The Swiss tax system is notorious for its complexity, especially when it comes to income taxation. Among the many terms used, "taxable income" and "rate-determining income" often cause confusion. But what exactly do these terms mean and why are they important for anyone trying to understand their tax obligations in Switzerland? This article will clarify the differences between taxable and rate-determining income.
What is taxable income?
Taxes are not calculated on total income but on what is called taxable income, which is generally lower. When calculating taxable income, you can deduct social security contributions and claim various other deductions in your tax return.
What is rate-determining income?
Rate-determining income is the basis for determining the applicable tax rate for a person. It represents the income from which a certain tax rate is applied to the taxable income. In a progressive tax system, the tax rate often increases with increasing income, and rate-determining income marks the threshold at which a higher rate applies. In short, rate-determining income defines what percentage of a person's income is taxed for tax purposes.
Case studies
• Income and assets in different cantons or abroad: When a person has income and assets in another canton and abroad, tax is calculated on the basis of the total income and assets (= rate-determining income). However, the actual tax payment is only made on the taxable values in the canton (= taxable income/assets), taking into account tax-exempt amounts proportionally.
• Tax liability during part of the tax period: In cases where the tax liability exists only during part of the tax period, tax is levied on the income earned during the relevant period (= taxable income). The tax rate for regular income is calculated based on a twelve-month income (= rate-determining income), while irregular income is not converted.
