The austrian tax system


  1. Introduction
  2. Income tax on companies
  3. Income tax on individuals
  4. Income tax on non-residents
  5. Other significant taxes
  6. Computation of taxable income

1. Introduction

We have prepared the following information on Austrian taxes for commercial and industrial investment in Austria. As the main portion of investment in Austria comes from companies, we start with the description of the taxation of companies. Then we look at the taxation of individuals and other significant taxes, and end with the computation of taxable income.

The corporation tax rate has been set as a flat rate of 25%. This percentage is levied on the profit of a company. In order to calculate the profit, business expenses are deductible. Business expenses include, for example, wages and salaries, depreciation, office expenses, maintenance and repairs, interest on business liabilities, different kinds of accruals.

In Austria there is only corporation tax; no other taxes on the profit exist (e.g. a trade tax). Furthermore, Austria has a modern group taxation system which allows compensation of profit and loss within the group. Even foreign entities can be part of this system.

Individuals who maintain their residence or habitual abode in Austria are subject to the Austrian income tax. They are subject to unlimited tax liability and have to declare all domestic and foreign income (i.e. worldwide income). Otherwise, individuals are subject to limited tax liability for Austrian-sourced income. Income tax concerns the annual income of an individual. Annual income is the income an individual earns within a calendar year from seven types of income, as stated in the Income Tax Act.

For employees the Austrian Income Tax Act has special tax relief. As the annual income of an employee is divided into 14 portions and paid in 12 regular payments plus a vacation bonus (May) and a Christmas bonus (November), the vacation bonus and Christmas bonus are taxed at only 6%.

Self-employed persons have been awarded an automatic profit tax allowance of € 3,900 per year.

There exist progressive Income tax rates levied on the taxable income.

Austria has no property tax and abolished inheritance and gift tax in 2008.

Expatriates coming to Austria enjoy a special tax regime if they meet the conditions of the Austrian expatriate regulations. These regulations offer tax relief for housing, periods of home leave and children’s provisions.

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2. Income tax on companies

Rates

The Austrian corporation tax rate is set uniformly at 25% of the taxable income or, in the case of limited liability, at 25% of the taxable income earned within Austria.

Example:

Profit before corporation tax € 1,000
25% corporation tax €    250
Net income (to be retained or distributed) €    750

Local income tax

Unlike in other EC countries, no Austrian trade tax exists.

Austrian group taxation

The idea of the Austrian group taxation is the summing-up of profits and losses of associated companies. The summing-up of profits and losses is done by the parent company at the top of the group. Their investment in associated companies must be more than 50% of the shares and voting rights.

The Austrian group-taxation also applies to foreign associated companies. Therefore the Austrian parent company at the top of the group can use the losses of foreign group members (but not the profits).

It is possible that more than one company will be at the top of the group. This is of special concern for joint ventures.

The “goodwill” in the acquisition costs of a new associated company can be depreciated over 15 years, under certain conditions.

Interests for the acquisition of an investment

If a company acquires a new investment and this acquisition will be financed by loans, the interest can be considered business expenses without limitation.

Starting in 2011 the deduction of interest for acquisition-related loans is restricted to acquisitions of non-group investments.

Capital gains tax

Capital gains are fully included in the taxable income and are taxed at the corporation tax rate. Capital gains on sales of shares in foreign companies are exempt from Austrian income tax under certain circumstances.

Branch profit tax

Branches of a foreign company are subject to corporation tax in Austria on their income earned in Austria. Losses may be carried forward without a time limit.

Foreign tax relief

In general, taxation of foreign income is based on the regulations for avoiding double taxation. A special tax relief is called “Schachtelbegünstigung” (international affiliation privilege: IAP). The Austrian IAP determines that no Austrian corporation tax will be imposed on dividends and capital gains paid to an Austrian holding company, if certain requirements are fulfilled. Losses caused by the liquidation or by bankruptcy of the foreign company may be considered under certain conditions.

These conditions are:

  • Direct investment of an Austrian company in a foreign company, amounting to at least 10%.
  • The foreign company must be comparable to an Austrian company.
  • Minimum holding period of one year.
  • Abuse clause must not be met.

Loss carried forward

Losses may be carried forward without a time limit. In each following profit year only 75% of the profit can be compensated. This means that 25% of the profit is subject to tax even in case of existing loss carried forward.

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3. Income tax on individuals

Rates

The income tax rates for an individual (married or unmarried, with or without children) are:

Income Tax rate
€ 0  to  € 11,000  0%
over  € 11,000  to  € 18,000 25%
over  € 18,000  to  € 31,000 35%
over  € 31,000  to  € 60,000 42%
over  € 60,000  to  € 90,000 48%
over  € 90,000  to  € 1,000,000 50%
over  € 1,000,000 55%

Computation

Taxable income (TI):

Income Income tax in €
€ 0  to  € 11,000 € 0
over  € 11,000  to  € 18,000 (TI – 11,000) / 7,000 x 1,750
over  € 18,000  to  € 31,000 (TI – 18,000) / 13,000 x 4,550 + 1,750
over  € 31,000  to  € 60,000 (TI – 31,000) / 29,000 x 12,180 + 6,300
over  € 60,000  to  € 90,000 (TI – 60,000) / 30,000 x 14,400 + 18,480
over  € 90,000  to  € 1,000,000 (TI – 90,000) / 910,000 x 455,000 + 32,880
over  € 1,000,000 (TI – 1,000,000) x 0.55 + 487,880

Social security contributions are tax-deductible items in Austria.

Several tax allowances exist, for example the sole earner allowance or the transport allowance for employees (€ 400).

The Austrian income tax legislation determines that self-employed persons will profit automatically from a profit tax allowance of € 3,900 per year. In addition, they can use the profit allowance of 13% if they make investments in certain movable assets or certain shares or bonds.

The income tax payable by individuals on dividend distributions by Austrian companies is set at 27,5% of the dividend gross amount.

A payroll withholding tax is imposed on an individual’s employment income. If the individual has other types of income, he or she is required to file an income tax return. The employee’s annual salary is divided into fourteen parts, from which the tax is withheld at source. Christmas and vacation salaries are taxed at the favourable rate of 6%.

All individuals having their place of abode or their normal residence in Austria, or who stay in the Austrian territory for more than six months, are fully tax-liable. All others are only partly liable.

Capital gains tax

a) Capital gains of the sale of non-business property are tax-free if the property has been held for at least one year.

b) Capital gains from the sale of new properties or real estate acquired as of 31 March 2002 and later will be taxed at the flat rate of 30%. In certain cases real estate properties acquired as of 31 March 1997 and later are also treated as new assets. The tax assessment base will be the profit, calculated as the sales price minus acquisition costs.

Special transition rules for real estate properties redesignated from land site to building site

Real estate properties acquired as of 31 December 1987 and later are subject to special transition rules. If these real estate properties have been redesignated from land sites to building sites the profit from a sale will be taxed with the flat rate of 18%.

Taxation of old properties

“Old properties” without redesignation, or properties redesignated before 1 January 1988, will be taxed at 4,2 % of the sales price.

Exemptions

Real estate sales are still exempt from taxation under any of the following conditions:

  • The building was used as the principal residence for at least two years since the acquisition.
  • The building was used as the principal residence for five years within the last 10 years prior to the sale.
  • The building was self-constructed or expropriated.

c) Capital yields tax
Certain domestic income from capital investment of residents and non-residents is subject to a final withholding tax (capital yields tax) at a flat rate of 27,5%. Taxpayers have the option to apply for an assessment procedure in order to apply the progressive tax rate.

The withholding tax is imposed on:

  • Certain income from capital investment if the debtor of the income is resident in Austria:
    • Dividends and other assimilated income;
    • Interest derived from cash deposits at banks;
    • Profit distributions to silent partners;
    • Distributions from private foundations.

In the case of dividends and interest also foreign-sourced income is subject to withholding tax if paid by an Austrian paying agent.
In general, interest paid to non-residents is not subject to tax.

  • Income from bonds, securities and participations in investment funds if the bank or issuer is located in Austria.

In order to treat comparable types of income from capital investment equally, regardless of whether they have an Austrian or non-Austrian source, some types of income are not included in the calculation of the taxpayer’s income but are taxed at a special rate of 27,5% and are therefore equally treated as domestic income from capital investments which is subject to a withholding tax of 27,5%.

Foreign tax relief

Taxation of foreign income is, in most cases, specified in double taxation agreements.

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4. Income tax on non-residants

Tax liability

Individuals having neither their place of abode nor their normal residence in Austria are only liable for tax on income from Austrian sources. Companies having neither their site nor management in Austria are also only liable for Austrian-sourced income. “Other operating business expenses” and “allowable expenses” that are economically related to Austrian-sourced income may be deducted.

Rates

The same tax rates apply to non-residents as to residents, although € 9,000 has to be added to the tax computation base when the income tax is computed.

Withholding tax rates

Tax is withheld at a special rate of 20% on the following categories of income:

  • Income from employment and directors’ fees.
  • Income derived from the practice of an art or sport, from commercial or technical advice, or from personnel leasing.
  • Income received for the right to use copyrights, patents, plans, designs, know-how and licensing fees.

Tax treaties

More than 40 taxation treaties with European and overseas countries are in force to avoid double taxation. Please contact us if further information is required, or if you have specific questions.

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5. Other significant taxes

Sales (Value added) tax

An Austrian customer must pay the net sales plus 20% value added tax, which is listed separately on the supplier’s invoice.

The customer, in effect, pays the supplier’s tax burden. The amount is thereafter deductible from the customer’s own value added tax burden. Upon transferring these purchased goods to the next customer, the customer (now seller) lists 20% value added tax for that transaction on the invoice presented to the customer, and the process is repeated.

The ultimate retail consumer absorbs the final burden. Among others, exports and certain services for foreign customers are exempt from value added tax. Import transactions from non-EC countries are subject to an import turnover tax at the same rate as sales tax.

Value added tax is reduced to 10% on certain products, this applies to basic foods and printed material, for example. Additionally a VAT rate of 13 % exists e.g. for hotel rooms.

Inheritance and gift tax

The inheritance and gift tax was completely abolished in 2008.

Related payroll taxes (social security)

In Austria, social security contributions include three types of insurance together with some other contributions to funds. All employees are compulsorily members of these insurances. The basis of assessment for the insurance contributions is the employee’s monthly gross salary (or gross wage) up to € 4,860 (2016). Any income in excess of these limits is irrelevant for the purpose of the assessment for contributions. The employer is required to withhold the employee’s part (app. 18 %) and to pay this amount together with his own share (23 %)

Property tax

Property tax was abolished in 1989.

Land transfer tax

Real estate transactions are exempt from value added tax. On most transfers of land and buildings within Austria, the buyer is liable to pay a tax amounting to 3.5% of the sales price.

Capital transfer tax

The most significant part of the capital transfer tax is the tax imposed on the increase of capital. Tax of 1% is levied on the issue of share capital, on any increase of share capital and on capital contributions to a company. This capital transfer tax has been abolished in 2016.

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6. Computation of taxable income (main aspects)

Depreciation

Depreciation on buildings and other fixed assets is usually based on cost. The cost of production or acquisition of fixed assets must be spread over their useful lives. In general, depreciation is calculated by the straight line method. Extraordinary depreciation is allowed in case of abnormal use and for impending obsolescence.

Loss carried forward

Losses resulting from running a business which are determined in conformity with generally accepted accounting principles may be carried forward to an unlimited degree. This applies to local registered companies. For branches of foreign companies, losses may be carried forward in the same way if they have not been offset in the foreign country.

In each following profit year only 75% of the profit can be compensated. This means that 25% of the profit is subject to tax even in case of existing loss carried forward.

Transactions between related parties

Royalties, interest, management fees and similar charges paid to foreign related companies are generally deductible if considered reasonable. Any excessive payment or other monetary advantage given to an affiliated or parent company, whether in respect of sales or technical and management fees, may be considered to be a hidden contribution by the tax authorities.

Tax periods

The calendar year is the tax year. To file on a fiscal-year basis other than the calendar year, the permission of the tax authorities must be obtained.

Vienna, August 2016