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Income Tax in Austria



Tax in Individuals

Tax Returns due dates

In general, income tax is assessed for the calendar year on the basis of an individual’s tax return, which should be filed by 30 April (if a paper version is filed) or 30 June (if filed electronically), respectively 30 September, in case salary is taxed via payroll (in certain cases), of the following year. An automatic extension up to 31 March of the next following year is granted if the individual is represented by a tax adviser. Further extensions are available on request in special circumstances. The tax year ends on 31st December.

Tax Compliance

Residents

Generally, a tax return is required if the individual’s taxable income exceeds EUR11,000. Income tax on employment income is generally withheld at the source. Still, a tax return is required in case the individual has additional income, not previously subject to employer withholdings, in excess of EUR730. Please note that for foreign income from investment a threshold of only EUR22 applies under certain conditions.

Non Residents

Non-resident individuals must file an income tax return whenever they have taxable income in excess of EUR 2,000 from a taxable source, unless the withholding tax applied represents the final settlement of the tax liability. For calculation of the tax rate the income will be increased by a hypothetical figure of EUR 9,000.

Tax Rates

Residents

Tax Rate for 2017

Taxable Income Bracket
Tax Rate
From EUR
To EUR
Percent
0
11,000
0
11,001
18,000
25
18,001
31,000
35
31,001
60,000
42
60,001
90,000
48
90,001
1,000,000
50
Above 1,000,000
55

Non Residents

Income tax rates for non-residents are the same as for residents, but the hypothetical amount of EUR 9,000 has to be added to the actual income. However, withholding tax rates may differ. Furthermore, various tax deductions are not available.



Residence Rule

An individual is deemed to be resident in case he/she either maintains any kind of accommodation, or is physically present, under circumstances indicating that his/her abode will not be temporary.

As a general rule, tax residence is deemed to exist if the individual’s stay in Austria exceeds six months (183 days). Once these six months have expired, tax residence is deemed to have commenced at the beginning of the stay in Austria. Citizenship is not relevant in determining residence.

In general it is possible to have a period of limited and a period of unlimited tax liability. The days spent in Austria before the assignments are included in the calculation for determining the habitual abode.

Capital Gain Tax
· Capital gains of the sale of non-business property are tax-free if the property has been held for at least one year.
· 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.
  
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:
o   Dividends and other assimilated income;
o   Interest derived from cash deposits at banks;
o   Profit distributions to silent partners;
o   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%.



Corporate Tax

Corporate taxpayers are subject to national corporate income tax. There are no other taxes on the income of companies. A payroll tax and social security contributions are levied on the aggregate salaries paid to employees.

Type of Tax System

The Austrian corporate income tax is based on the classical system. Corporate profits are subject to corporate income tax. Dividends paid to individual shareholders and portfolio corporate shareholders are subject to a withholding tax. For an individual shareholder, the withheld tax is final; for a portfolio corporate shareholder, it is credited against final income tax liability (on other income) or refunded on request. There is no withholding tax on dividends paid to substantial corporate shareholders. Dividends are exempt from corporate income tax in the hands of a corporate shareholder, regardless of the size of the holding.

Taxable Persons

Legal entities subject to corporate income tax include:
· stock companies (AG);
· limited liability companies (GmbH);
· private foundations;
· commercial enterprises operated by public entities;
·associations, institutions, foundations without independent legal existence and accumulations of property for a specific purpose.

Both limited and general partnerships are treated as transparent entities for tax purposes. This survey is restricted to resident stock companies and limited liability companies, as well as to foreign in corporate entities of a similar description, whether resident or non-resident. These entities will be referred to as companies. The private foundation is not allowed to pursue trade or commercial activities as its main activity but it may operate as a holding company. The private foundation is, in principle, subject to corporate income tax on its worldwide income. However, special treatment is provided for certain items of passive income and capital gains derived by the foundation.

Residence

A company is resident if it has its legal seat (place which is designated as such in its statutes) or its place of effective management in Austria. Companies incorporated under Austrian commercial law must have their legal seat in Austria. For the place of effective management test, the location of the strategic management (i.e. where the leading decisions are made), and not that of the day-today management, is decisive.

Taxable Income

Resident companies are taxable on their worldwide income. The provision that lists items of taxable income is broadly worded and includes practically all income, whether principal or accessory in nature, and whether received in money or money’s worth. Taxable income is the total income from one or more sources listed in the Individual Income Tax Law, decreased by some special expenses and the losses incurred from these sources. Income and capital gains are pooled and taxed at the same rate. The computation of the income follows the rules of the Individual Income Tax Law, unless the Corporate Income Tax Law provides otherwise.

Exempt Income

The most important items of exempt income are domestic and foreign dividends under the participation exemption. Also exempt are contributions by shareholders to the capital of a company upon formation or increase, whether or not in return for shares or other membership rights or in proportion to shareholding.

Deductions

Expenses
In general, expenses incurred in acquiring, securing and maintaining taxable income are deductible. Employees’ remuneration is deductible. In addition to direct payments of remuneration, employers may deduct the costs of employee benefits including retirement plans, health, accident and life insurance, meals, cars and other fringe benefits. In some cases the deduction is limited either by statutory law or rulings, e.g. for certain contributions to pension funds. Interest on loans and other debts to third parties economically connected with any type of income is generally deductible Interest payments to shareholders or parties related to shareholders are subject to arm’s length standards. Therefore, interest charged at excessively high rates on loans granted by shareholders or affiliates may be deemed a “hidden profit distribution”. Such interest is then not deductible. Royalties are as a general rule deductible. Similarly with the rules on interest, excessive royalty payments to shareholders or affiliates are treated as disguised profit distributions. However, royalties paid at arm’s length are always deductible.

Non Deductible Expense
Dividends and all other profit distributions may not be deducted. Interest is not deductible if it is incurred to generate tax-free income. Where a resident company concludes a loan contract to finance the acquisition of a participation in the share capital of another resident or non-resident company attributed to the business assets of the company, the interest paid on the loan is deductible even if the dividends received from such participation are tax exempt in the hands of the recipient company. From 1 January 2011, interest on loans taken out to finance the acquisition of intercompany participation is not deductible. There are restrictions on the deductibility of directors’ fees. One half of the remuneration paid to members of the supervisory board or any other persons in relation to supervisory services is not tax deductible. One quarter of the remuneration paid to non-managing directors is not tax deductible. The same applies to one half/one quarter of the reimbursement of travelling expenses, insofar as they exceed the maximum tax-free lump-sum reimbursement amounts of the Individual Income Tax Law.

Capital Gains
Capital gains derived from the sale or other disposition of business property are taxed as business income of a company at normal rates. No rollover relief is granted. From 1 October 2011, capital gains, not connected with a trade or business, derived from the disposal of shares and units held in funds purchased after 31 December 2010 or bonds, debentures and derivatives purchased after 30 September 2011, that are business assets are subject to a special tax rate of 25%.

Ordinary Loss
Losses may be carried forward indefinitely. A carry-back of losses is not permitted. Only the taxpayer who incurs a loss may claim it as a deduction. There are, however, some exceptions in the case of mergers, divisions, etc. Losses incurred in the current or a previous tax year can only be set off against 75% of the income of the current year. Excess losses may be carried forward to the following tax year.

Losses arising from a participation in a company or partnership may not be set off against profits from other activities if the main purpose of the participation is to obtain tax advantages. Such losses may be set off against future profits from the participation. The intention to obtain tax advantages is presumed if the acquisition of the participation is offered to the public and if the after tax return that would be obtained is more than twice the before-tax return that would have been obtained under the general participation exemption (ignoring the anti voidance provision). Foreign losses not taken into account abroad must be included in the Austrian tax base. Any foreign loss must be recaptured if it can later be utilized in the foreign country. Losses resulting from the devaluation, disposal or redemption of shares and units in funds purchased after 31 December 2010 and debentures, bonds and derivatives purchased after 30 September 2011 that are subject to the special tax rate of 25%, must firstly be set off against capital gains resulting from such financial instruments. 50% of the remaining losses may then be set off against other business income or be carried forward. This rule does not apply to corporations subject to unlimited tax liability.

Capital Loss
Capital losses are treated in the same way as ordinary losses.

Rates
Income and Capital Gains
The flat rate of the corporate income tax is 25%. This rate also applies to capital gains. An annual minimum tax of EUR 3,500 for AGs and EUR 1,750 for GmbHs is levied. Adjustments are provided for banks and insurance companies as well as for new companies. The minimum tax is due in advance and can be set off against the final corporate income tax.

Withholding Tax
Dividends and other profit distributions to resident companies are subject to withholding tax at a rate of 25%. No withholding tax is due if the dividends are paid to a company that holds at least 25% of the shares in the distributing company. From 1 April 2012, the minimum participation will be reduced to 10%. If tax is withheld, it is credited against the final income tax liability (on other income) of the company, or refunded on request. Dividends paid to private foundations on or after 18 June 2009 are exempt from withholding tax under the general conditions. Before that date, such dividends were generally exempt from the withholding tax without regard to the degree of holding. A withholding tax of 25% applies to most types of interest that are paid out in Austria, except interest on loans between two companies. Tax withheld constitutes only a prepayment of the corporate income tax due and may be credited against the final tax liability. Types of interest that are subject to the withholding tax include:
· interest on deposits and other debt claims with certain banks;
· interest on certain securities, including convertible and profit-sharing bonds (from 1 April 2012, only if they are offered to the public);
· income from participations in investment funds and similar participations; and
· interest on securities issued by international institutions after 30 September 1992.

There is no withholding tax on royalties paid to resident companies. For rates of withholding tax on payments to nonresidents
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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.



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This blog is Created by CA Anil Kumar Jain.