Tax System in Austria

Self-employed Income

If you work independently as a freelancer you will need to take care of filing your own tax return and pay essential charges as well. Income tax is applicable in case a self-employed individual earns more than EUR 11,000. If earnings are less than this, an individual will need to submit a declaration of earnings nonetheless. If earning over EUR 30,000 you are responsible for paying value added tax, which is expected to be around 25%.

Capital Income

• Interest income from publicly placed securities is liable to tax of 27.5%, whereas yields from bank deposits or savings accounts bear a tax rate of 25%. Interest from privately placed securities and private loans is taxed at the progressive income tax rate.
• Domestic earnings from dividends, foreign dividend profits transferred to Austrian deposit accounts as well as to foreign accounts themselves, are subject to tax at a rate of 27.5%.
• Income from investment funds with no difference whether it is a domestic or foreign deposit account held by a private investor is taxable at 27.5% as well.
• Real estate capital gains, e.g. profit from property disposal, which is received by individuals, is subject to a special tax rate of 30% in contrast to rates for rental income. Under certain circumstances this rate may be revised and adjusted to the personal income tax rate.
• Companies are liable to pay a flat-rate of 25% on yield from real estate property sales, since this profit is regarded as business income.

Rental Income

Income which is gained by both residents and non-residents from both leases and rents are taxed as an individual income: at a progressive scale within 0% - 50% tax rate bracket. Actual costs for maintenance or repair and mortgage may be detracted from rental earning.The resulting amount along with other incomes is taxed at an individually adjusted rate.

Rental income for local and non-resident entities is estimated as a result of business profit and taxed at a flat-rate of 25%.

It is worth mentioning that each municipality defines the taxation requirements for property owners/landlords independently.

Exempt Income

Note, taxation is applied only for the types of income listed above. They are defined in the Austrian Income Tax Act, which means that lottery wins, gifts, profits from gambling or bets bear no tax.

Tax allowances and reliefs

Various expenses may be negated in tax earnings. Namely, allowances, specifically incurred expenditures and lump sums are tax-deductible. Note, that personal allowances take shape in tax credits, meaning they are deducted from tax payable. By contrast, family allowances are paid to the taxpayers in cash.

Available personal allowances in effect of 2021 include among others:

• Transportation tax credit – EUR 400.
• Sole-wage earner or single taxpayer with 1 child – EUR 494, with 2 children – EUR 669, for each another child – EUR 220.
• Retiree – up to EUR 764.
• Sole-breadwinner’s allowance.

Essentially, families get a monthly tax-free pay-off for children/adults up to 25 years (*optionally). That is, children living in Austria and aged under 3 years are eligible for EUR 114 per month, children between 3 and 10 – EUR 121.90, and children between 10 and 18 – EUR 141.50. Additionally the total family allowance is subject to be increased by a certain amount (starting from EUR 7.10) monthly, if a family has 2 or more children.

Other allowances include the 13th payment for each child and pay-off for newborns, etc. It is important to know that family allowances are paid even to those families, who don’t have tax-payable income.

Non-taxable Employment Expenses

As per the Law, expenses relating to “acquiring, securing and maintaining” income, are excluded from gross taxable profit of the respective source (place of job). All employees have the right to EUR 132 of standard allowance. To obtain a deduction of the costs beyond this amount, one should submit their related receipts and confirmations.

Employment related expenditures, that are eligible for deduction generally include:

• Essential equipment and workwear.
• Flat-rate allowance for commuters (*the assessed deductible amount depends on distance and public transport availability); costs of business trips.
• Training, professional literature.
• Membership to certain organizations.
• Compulsory insurance and pension contributions.
• Running 2 households in connection with employment.

Personal Deductions

Private individuals, whose annual income does not exceed EUR 60,000 may account for relief allowances in connection with:

• Acquiring voluntary life and accident insurance.
• Contribution to private pension plans.
• Building a home/housing renovation in Austria.

Church tax is deductible up to EUR 400, and charitable donations to certain organizations up to 10%. Tax advisor services are not included in the annual tax declaration.

In extraordinary cases, like funerals or serious sickness not covered by health insurance, have grounds to receive a reduction of annual income tax as well. Though the requirements and conditions for that should be specified. Expenses caused by damages due to disasters are fully subtracted from the taxable amount.

How to file tax return

Taxes such as income taxes for employees and social insurance contributions, are deducted out of salaries and transferred to the respective authorities by the employers automatically. In case of self-employment, tax returns should be filed by the individual directly.

Online tax return filing is available at FinanzOnline, which is the respective official tax portal. After registration an applicant receives a tax identification number, commonly known as TIN. This is the nine-digit code essential to process income tax. It should be mentioned that TINs are not official documents of identification and these codes vary in different jurisdictions.

You may submit the documents and request for TIN in person at the local tax office as well. In order to be prepared, you may want to download the forms from the Ministry of Finance website and fill the papers out beforehand.

It is important to issue your declaration on time, because the tax is withheld as a prepayment on any annual tax due, which is finally settled upon the tax assessment, which means part of the sum may be refunded.

All residents should concern themselves of the deadline for tax declaration submission which comes on the 30th of April, or on the 30th of June, if you file them electronically. In case of any filing delays, the tax authorities may implement late-date fees which can amount to 2% of the taxable sum and can increase by an extra 1% every 3 months that the forms are not submitted. Penalties for delays should not exceed 10% of the tax.

Important to note, if you have just moved to Austria and don’t know how to complete your tax declaration forms correctly or you simply want to complete the task successfully it is better to contact a financial consultancy or employ an accountant.

Consumption taxes

Value-added tax is an indirect levy that is included into costs for goods and services and is paid upon buying. In Austria it is scaled for several rates: standard – 20%, reduced – 10% and other rates – 5%, 13%, 19%.

Standard VAT (20%) is applied to all transactions across the Republic, until exceptions are implemented. Reduced tax amounting to 10% is added to food, water, pharmaceutical products, passenger transportation, books, TV, hotel accommodation, restaurants, street cleaning, and garbage removal.

In order to support companies working in certain fields during the global pandemic, the tax authorities have introduced a reduced tax rate of 5% which concerns cultural venues, F&B, e-books and costs for hotel suites. This rate is expected to be effective up until the end of 2021.

A special rate of 13% VAT is effective for domestic passenger air transportation, theaters, concerts, museums, zoos and botanical gardens, if carried out by non-profit organizations (if not exempt already), as well as admissions to amusement parks and sports events.

A stable rate of 13% is applied to wine from farm production carried out by the producing farmer.
The special rate of 19% is only used specifically within the areas of Jungholz village and Mittelberg town, which follow the Germany customs scheme.

Refunds on VAT are possible for tourists, retail merchants and authorities. The general rules claim that applicants must be over 18 years old and live outside the eurozone and the purchase value should exceed EUR 75. You may submit documents via the eValidation online platform or at the Vienna International Airport terminals in person.

Other taxes

There are a number of taxes, which expats living in Austria should be aware of.

The Austrian taxes spill over very habitual things. For instance, by having a TV, you are expected to register it on the GIS website and pay up to EUR 321 yearly after that. Currently it is possible to buy TVs which require no GIS repayment.

Yet another specific tax is levied on dog owners. They are charged for EUR 72 per annum and this tax goes to the local municipality.

Real Estate Transfer Tax

When you buy property in Austria you have to pay an essential tax on the title deed transfer which is fixed at a rate of 3.5%. If the transaction is made between relatives then a 2% tax rate is applied.

Tax on Property

Each municipality establishes the coefficient property tax computation independently. Notably, the result will be subtracted from rental income. Property tax is calculated based on the assessed real estate value (which is lower than the actual market price), charged at a federal rate and multiplied by the local municipality coefficient. Generally, the basic federal tax rate is 0.2%, while municipal coefficients may vary up to 500%.

Inheritance Tax

Inheritance tax in Austria was abolished in 2008. So, real property is transferred to the heirs on condition of a standard real estate transaction – charged at 3.5% of real estate transfer tax and 2% if possession is given over to relatives. All gifts within the family, except real estate, must be declared if the total value exceeds EUR 50,000 over 5 years, outside the family – EUR 15,000.

Vehicle and Road Tax

When buying a new car in Austria, be prepared to repay 20% tax. As well as this there is also a registration charge and a special fee for new plates and vehicle certificates.

Vehicle tax is a complex levied, paid along with vehicle insurance. It is conditioned by the engine power and 1 kW costs around EUR 0.68-0.82. Logically, the more powerful a car, the more expensive the tax is.

Road tax is paid upon buying a special sticker applied on the windshield. The sticker is priced at EUR 8.40 for 10 days, 2 months costs EUR 24.20 and for 1 year costs EUR 80.60.

Tax liability for foreigners

Individuals who neither have an address nor a permanent residency in Austria are subject to pay taxes on income from Austrian sources. Companies having neither their headquarters nor management in Austria are liable for the Austrian-sourced and partly foreign incomes. “Other operating business expenses” and “allowable expenses”, that have an economic connection to the Austrian-sourced income can be deducted as well.

Austrian participates in the Qualifying Recognized Overseas Pension project (QROP)  enables UK retirees to transfer their pension rights to Austria. Essentially, it allows an individual to leave the remaining fund to their heirs without any deduction of UK tax upon death. Additionally, Austria has special social agreements with several non-EU countries.

It is also worth noting that as a member of the Automatic Exchange of Information (AEOI) scheme, Austria has a right to share financial information with the tax authorities of other AEOI countries in order to prevent tax rule violations and avoidance.

Income Taxes for Non-residents

The income tax rates for non-residents are the same as those for the residents, subject to proviso: EUR 9,000 must be added to the formula when calculating the tax.

Income tax is withheld at the rate of 20% on the following activities:

• Work by hire, including directors’ positions.
• Sports, arts, commercial and technical consulting, staff leasing.
• Use of intellectual property rights in place of patents, copyrights and licenses.

Benefits for Overseas Scientists

Since the state wants to attract bright minds from overseas, the government has introduced a set of tax allowances for researchers and scientists. This exists in two options: retaining of the previous tax burden (but no less than 15%) levied in the home country and tax deduction of 30% on scientific income for a period up to 5 years. The first type of advantage can primarily be applied to athletes and artists, though in practice, an allowance of 30% is far more commonly used for immigrants.

The so-called “Zuzugsfreibetrag” implies a 30% tax relief for the income derived from domestic and partly foreign scientific work. At the same time, the rest of the income is taxed using a progressive rate. This tax advantage is purposed to compensate the additional costs related to settling in Austria for a foreigner. Accordingly, it covers costs for moving, travelling, for language courses, expenses for running 2 households and even the charges to study in private school for children. An application for obtaining the tax benefit should be issued to the Austrian Ministry of Finance within 6 months from the date of moving in Austria.

Double Taxation Treaties

The Alpine Republic has bilateral agreements with a series of countries all over the world which helps to avoid dual taxation. This refers to taxes on the same source of passive or active income, capital and wealth either for privates or for entities. The list of 80 partnering states includes Germany, UK, USA, Canada, Australia, China, and Malta among others.

The treaties vary from country to country and some forms of income are exempt from tax or may qualify for reduced rates. This considers royalties, dividends and capital gains.
For residents of the countries in which there is no effective agreement, a general relief is applied in accordance with double taxation legislation.

Corporate taxes

Both LLCs (GmbH) and stock companies (AG) with a legal seat or place of effective management located in Austria fall under unrestricted tax liability on their domestic or foreign income. Non-resident entities have to pay tax on income from the specific Austrian-based sources.

All companies running a business in Austria have to repay value-added tax of 20% on their income. At the same time some businesses, whose annual profit does not achieve the threshold of EUR 30,000 are exempt from VAT. In this case, they will pay income tax varying from 23% to 50%.

The standard corporate income tax (CIT) rate of 25% is applied regardless of whether profits are retained or distributed. Even if the business is not profitable, there is a minimum tax of EUR 3,500 for AG and EUR 1,750 for LLC to be paid nonetheless. Newly established entities will have to install EUR 500 for the first 5 years and EUR 1,000 for the following5 years. This minimum levy is credited against prospective income tax for an indefinite period in future.

In addition to this, legal entities pay a certain duty to the local municipality, in which the tax amount varies.

Summary

• With a tax-to-GDP ratio of over 40% Austria has one of the highest tax burdens among OECD countries. At the same time, the revenues derived from tax payments allows the country to maintain a very high living standard and social security which is available for citizens of all income.
• Taxes paid in the Republic average at 22.5% which is still less than in France (34%), Luxembourg (23%) and Germany (29.3%).
• Social insurance contributions are the most significant revenue source for the national budget. In 2020 its share achieved a threshold of 34.8% of the overall revenue score on a country level.
• Income is taxed at a progressive rate up to 55%.
• Companies operating in Austria are subject to pay a unified corporate tax of 25%.
• In case of a tax return filing delay, the authorities may implement late-date fee, seizing 2% of the taxable sum.
• Some of the expenses may be negated in annual declaration. Namely, allowances, specifically incurred expenditures, lump sums are tax-deductible.
• In Austria, VAT is applied at several rates: standard – 20%, reduced – 10% and other percentages as well.
• There are special tax benefits for foreign scientists and researchers. The most popular option is tax deduction of 30% on scientific income.
• To avoid mistakes, foreigners can contact an expert accountant or advisor to take care of taxes and all legal processes.