Dear Clients,
With the year 2026, significant tax changes will come into effect. The focus lies on adjustments to income tax, new regulations in payroll accounting, and simplifications to the lump‑sum taxation rules for entrepreneurs.
Adjustment of the Income Tax Rate
The income tax rate will be adjusted, with income up to EUR 13,539 remaining tax‑free. For income above this threshold, staggered tax rates apply:
20% up to EUR 21,992
30% up to EUR 36,458
40% up to EUR 70,365
48% up to EUR 104,859
Income above EUR 104,859 is subject to a 50% tax rate, while income portions exceeding one million euros remain taxed at 55%.
Temporary Increase of the Investment Allowance (Investitionsfreibetrag)
The investment allowance (IFB) enables an additional deductible business expense - on top of regular depreciation - of generally 10% of acquisition or production costs for depreciable fixed assets. For eligible eco‑investments, the allowance currently amounts to 15%.
To stimulate the economy, the National Council has approved a temporary increase: For investments made between November 2025 and December 2026, the IFB rises from 10% to 20%. The eco‑IFB increases from 15% to 22%.
The annual cap of EUR 1 million in eligible investments remains unchanged.
New Developments in Payroll Accounting
The commuter euro (Pendlereuro) will be increased from EUR 2 to EUR 6 and will replace the discontinued climate bonus.
Overtime regulation: Starting in 2026, up to 15 overtime supplements of a maximum of EUR 170 per month will remain tax‑free (the original plan provided for only 10 supplements at EUR 120).
Holiday work compensation: Uncertainties arose regarding the tax‑free amount due to a 2024 finance court ruling. When an employee works on a public holiday, he or she is entitled to the regular holiday pay called “Feiertagsentgelt“ (=the standard prorated monthly salary for that holiday) plus an additional supplement for the actual holiday work (=Feiertagsarbeitsentgelt). As of 1 January 2026, the tax exemption for this addional supplement for the actual holiday work (Feiertagsarbeitsentgelt) - explicitly regulated in § 68 Austrian income tax act - gives a tax‑free allowance of up to EUR 400 per month.
Basic income lump-sum taxation and input VAT-lump-sum scheme
In 2026, entrepreneurs will benefit from significant simplifications in the area of lump‑sum taxation. Business owners as well as self‑employed persons and freelance professionals may apply basic lump‑sum taxation both for business expenses and for input VAT deduction. This means that portions of business expenses and input VAT are determined using a flat percentage. Requirements for record‑keeping and document retention are largely reduced. Business income must always be recorded at its actual amount.
The group of eligible taxpayers will be expanded by raising the revenue threshold from EUR 320,000 to EUR 420,000. At the same time, the lump‑sum percentage increases from 13.5% to 15%. Additionally, the input VAT lump‑sum ceiling rises from EUR 5,760 to EUR 7,560 per year.
Best regards
Vienna, March 2026
