Current Swiss federal legislation on the acquisition of real-estate property by non-Swiss nationals (LFAIE) on which I have already written, restricts the purchase of real-estate property in Switzerland by foreign nationals.

The bilateral agreements between the European Union (EU), and the European Free Trade Association (EFTA) and more specifically, article 25 Annex I–ALCP (agreement between Switzerland and the European Community on the subject of free movement of persons) stipulate that, when acquiring real-estate property, the nationality of one of the contracting parties holding a right of domicile (with the said domicile serving as his primary residence in a given host country), shall benefit from the same rights as the host country’s nationals.

The LFAIE has therefore been amended and EU and EFTA nationals with their primary residence legally in Switzerland are not subject to this law and may purchase a primary residence, a holiday home and any other type of real estate property even in those cases where this would represent a capital investment in Switzerland.

These new provisions should in principal not have been subject to interpretation. In fact, the definition of domicile has raised some difficulties.

Domicile as defined by article 23 of the Swiss civil code states that a person’s residence is the place where he lives with the intention of establishing himself there. There are two elements to be taken under consideration in this definition: 1) the notion of residence, and  2) the intention of establishing oneself.

Domicile supposes a stay over time in a determined place. A short stay or a stay interrupted by trips abroad may be defined as primary residence if the stay can be proved/confirmed by the intention to establish oneself.

This intention denotes that the person takes on behaviour that creates or maintains the centre of his personal and professional relationships in a given place. The subject must have the intention of establishing himself in a durable manner but this does not mean that he has to stay there forever.

One must rather consider the nature and the intensity of the ties of the given individual with a certain place. This is summed up by the expression “centre of life”.

A real estate buyer would have to prove for instance that he lives in the same household as his wife and children in Switzerland, that he has indicated he is leaving the foreign country and that he pays all his taxes in Switzerland.

Other circumstances pleading in favour of the recognition of an authentic legal domicile in Switzerland are a job contract, vehicle registration, or regular participation in a Swiss company.

The courts have reconfirmed these elements of appreciation on several occasions but remain very stringent as the temptation to constitute a fictitious domicile with the view of acquiring real estate is huge.

This would be considered in violation of the LFAIE, both civilly and criminally and would entail pretty severe sanctions

Many foreign parents who, whilst not legally residing in Switzerland, have a child registered in an international school. May students establish a residency in Switzerland?

The authorities that grant residency authorisations have generally answered in the negative. School children, apprentices and college students who reside at the site of their studies do not, in principal, enjoy the right to transfer their centre of interest there.

The Vaud cantonal court has nevertheless decreed that if a student could provide proof that he has broken the ties that bind him to his former domicile and that he has established a new centre of interest for himself in the place where he now spends his nights; this place could be his new domicile.

This latter piece of jurisprudence must be approached with great circumspection as the facts in this case were extremely particular.

What happens when the owner leaves Switzerland? As per article 25 Annex I ALCP: “departure from the host country does not implicate an obligation of departure”.

This being said, and except in cases of legal abuse, real estate property acquired by a European national when he was residing in Switzerland does not have to be sold off when he leaves the country.

It should also be noted that the EU national residing in Switzerland can, if he so wishes, incorporate a company in order to acquire real estate.

The company must be headquartered in Switzerland and he must be the only shareholder (or with other EU nationals or Swiss ones). He must also be the only investor.

This matter may become the subject of a subsequent blog.

The breach opened in the federal law on the acquisition of real estate property by non-Swiss nationals by the Bi-Lateral Agreements is very noteworthy. It brings us one step closer to a greater opening to the European Union.

The purchase of real-estate is a major event in a person’s life. For the bilateral agreements, to have afforded this opportunity to EU nationals is a noteworthy development.

Current Swiss Federal legislation on the acquisition of real-estate property by non-Swiss nationals (LFAIE) on which I have already written, restricts the purchase of real-estate property in Switzerland by foreign nationals.

The Bi-lateral Agreements between the European Union (EU), and the European Free Trade Association (EFTA) and more specifically, article 25 Annex I–ALCP (agreement between Switzerland and the European Community on the subject of free movement of persons) stipulates that, in the matter of the acquisition of real-estate property, the national of one of the contracting parties holding a right of domicile with said domicile serving as his primary residence in a given host country shall benefit from the same rights as the host country’s nationals.

The LFAIE has therefore been amended and EU and EFTA nationals with their primary residence legally in Switzerland are not subject to this law and may purchase a primary residence, a holiday home and any other type of real estate property even in those cases where this would represent a capital investment in Switzerland.

These new provisions should in principal not have been subject to interpretation. In fact, the definition of domicile has raised some difficulties.

Domicile as defined by article 23 of the Swiss Civil Code states that a person’s residence is the place where he lives with the intention of establishing himself there. There are two elements to be taken under consideration in this definition: 1) the notion of residence, and 2) the intention of establishing oneself. Domicile supposes a stay over time in a determined place. A short stay or a stay interrupted by trips abroad may be defined as primary residence if the stay can be proved/confirmed by the intention to establish oneself. This intention denotes that the person takes on behaviour that creates or maintains the centre of his personal and professional relationships in a given place. The subject must have the intention of establishing himself in a durable manner but this does not mean that he has to stay there forever. One must rather consider the nature and the intensity of the ties of the given individual with a certain place. This is what summed up by the expression “centre of life”.

A real estate buyer would have to prove for instance that he lives in the same household as his wife and children in Switzerland, that he has made known that he is leaving the foreign country and that he pays all his taxes in Switzerland. Other circumstances pleading in favour of the recognition of an authentic legal domicile in Switzerland are a job contract, vehicle registration, or regular participation in a Swiss company.

The Courts have reconfirmed these elements of appreciation on several occasions but remain very stringent as the temptation to constitute a fictitious domicile with the view of acquiring real estate is huge. This would be considered in violation of the LFAIE, both civilly and criminally and would entail pretty severe sanctions

Many foreign parents who, whilst not legally residing in Switzerland, have a child registered in an international school. May students establish residency in Switzerland? The authorities that grant residency authorisations have generally answered in the negative. School children, apprentices and college students who reside at the site of their studies do not, in principal, enjoy the right to transfer their centre of interest there. The Vaud Cantonal Court has nevertheless decreed that if a student could provide proof that he has broken the ties that bind him to his former domicile and that he has established a new centre of interest for himself in the place where he now spends his nights, this place could be his new domicile. This latter piece of jurisprudence must be approached with great circumspection as the facts in this case were extremely particular.

What happens when the owner leaves Switzerland? As per article 25 Annex I ALCP: « departure from the host country does not implicate an obligation of departure ». This being said, and except in cases of legal abuse, real estate property acquired by a European national when he was residing in Switzerland does not have to be sold off when he leaves the country.

It should also be noted that the EU national residing in Switzerland can, if he so wishes, incorporate a company in order to acquire real estate. The company must be headquartered in Switzerland and he must be the only shareholder (or with other EU nationals or Swiss ones). He must also be the only investor.

This matter may become the subject of a subsequent article.

The breach opened in the federal law on the acquisition of real estate property by non-Swiss nationals by the Bi-Lateral Agreements is very noteworthy. It brings us one step closer to a greater opening to the European Union. The purchase of real-estate is a major event in a person’s life. Thanks to bi-lateral agreements, to have afforded this opportunity to EU nationals is a noteworthy development.

Ever since the 1970’s, Switzerland has set limits on the purchase of real estate by non-Swiss nationals by the passing of a federal law on the issue. More commonly known as the “Lex Koller”, thus named after the last Federal Councillor who amended it, this law was very restrictive at it’s inception but has, over time,  become somewhat more accommodating, especially in so far as the sale of commercial real estate is concerned.  

How does the law apply when one, as a non-Swiss national, wishes to acquire a holiday home?

Firstly, it is important to take note that, in this instance, not all non-Swiss nationals are affected by this legislation. The “Lex Koller” law does not apply to those nationals from the European Union or the AELE who reside in Switzerland (with a “B” residency permit), nor to those foreigners, irregardless of their nationality, who are holders of a “C” residency permit. The law, quite naturally, does not apply to Swiss nationals residing abroad. In fact, it mainly targets non-Swiss nationals that reside abroad. The Swiss Confederation has left it up to the care of the various cantons (this is, in fact, a perfect example of how federalism functions in our country) to legislate in the matter of the sale of holiday homes to a non-Swiss national albeit, within a certain framework and subject to certain restrictions:    

1. These sales can only take place in regions where such sales are necessary to the development of tourism. The cantons of Vaud and Valais have taken advantage of  this provision and have made up a list of tourist regions (for example : Villars-sur-Ollon, Les Diablerets, Leysin, Montreux, in the canton of Vaud, and Verbier, Crans-Montana in the canton of Valais. Geneva does not meet this criterion).
2. The residence’s total surface, be it an apartment or a house, that is available for purchase by a non-Swiss national can’t exceed 200m2 (live-in space).  In the case of a house or a chalet, the surface of the surrounding land can’t exceed 1000m2 (some exceptions are allowed if the terrain is sloped, for example or if it can’t be split up.)
3. The purchase can only be made in the name of a physical entity (i.e., a person and not a company).
4. The non-Swiss national, his wife and his children, aged less than 18, may only acquire one sole holiday home, in the name of either the one, or the other.

The most compelling restriction remains, however, that of quotas. The Federal Cabinet, for the whole of Switzerland, has set a total of 1500 units for the authorised sale of holiday homes to non-Swiss nationals. Of these, for 2009, the canton of Vaud has been granted 175 units and the canton of Valais 330. These quotas have proven to be insufficient, especially in Valais but also in Vaud. A 5 to 6-year waiting period in Valais, but also in Vaud is not uncommon, and more than a year on the commune of Montreux and Gryon (Vaud), for example. In order to face this lack of units as well as the consequent legislative uncertainties, the canton of Valais has temporarily forbidden all sales of holiday homes in certain of its communes such as Verbier. Holiday homes can only be rented out on temporary basis, not yearly. The owner must be able to personally use his residence at all times. The law not only seeks to avoid a foreign hold over Swiss soil (!) (art. 1), but also foreign capital investment in Swiss real estate (art. 12).  

Various political parties have tried several times to have the Lex Koller law abolished but to no avail. Many Swiss citizens continue to ascribe to its limitations. This certainly arises from the fear that foreign investment could overrun Switzerland, leading to higher real estate prices and thus higher rents, although several studies have proven this fear to be ungrounded. I will elaborate on this another time.