The Federal Council has opened a consultation on a preliminary draft revision of the Act on the Acquisition of Immovable Property in Switzerland by Foreign Non-Residents (ANRA).
The key measure in the preliminary draft is the reintroduction of an authorisation requirement for property acquisitions by individuals wishing to acquire residential property for use as their principal and actual residence, where those persons, even if already resident in Switzerland, do not hold a permanent residence permit (C permit) or are not nationals of a member state of the European Union or EFTA (European Free Trade Association), or, under certain conditions, nationals of the United Kingdom and Northern Ireland.
In practical terms, holders of a B permit who are not nationals of the countries mentioned above will now require prior authorisation to acquire residential property, even if the property is intended to serve as their principal and actual residence. Under the draft bill, such authorisation will be granted to them, but subject to an obligation to resell if the property purchased ceases to serve as the purchaser’s main residence. In the Federal Council’s view, as the reason for the purchase (to acquire a property to serve as a principal and actual residence) has ceased to exist, the property must be resold, within a period fixed at two years. The local authorities (communes) will be responsible, through the Residents’ Register and departure notifications, for reporting to the authorities responsible for enforcing the ANRA any cases that should lead to an obligation to resell.
The measure described above (authorisation required to purchase and obligation to resell under the circumstances provided by law) is not particularly surprising: it is intended to increase liquidity in the real-estate market for “Swiss” purchasers in a context where the housing market is under severe pressure.
More surprising – and this is the main focus of this article – is the Federal Council’s proposal to reintroduce an authorisation requirement for the acquisition by persons abroad of properties used for business activities, that is, “to conduct trade, operate a factory or carry on any other industrial activity on a commercial basis, as well as to pursue a craft activity or a liberal profession”.
Under the current legislation, the acquisition of this type of property is not subject to authorisation, even if the purchaser is a person abroad.
The preliminary draft provides for the removal of this authorisation exemption, thereby reintroducing, a contrario, the obligation to obtain such authorisation.
In its explanatory report on this preliminary draft, the Federal Council candidly explains that “The acquisition by a person abroad of a property used (or intended to be used) as a permanent establishment will remain exempt from the authorisation regime and will therefore always remain possible without restriction if the person intends to operate the establishment themselves”. This statement must be read in conjunction with a new provision in the preliminary draft which, at first glance, does indeed introduce an exemption from authorisation where the acquisition of the property in question serves as a permanent establishment for the purchaser themselves.
A careful reading of the proposed new provisions reveals, however, that the “persons abroad” who will be exempt from authorisation include only (in essence) foreign natural persons or Swiss legal entities, even if such Swiss legal entities are under foreign control.
Foreign legal entities (i.e. those having their registered office or effective seat abroad) are not, however, exempt from authorisation. As the law does not provide for any special grounds for authorisation in such a case, an acquisition relating (directly) to a property is in fact prohibited where the purchaser is a foreign legal entity. This constitutes a major restriction.
Curiously, the Federal Council’s report itself proposes a ‘workaround’: a foreign legal entity may acquire a property serving as a permanent establishment by setting up a Swiss subsidiary. Such a structure is permitted provided that the Swiss company (controlled by the foreign legal entity) acquires the property for use in its own commercial activity. In the Federal Council’s view, this structure allows for more effective control over whether the acquired property is indeed intended for the purchaser’s own use (linked to the purchaser’s own economic activity).
But there’s more! The preliminary draft proposes to treat the acquisition of an ownership interest in a legal entity (for example, the acquisition of shares in a company) as equivalent to the (direct) acquisition of immovable property where i) more than one-third of the assets of that legal entity, calculated at market value, consist of immovable property in Switzerland, and where ii) the acquisition of the shares in question enables the acquisition of a controlling position or the strengthening of a controlling position within the legal entity whose shares are being acquired (for example, as already provided for by law: an acquisition involving more than one-third of the share capital).
In practical terms, a foreign company wishing to acquire a Swiss company will have to ensure that the latter does not own any (commercial) property representing more than 33.3% of the value of its assets. If this is the case, the foreign company will have to abandon the acquisition or limit itself to acquiring less than one-third of the target company’s share capital.
In this context, the Federal Council’s report does not propose any ‘workaround’ measures. However, the same logic as that outlined above should apply: a foreign company seeking to acquire a Swiss business (operating through a corporate entity) should be able to set up a subsidiary (which would be under ‘foreign control’, but benefiting from the aforementioned exception) to acquire the shares of the Swiss company; however, the acquisition should only be possible without authorisation if the properties operated by the Swiss company are used for its own business activities (not for letting, even on a commercial basis, for example). Otherwise, the Swiss company will probably have to dispose of its properties prior to any transaction.
The preliminary draft thus imposes a complex set of requirements on a foreign purchaser in the form of a foreign company. The question of whether the properties acquired directly or indirectly are operated for the purchaser’s own account is bound to raise delicate practical issues and create uncertainty that will prompt potential foreign buyers to seek confirmation that they are not, in fact, subject to the authorisation regime. These constraints, and the additional procedures they entail, will significantly affect cross-border mergers and acquisitions. It is, in fact, not uncommon for a Swiss company to hold commercial or industrial real estate assets linked entirely, or sometimes only partially, to its business, with a value that can easily (at the market value of the properties) exceed the threshold of one-third of the value of the assets set out in the draft.
The reasons put forward by the Federal Council regarding the restriction on the acquisition of “commercial” property appear relatively weak (essentially: prohibiting pure capital investments in Swiss real estate), and it is unclear how they will address the main issue affecting the property market in Switzerland: the housing shortage.
Marco Villa
Partner, Geneva
Corporate and Commercial (Head of Practice)
