Taxation Austria

TAXATION
 
PERSONAL INCOME TAX
 
Only physical persons (individuals) are subject to personal income tax. As per the tax law of the country the Income that are taxable if it falls under one of the seven heads of income:
  1. agriculture and forestry
  2. self-employment
  3. trade and business
  4. employment
  5. investment
  6. hiring out of real estate, moveable goods and rights
  7. other income 
Individuals whose place of residence or customary place of abode is located in Austria are subject to unlimited tax liability, which means that they are taxable with their world-wide income. Non-resident taxpayers are liable to tax only on Austrian-source income.
 
Computation of taxable income
 
The personal Income Tax Act follows two basic methods for the computation of taxable income:
  1. comparison of assets for the sources of business income
  2. surplus of income over professional expenses for the sources of non-business income. 
The Computation of taxable income is based on but not limited to the following factors:
  1. Depreciation
    1. If a depreciable fixed asset is used first during a fiscal year and is used for more than six months in that year, the one year's depreciation can be deducted, otherwise half the annual amount is deductible.
    2. The straight line method is the only depreciation method acceptable for tax purposes.
    3. The amount of depreciation is usually determined by the estimated useful life of the asset. 
  2. Deductible expenses
    1. All expenses that are incurred wholly and exclusively in acquiring, securing and maintaining of income are deductible from the taxable income of a particular source of income.
    2. Losses may be carried forward and set off against a maximum of 75 % of annual profits earned by the same business for an unlimited period of time following the year in which the losses are occurred.
    3. Losses may not be carried back.
    4. The acquisition or manufacturing costs of fixed assets can be treated as fully deductible in the period when the assets were acquired of manufactured, if the costs do not exceed Euro 400. 
Non-deductible expenses
 
The most important expenses that are not allowed for tax purposes are:
  1. expenses incurred for the purpose of the household of the taxpayer and family members
  2. cost of living
  3. expenses incurred on business or professional activities connected with the taxpayer's private life, if they are deemed inappropriately high. examples are sports cars, luxury boats etc
  4. expenses for entertainment purposes including entertaining business partners unless the taxpayer can prove that the entertainment has been for business purposes to a substantial extent in which case he may deduct 50 % of these expenses
  5. voluntary payments except payments to certain institutions involved in science, research, development and education are deductible up to a certain amount
  6. income taxes
Accruals
 
Deductible accruals may include the followings:
  1. severance payments
  2. future and current pensions
  3. uncertain obligations and possible losses resulting from pending transactions 
Capital gains allowance
 
The capital gains comes to picture when a fixed asset is sold and a difference between the sales price and the asset's value stated in the books arises. It may remain untaxed if the fixed assets have been held for at least seven years or, in case of land and certain buildings, for fifteen years.
The amount which remains tax free may either be setoff against the acquisition costs of other fixed assets purchased within the same fiscal year.
 
It may also be allocated to an allowance which has to be used in the same way within twelve months of the disposal of the fixed asset, otherwise capital gains will be taxed entirely.
 
Tax rates
 
" The tax rates in this country increase in progressive steps up to 50% for income exceeding €50,870.
 
In Euros (€) Tax rate
Up to 3,640 0%
3,641 - 7,270 21%
7,271 - 21,800 31%
21,801 - 50,870 41%
Income over 50,870 50%

Withholding tax on investment income
  1. In respect of domestic investment income or investment income received in Austria from securities representing money claims, income tax is withheld at source.
  2. Investment income is regarded as domestic, if the payer has his/her domicile, registered office or management in Austria.
  3. Investment income includes:
    1. profit shares (dividends)
    2. interest and other income from shares in public corporations or limited liability companies
    3. interest income on bank deposits
The withholding tax on investment income is set at a rate of 25%.
 
Capital gains
The capital gains from non-business activities are not subject to tax in most cases. However, there are certain exceptions:
  1. Capital gains deriving from speculative transactions
Income from sales transactions, where a certain minimum holding period between purchase and disposal (land: 10 years; other assets, especially shares: 1 year) is not reached are taxable in full if they exceed Euro 440.
  1. Capital gains on certain other investments
Income generated from the disposal of shares, provided the vendor has held more than 1% of the share capital at any point of time within the last five years, is subject to income tax.
  1. Sale of an enterprise
    1. Profits resulting from the sale of an enterprise or part of or the sale of a partnership share by a partner, are subject to income tax.
    2. There are, however, certain tax benefits which may apply, e.g. amount exempt from tax or reduction of tax progression or tax allowance in the case of retirement of the entrepreneur.
Wealth tax, tax on capital and property
  1. The wealth tax is levied in real estate only. The assumed value of real estate is determined as per the valuation Act and is usually far below market value.
  2. The tax is 0.2% of the assumed value per year. Somewhat lower rates apply for, e.g. agricultural and forestry enterprises, residential buildings etc.
Taxation of non-residents
 
Individuals who do not have their place of residence or temporary place of abode in Austria, are subject to limited tax liability only. Their income is only subject to income tax if generated in Austria.
 
Certain kinds of income are subject to a withholding tax at a flat rate of 20%:
  1. income generated by writers, lecturers, artists, architects, sportsmen or contributors of entertainment activities
  2. profit shares of partners of a foreign partnership if this partnership holds a stake in a domestic partnership
  3. income deriving from intellectual property rights and royalties
  4. income of members of supervisory boards
  5. income arising from commercial and technological consulting and income from the provision of manpower for work in Austria
  6. income from employment in Austria
  7. If not subject to withholding tax, income is computed in the same way as for residents and the same tax rates are applied.
BUSINESS TAXATION
 
Business entities that are deemed to be corporations by the Corporate Income Tax Act are subject to corporate income tax. Resident corporations, which have their registered office or the place of management in Austria, are subject to unlimited tax liability.
 
Non-resident corporations are taxed only on their income from Austrian sources.
 
The taxation on Non-resident corporations may be reduced under a double taxation treaty between Austria and other state or Country.
 
Partnerships are treated as though every individual partner would conduct a partnership business on his/her own account. Partnerships therefore do not pay corporate income tax but each partner is subject to personal income tax.
 
COMPUTATION OF CORPORATE INCOME
 
The taxable income of corporations is computed in a similar manner to that of individuals. Income from all seven sources of income is included.
 
All income generated by corporations which are subject to double-entry book-keeping according to the Commercial Code is by law regarded as income from trade and business.
 
Treatment of dividends
 
Income received by a corporation resident in Austria from participations (shareholdings) in domestic corporations is tax-free. Therefore, the following income are exempted from tax liability:
  1. Profit-shares of any kind resulting from participations (shareholdings) in domestic corporations and co-operative societies
  2. Refunds from domestic co-operative societies
  3. Shares in profit resulting from Genussscheine and Partizipationskapital
Such income is basically tax free, but the distributing corporation usually has to withhold 25% of any investment income as income tax, up to a participation (shareholding) of 25%.
 
This withholding tax can be offset against the tax liability of the recipient or, if there is no such liability, it will be refunded. Above that limit income from a participation (shareholding) in domestic corporations is free of withholding tax and the investment income also remains tax free in the hands of the parent company.
 
Income received by a corporation resident in Austria deriving from participations (shareholdings) in foreign corporations is tax free as well, provided that the participation (shareholding) represents at least 25% and has been held for 2 years or longer.
 
The following income is tax free under the conditions mentioned above:
  1. Profit shares of any kind resulting from participations (shareholdings) in foreign corporations
  2. Capital gains resulting from the disposal of shares

In such cases the distribution of profit shares is, in addition, exempt from withholding tax if the distributing company is located in another EU member country.

TAX RATE AND MINIMUM TAX
  1. Corporate income tax is 34 % at a flat rate.
  2. Corporations subject to unlimited tax liability have to pay minimum corporate income tax (MCT) regardless if profitable or not.
  3. This MCT amount to €3,500 per annum for joint stock companies or €1,750 for limited liability companies.
  4. MCT of €5,452 is due if the taxpayer is a bank or insurance company.
  5. The MCT is levied on a quarterly basis; for the first four quarters after the foundation of a newly established corporation the MCT amounts to €273 per quarter.
TREATMENT OF NON-RESIDENT CORPORATIONS
  1. Non-resident corporations are basically treated in the same way as non-resident individuals. They are liable to corporation tax on income generated in Austria.
  2. Non-resident corporations, which receive income from participations (shareholdings) in other corporations within a permanent establishment in Austria are not exempt from tax on this income, no matter whether the shareholding is in a domestic or foreign corporation.
  3. An exception to the rule applies if the corporation subject to limited tax liability is a foreign corporation comparable to an Austrian corporation, which is incorporated in a member country of the European Union.
  4. The income of such corporations received from participations (shareholdings) in domestic and foreign corporations in the latter case, is tax free.