Are you renting out a commercial property, office, garage, or commercial unit as a private individual? If so, the personal income tax burden can be significantl
Many private real estate investors acquire an income-generating property with a commercial ground floor, an office, several garage units, or an SME unit, only to discover after the purchase how heavily the rental of commercial property is taxed. While the rental of a residential property to a private individual generally benefits from a favourable tax regime, a commercial property, office, garage, storage facility, warehouse, or commercial ground-floor unit is subject to a completely different set of rules.
When a tenant uses the property for business purposes, the tax authorities consider the rental to be a business-use lease. This applies not only to traditional commercial leases for shops and restaurants but also to offices, warehouses, storage units, garages, and other premises used for professional activities.
The key difference compared to residential rental property is that, as an owner, you are not taxed on the indexed cadastral income. Instead, taxation is based on the actual rental income received. The taxable amount consists of the gross rent and any rental benefits, reduced by a flat-rate expense deduction of 40%. However, this deduction is subject to legal limits, meaning that a substantial portion of the rental income often remains taxable.
The resulting net taxable amount is then added to your other taxable income for personal income tax purposes. As a result, rental income may fall partly or entirely within the highest income tax brackets. For owners who already receive employment income, self-employment income, pension income, or other taxable earnings, the effective tax burden is often considerably higher than initially anticipated.
If the real estate activities take on a distinctly professional character, the tax authorities may even reclassify the income as professional income. In that case, not only can the tax burden increase significantly, but social security contributions may also become due.
Private individuals who rent out garages, offices, commercial properties, warehouses, or other commercial premises do not necessarily have to accept this often substantial tax burden. Fortunately, alternative structures exist that can provide a significantly more favourable tax treatment, such as private real estate leasing.