Why commercial subletting requires accounting and contractual discipline
In many Swiss SMEs — professional practices, agencies, labs or small production units — the lease covers more floor space than the business needs. Subletting part of the premises to a third party (subtenant) can improve cash flow and offset fixed costs, but it creates obligations towards the main landlord, towards the Federal Tax Administration (FTA) for VAT, and towards year-end financial reporting.
Subletting is not a «side receipt» to record roughly: it generates operating revenue, affects the allocation of shared expenses (heating, cleaning, maintenance, condominium charges) and can change the company’s tax profile if you opt for VAT taxation on making the property available (Art. 22 VAT Act). Without a written agreement with the landlord and without accounting traceability, you risk breaching the lease, overstating net revenue or exposing the company to challenges on audit or tax assessment.
This guide outlines the legal framework under the Code of Obligations (CO), accounting choices aligned with Swiss SME accounting standards, typical 2026 VAT treatment, and clauses to negotiate with the landlord before signing a sublease agreement.
Legal basis: subletting and the landlord’s consent
The relationship between landlord, tenant (your SME) and subtenant is governed by the lease and the CO. The points below most often affect administration and accounting:
| Aspect | General rule (CO / practice) | Implication for the SME |
|---|---|---|
| Consent to subletting | The tenant may sublet only with the landlord’s consent (Art. 262 para. 1 CO); the landlord may refuse only in the limited cases of Art. 262 para. 2 CO — written consent is strongly recommended as evidence | Review the main lease; obtain consent (preferably in writing) before collecting rent from the subtenant |
| Liability towards the landlord | The tenant remains liable to the landlord for the full rent and for damage; is responsible for how the subtenant uses the premises (Art. 262 para. 3 CO) | Select and monitor the subtenant; provide for guarantees and insurance in the sublease agreement |
| Term and termination | Subletting cannot exceed the term of the main lease; the sublease agreement as a rule ends when the main lease ends | Align expiry dates and notice periods; plan the effect on revenue at year-end closing |
| Permitted use | Permitted use defined in the main lease and in the building regulations | The subtenant must comply with the same use (e.g. office, craft activity); incompatible activity exposes both parties |
| Rent and ancillary charges | Freedom of contract between tenant and subtenant, within the limits of the main lease | Define who pays charge advances, heating and ordinary maintenance; document the allocation |
Accounting for subletting revenue
Rent received from the subtenant constitutes revenue for the period in which it is earned, regardless of collection date, under the accrual principle applied in micro and small entity financial statements (FER accounting framework / Swiss GAAP FER for more structured entities).
Typical SME recording
Subletting rent is usually posted to a dedicated revenue account (e.g. «Subletting revenue» or «Other operating revenue — rent») in the income statement, separate from the cost of rent to the main landlord, which remains an expense item (rent and ancillary charges).
The difference between subletting revenue and the share of rent allocable to the sublet space does not automatically equal margin: ancillary charge allocation and costs not recoverable from the subtenant must also be considered.
Security deposits and prepayments
Deposits received from the subtenant are balance sheet liabilities until return or agreed set-off; they must not be recorded as revenue.
Rent paid in advance by the subtenant creates a liability accrual (deferred revenue) to be released month by month in the income statement, in line with year-end closing and any auditor requirements.
In Accountex, linking each invoice or receipt for the subtenant to a cost centre or a «Subletting» project simplifies monthly reporting and reconstruction of gross margin on the space let at annual closing.
Expense allocation: a transparent, defensible method
When rent, heating, cleaning or maintenance cover the entire property, the SME must split expenses between own use and sublet area. A consistent method applied throughout the year is preferable to manual year-end adjustments.
- 1.Allocation base: contractual net square metres, number of workstations or fixed shares agreed in the sublease — documented as a schedule to the agreement.
- 2.Directly chargeable expenses: utilities measured on a meter dedicated to the subtenant remain the subtenant’s cost if so agreed; otherwise they enter the allocation key.
- 3.Charge advances and reconciliations: if the subtenant pays advances, record liabilities or receivables from third parties until the main landlord’s annual reconciliation; avoid netting advances and rent without an accounting trail.
- 4.Investments and depreciation: fit-out work paid by the SME on the sublet space may be capitalised and depreciated; assess whether part of the cost is recoverable via higher rent or a one-off contribution from the subtenant (revenue or cost reduction, depending on the substance of the contract).
Simplified example (CHF, current financial year)
Annual rent to landlord: 120'000; total area 400 m², of which 100 m² sublet (25%). Rent allocable to subletting as cost: 30'000. Subletting revenue: 42'000. Ancillary charges allocated at 25%: 8'000 as SME cost, recovered from subtenant 7'500 (500 difference = net SME cost). «Space» margin before general overheads: 42'000 − 30'000 − 500 = 11'500, to compare with budget targets and profit tax.
VAT: lease, sublease and option to tax
In Switzerland, making commercial premises available is as a rule exempt from tax (Art. 21 para. 2 no. 21 VAT Act), unless you voluntarily opt for taxation under Art. 22 VAT Act when the legal conditions are met (not possible if the recipient uses the property exclusively for residential purposes). Subletting follows the treatment of the party granting the right of use: if your SME sublets without having opted for VAT on the property, rent to the subtenant is as a rule not taxable and does not require charging tax; if you are an optant, subletting falls under the VAT regime applicable to the opted lease.
| Scenario | VAT treatment (guidance) | Operational note |
|---|---|---|
| Non-optant SME — subletting exempt from tax | Rent without VAT; no right to deduct VAT on non-opted lease costs | Consistent with many SMEs that do not recover VAT on premises rent |
| SME opted on the property | Subletting generally taxable on rent at the standard rate (subject to statutory exceptions) | Periodic invoicing to the subtenant with VAT shown; record VAT liability and offset in the return |
| Reimbursement of ancillary charges | Distinction between pure recharge (in line with rent treatment) and mixed supplies | Document line items on invoices; if in doubt, FTA or VAT adviser opinion |
| Registration threshold | Subletting rent exempt from tax as a rule does not count towards the decisive turnover figure (Art. 11 para. 2 let. a VAT Act); if the SME is already registered or has opted for taxation, subletting revenue follows the chosen regime and appears in the VAT return | Monitor turnover from non-exempt supplies (reference threshold CHF 100'000 per year); for mixed activities, plan VAT registration and accounting |
Opting for VAT taxation on the property has binding effects for a period set by law: before subletting, align with the landlord, auditor and tax adviser, especially if the main lease prohibits subletting or imposes conditions that limit the option.
Clauses to negotiate with the main landlord
Economically attractive subletting that is prohibited by the main lease exposes the SME to termination and relocation costs. The clauses below are those auditors and the tax authorities most often need to demonstrate that the arrangement is regular:
Consent and communication
Landlord consent to subletting (preferably in writing: subtenant identity, floor area, permitted use, term). Duty to inform the landlord if the subtenant changes or the area let increases.
Economic limits
Some leases prohibit subletting at rent higher than paid to the landlord, or require paying the landlord a percentage («fee» on subletting). These amounts must be recorded as additional lease cost, not as a reduction of revenue.
Insurance and liability
Confirm whether liability and premises insurance cover the subtenant; any requirement for dedicated insurance for the third party.
Return and condition of premises
At the end of subletting, reinstatement and landlord acceptance of the condition of the property; clear split of reinstatement costs between SME and subtenant in the sublease agreement.
Profit tax, filings and traceability
Net subletting revenue contributes to taxable profit of the company or sole proprietorship (direct federal and cantonal/municipal profit tax). This is not strictly property income if the SME does not own the asset: rent to the landlord remains deductible as an operating expense, within limits of commercial reasonableness and documentation.
Keep the sublease agreement, square-metre allocation plan, invoices to the subtenant, charge reconciliations and correspondence with the landlord on consent to subletting. On audit, the paper trail must show that recorded revenue matches actual rent and that allocated costs are not artificially inflated.
For companies with ordinary or limited audit, the auditor will check consistency between contracts, VAT records (if applicable) and notes to the financial statements: any liability to the landlord for unauthorised subletting should be assessed already at closing.
Operational checklist before the first rent payment
- Review main lease: subletting clause, permitted use, insurance, expiry dates.
- Landlord consent (preferably in writing) and, if required, update of the main lease.
- Aligned sublease agreement (rent, advances, expense allocation, deposit, termination).
- Expense allocation plan and dedicated accounts in Accountex (revenue, costs, accruals).
- Clarify VAT regime (property option, invoicing, return frequency).
- Internal communication (administration, treasury) on invoice due dates and subtenant collections.
Summary
Subletting commercial premises can lighten fixed cost structure for a Swiss SME, but only if the main lease, sublease, expense allocation and VAT are managed in an integrated way. Separating subletting revenue and lease costs, applying a stable allocation key and obtaining the landlord’s consent are the three pillars of defensible accounting and a year-end close without surprises.