How does one determine income from self-employment?

Income from self-employed activity consists of the net profit of the managed company (Art. 18 para. 1 DBG). This company profit results from the accounting annual financial statement. It is composed of ordinary and extraordinary business success.

The earnings from self-employed activities are subject to income tax (Art. 18 DBG). The taxable earnings for self-employed activities consist of the net profit of the company, which results from the annual financial statements. The net profit is composed of ordinary and extraordinary business success. All capital gains from current and fixed assets are counted towards extraordinary success.

The tax authorities base the determination of net profit on the result of the commercially managed accounting. They can correct this if it does not comply with tax law principles. This deviation from the commercially correct result by the tax authorities occurs because commercial law and tax law pursue contrary interests. Commercial law defines maximum values for the valuation of assets (Art. 960 OR) to protect creditors from an overly optimistic representation of the financial situation. Tax law, on the other hand, aims to determine the appropriate taxable base. For this purpose, minimum value provisions are set to prevent excessive depreciation and provisions on assets.

The determination of the actual taxable net profit of the company is determined by four factors, taking into account accounting principles and tax law regulations:

• Demarcation of business assets from private assets
• Valuation of business assets consisting of business assets and business liabilities
• Deductible costs
• Taxable income

These four factors will be discussed in more detail in the following blog posts.

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