Who Is Liable For Income Taxes in Austria
In principle, all individuals are subject to tax on their worldwide income if they are considered ordinarily resident in Austria. Nonresidents with an income source in Austria are subject to tax to a limited extent, but their taxes may be reduced under a double tax treaty (see Section E).
Individuals are considered ordinarily resident if they have a residence available for use in Austria or if they live in Austria for more than six months.
Each partner in a partnership must pay tax on his or her share of profits. The partnership is not subject to income tax as a separate entity.
Income subject to tax.
Austrian income tax law categorizes in come into the following income sources:
- Income from agriculture and forestry
- Income from dependent employment (earnings as an employee)
- Income from self-employment, including directors’ fees
- Business income
- Investment income
- Rental income
- Income from other sources
Specific regulations govern the calculation of taxable income from each source. After income from each source is calculated, the amounts are aggregated.
Employment income. Employed persons are subject to income tax on remuneration and all benefits received from employment.
Employment income includes the following:
- Salaries, wages, bonuses, profit participations, and other remuneration and benefits granted for services rendered in a public office or in private employment
- Pensions and other benefits received by a former employee or his or her surviving spouse or descendants, in consideration of services performed in the past Allowances paid to foreign employees working in Austria, including foreign-service allowances, income tax equalization allowances and housing allowances, are considered employment income and do not receive preferential tax treatment. Under certain conditions, employment income does not include employer-paid moving expenses, education expenses for employees or contributions to Austrian pension funds.
Investment income. A final withholding tax at a rate of 25% is imposed on dividends and interest income derived from Austrian sources by residents. Expenses related to this income are not deductible. The final withholding tax applies only to interest income derived from securities offered to the general public (not to privately placed securities). Tax exemptions for interest income are available, especially for nonresidents, under domestic law.
Dividend income and interest income of residents derived from non-Austrian sources are also taxed at a special tax rate of 25%. The Austrian tax authorities can decide to impose tax at the ordinary tax rates if the foreign company making the payments is taxed at a rate below 15%. In this case, a tax credit is granted for the taxes paid abroad.
Gains derived by residents from the sale of shares and investment funds that were acquired before 1 January 2011 are subject to withholding tax at a rate of 25%. Special transition treatment applies in 2011 to gains from the sale of bonds, certificates, derivatives and shares in a corporation that represent 1% or more of the issuing company at any time during the five years before the sale.
Royalties and rental income derived by residents are taxed as ordinary income.
Dividends paid to nonresidents are subject to withholding tax at a rate of 25%, but this rate is reduced by most of Austria’s double tax treaties (see Section E). For royalties and directors’ fees, the rate of withholding tax is 20%.
The withholding taxes imposed are usually final taxes.
Self-employment and business income. Individuals acting independently in their own name and at their own risk are subject to income tax on income derived from self-employment or business activities.
Business income includes income from activities performed through a commercial entity or partnership, while self-employment income primarily includes income from professional services rendered (for example, as doctors, dentists, attorneys, architects, journalists and tax consultants).
In general, all income attributable to self-employment or business, including gains from the sale of property used in a business or profession, is subject to income tax.
General or limited partnerships are not taxed as entities. The profit share of each partner is subject to tax separately. In addition, a partner’s income from self-employment or business activities also includes compensation received by a partner for services rendered or for loans made to the partnership.
For nonresidents carrying on business through a permanent establishment in Austria, taxable income is computed in the same manner as for resident individuals and is taxed at the same rates.
Directors’ fees. Remuneration received as a supervisory board member of a corporation is treated as income from self-employment. Companies must withhold tax at a rate of 20% on such remuneration paid to nonresidents.
Taxation of employer-provided stock options. If an employer sells shares to an employee at a favorable price, the employee is subject to tax on the difference between the fair market value of the shares and the actual price paid. Under stock option plans, if the option is tradable (for example, on a stock exchange), the employee is taxable at the day of the grant. If the stock option is restricted to the employee only, the employee is taxed on the difference between the fair market value of the underlying stock at the date of exercise and the option price. In general, special rates apply to share schemes or stock option schemes.
Special provisions apply if all of the following conditions are met:
- The stock options are not tradable.
- The stock options are granted to all employees or to a group of employees.
- The stock option plan provides for a specific exercise period.
The stock option income is tax-privileged as long as the fair value of the shares does not exceed €36,400 at the date of grant. The maximum tax-privileged benefit is the difference between the fair value of the shares at exercise and the fair value of the shares at grant.
The tax-privileged benefit is tax-free to the extent of 10% for each year after the grant date, up to a maximum of 50%. Under certain circumstances, the income tax on the privileged portion of the benefit that is not tax-free may be deferred for up to seven years after the grant date.
The favorable taxation described above applies only to stock options that were granted on or before 31 March 2009. Stock options granted after that date do not benefit from the favorable taxation.
In addition, €1,460 per year of the benefit derived from the grant of free shares or the purchase of shares on favorable terms may be tax-exempt, if all of the following conditions are met:
- The shares must be kept on deposit with a European Community bank or other specified institution, determined by the employer and representatives of the employees.
- The shares must be retained for at least five calendar years after the year of acquisition (that is, they be neither given away nor sold).
- The employee must prove by 31 March of the following year that he or she still owns the shares by means of a deposit confirmation, which must be filed with the payroll administration of the employer.
If the above conditions are not met, the employer is required as from the year of violation to withhold tax from the benefit, unless the employee has left the company.
Capital gains. Capital gains derived from sales of businesses, parts of businesses and partnership interests are taxed as ordinary income. On request, these capital gains may be distributed over three years, if at least seven years have passed since the opening or purchase of business, part of the business or partnership interest. Otherwise, the capital gains in excess of €7,300 are fully taxed in the current year. If the business is sold or closed because of the retirement of the owner, and at least seven years have passed since the opening or purchase of business, part of the business or partnership interest, the capital gains are taxed at half the normal rate.
Gains derived from the sale of shares in a corporation before 1 October 2011 are taxed at half the normal rate if the shareholder has owned 1% or more of the company at any time during the five years before the sale and if the period between acquisition and sale is more than one year. Losses may be set off only against gains from the sale of shares.
Gains derived from the sale of shares in a corporation before 1 October 2011 are taxed at ordinary tax rates if the shareholder owned less than 1% of the corporation and if the period between acquisition and sale is less than one year. If the period exceeds one year, no tax is imposed.
Gains derived from the sale of real estate held for no longer than 10 years (15 years for certain property) are taxed at the rates applicable to ordinary income. Gains derived from the sale of a primary Austrian residence are tax-free if the holding period is two years or longer.
Gains on other privately held assets, excluding securities, are not taxable if the assets are held longer than one year. Otherwise, the gains are taxed as ordinary income. If the assets are held less than one year, the difference between the acquisition price and the sale price is taxable at the regular tax rates. Losses may be set off only against other speculative gains.
Deductions. Expenditure incurred by an employee to create, protect or preserve income from employment is generally deductible. Such expenses include the following:
- Expenses connected with the maintenance of two households, which are deductible for a limited period of time, depending on individual circumstances
- Professional books and periodicals
- Membership dues paid to professional organizations, labor unions and similar bodies
A standard deduction of €132 for business-related expenses is granted, unless an employee proves that expenses actually paid are higher.
Amounts paid for health, old-age, unemployment and accident insurance are deductible if they are required by law.
Other items that may be claimed as deductions include church tax, tax consulting fees and donations for specified organizations.
Nonresidents are not entitled to the same general allowances granted to residents. However, see Special rules for expatriates .
Relief for losses. Income from one source generally may be offset by a loss from another source, with certain exceptions.
Taxpayers who maintain commercial books of account and derive income from agriculture, forestry, commercial business or other self-employment activities may carry forward losses incurred in 1991 and subsequent years for an unlimited time period. The amount of losses that may be set off is generally limited to 75% of the taxable income per year. Excess losses may be carried forward.
Special rules for expatriates. Expatriates are taxed in the same way as other resident and nonresident individuals. Nationality does not have an impact on income taxation. However, under an order of the Ministry of Finance, the tax authorities have promulgated certain simplifications of the tax system applicable to expatriates. The simplifications are allowed only if the following conditions apply:
- The expatriate must be an individual who has not had a residence in Austria during the past 10 years and who is transferred from his or her foreign employer to an Austrian employer (subsidiary or permanent establishment of the foreign employer in Austria).
- The expatriate must have an employment contract with the employer’s Austrian subsidiary or permanent establishment.
- The expatriate must maintain his or her primary residence abroad, and the assignment may not exceed five years.
If the above conditions are met and if the employee meets certain reporting requirements, the Austrian employer, in the calculation of the expatriate’s monthly withholding tax, may deduct the following amounts:
- The expenses for maintaining double households, not exceeding €2,200, and meeting the needs of the household (maximum of 55 square meters)
- Extraordinary expenses for children’s education, up to €110 per month per child
- Home leave allowances of up to €306 per month
The simplification does not apply if the household expenses, education fees and home-leave allowances are more than 35% of the expatriate’s taxable salary income.
All expenses deducted by the employer with respect to the payroll must be reported in the annual income tax return. If no expenses were deducted by the employer and if an expatriate has additional expenses or extraordinary expenses, he or she may file an income tax return on a voluntary basis.
B. Other taxes
Net worth tax. Net worth tax is not levied in Austria.
Inheritance and gift taxes. The inheritance and gift taxes were eliminated, effective from 1 August 2008.
To prevent double taxation, Austria has entered into inheritance tax treaties with the Czech Republic, France, Hungary, Liechtenstein, the Netherlands, Sweden, Switzerland and the United States. The inheritance tax treaty with Germany has been terminated.
C. Social security and other contributions
Elements of social security. Social security taxes consist of the following elements:
- Old-age pension
- Unemployment insurance
- Health insurance
- Insolvency guarantee
- Accident insurance
Social security contributions are required for all employees, unless they are exempt under the European Union (EU) regulations or a totalization agreement.
Contributions. Social security payments on wages or salaries must be made by employers and employees.
Totalization agreements. To provide relief from double social security contributions and to ensure benefit coverage, Austria has entered into totalization agreements with certain countries. The agreements usually apply to foreigners living in Austria and to Austrians living abroad for a maximum of two years. Austria has entered into totalization agreements with the following countries.
Australia (a)
Greece
Philippines (b)
Belgium
Hungary
Poland
Bosnia
Iceland
Portugal
Herzegovina
Ireland
Romania
Bulgaria
Israel
Serbia
Canada (a)
Italy
Slovak Republic
Chile (a)
Latvia
Slovenia
Croatia
Liechtenstein
Spain
Cyprus
Lithuania
Sweden
Czech Republic
Luxembourg
Switzerland
Denmark
Macedonia
Tunisia (c)
Estonia
Malta
Turkey
Finland
Montenegro
United Kingdom
France
Netherlands
United States (a)
Germany
Norway
(a) This agreement covers pension insurance only.
(b) This agreement covers pension and accident insurance only.
(c) This agreement covers all types of insurance except for unemployment insurance.
To learn more about the history, culture, economy and other information about Austria
We have been preparing US income tax returns for US Citizens and permanent residents living in Austria for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Austria and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Austria tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Austrian Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Austria, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Austria.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email