict limits on foreign real estate investment in Switzerland, but understanding its rules helps investors navigate the market effectively. Success requires careful planning, professional guidance, and compliance with regulations, making local legal and real estate expertise crucial.

Harley Miller Law Firm ”HMLF”

Head office: 14th floor, HM Tower Building, 421 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone number: +84 937215585

Email : [email protected]

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