# How exactly is a tax from renting property abroad calculated?

lets assume for simplicity sake, that taxpayer’s annual taxable income is 100 000 and it will be levied at 10% of the taxable income - so the tax is 10 000;
The annual income, after deductions & costs, from the property abroad is 20 000;

Which interpretation is correct?

20 000 will be added to 100 000 which then provides a base for tax calculations 120 000 that is 12%.

A. Then, 12 % is used as a base for annual income of 100 000 which gives 12 000 in taxes - which would translate to 2% tax for the property.

B. 12% as a base to calculate the total income of 120 000 giving 14 400 in total taxes (which would translate to 4.4% tax from the property).

C. None of above.

Since you have asked a specific question. It seems to me that here we have a case where income from property abroad is only used to calculate the tax rate but is not actually taxed. Sometimes this is due to Double tax avoidance treaty.

Is this correct ?

Yes. Tax has been already collected in the country that the income has been generated. And that country has doble taxation treaty with Switzerland.

That is something I am trying to understand. The tax may be not directly collected, as a property tax or foreign income tax, but if I have to pay more taxes in effect of additional income - call it whatever you like, the fact is I am being taxed more whether it’s called tax or ‘increase tax rate’.

I see.
I believe following is how it works

• 12% would be applied on 100,000 CHF

I know for sure that wealth tax works as following -:

• foreign property value is added to CH wealth , a tax rate is calculated and then that tax rate is applied only to CH value.

I think it should be same for income tax too.

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Thanks a lot.
Sidenote - that means, there is in fact double tax. Hidden within legal nomenclature and obfuscated by disorienting calculations.

Actually I don’t think it’s double tax.

If your property was located in Switzerland, you would have paid following

• 12000 on 100,000 CHF
• 2400 on 20,000 CHF

And since your property is somewhere else , you are paying

• 12000 on 100,000 CHF
• whatever other country tax you on 20,000 CHF
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And yet, without the added value of foreign income I would be only paying 10 000 CHF.
Since, I already paid the tax in a foreign country, that’s what the double taxation treaty is all about - how do you exactly call that 2000 CHF?
Never mind, how you call it, actually - you can call it some sweet names - like ‘happiness index fee’ or ‘Its not really a tax. Really’ - the fact is 2000 CHF is gone.

Almost all countries have progressive taxation. They want to avoid the situation where somebody has assets in 15 differents countries and pays only 3% tax everywhere because the person owns little assets in each country but has actually a lot of assets that makes a lot of revenues and a big contribution capacity

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yes, you are right. it is annoying. it is technically not double taxation as you are not taxed on the same income.

but you are taxed extra on swiss income as a result of having foreign income.

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I am not an international law specialist, so I don’t know how it is in many other countries that have double-taxation treaties, but I do know this - in opposite direction, in this particular case, Swiss income is exempt from any taxation - including elaborated, perplexed, and sneaky ways to do taxing anyway, despite double-taxation treaties.
On the positive note, I also know that USA is much, much worse in this department.

Progressionsvorbehalt. Your tax rate is calculated on your worldwide income/ wealth even if some of that income/ wealth is already taxed abroad. It is not unique to Switzerland.

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I understand that you don’t like it.
But the principles are following

1. Worldwide income needs to be taxed in country where you are resident.

2. However for certain type of income, it can happen that both countries tend to tax. In those cases DTAA is there to avoid paying tax on same income twice

3. I know you would prefer law to be local country should only tax local income and not worldwide income but sadly that’s not the law.

DTAA is not to reduce taxation. It is to avoid double taxation. 2000 CHF is a tax that you are paying because your global income is bigger.I don’t think Switzerland is sneaky. Tax on worldwide income always work like this.

Imagine you have 5000 CHF income in 10 countries and all of them exempt taxation for first 5000 CHF for their residents. If we go by your logic , you will pay 0 tax for making 50,000 CHF income. While another person making 50,000 CHF all in same country will pay 5000 CHF (10%) tax.

For my curiosity- Which country doesn’t tax worldwide income for its residents ?

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In this case Swiss income is exempted in “other” country because you are Swiss resident.

If you were resident of this other country, you will pay tax on everything most likely in other country and Switzerland will be the “nice” country in your example.

Unless this “other” country is special and has awesome tax laws, that is now the international taxation works.

Those with territorial tax law. This post even claims there are 63 of them (no warranties!).

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No it doesn’t. If the situation was reversed and the OP was in the UK with property in Switzerland, the Swiss rental income would not be taxed in the UK and the rate at which UK income is taxed at would not be increased for the Swiss income. The OP is correct that this is somewhat a sneaky way to not fully respect the double tax treaty.

The other major way of taxation other than residence based taxation is the territorial basis of taxation.

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During the course of last decade I had to move my residency back to the country of my origins for a year - which means Tax year. During that period I was not taxed on any income that originated in Switzerland. So that’s that.
As for this particular case I have already paid more than 20% tax from the property income, and it is infuriating to pay even more.
Not only that, but also apparently I cannot even call it tax.
I think, I will complain to my Embassy about that, just to see what they have to say about it. And also for few giggles.

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Got it.

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That’s pretty low marginal tax rate to begin with.

I’d say it’s a lot.
Matter of perspective.
A billionaire, who pays near to nothing, will tell you that 20% is a state organized robbery.