Austrian Tax System: How It works
Dvelving into the Austrian tax system can seem like navigating the Danube without a map. But fear not, intrepid explorer! We’ve got you covered for this!
This guide is your beacon through the complexities of taxes in the heart of Europe. From income brackets to deductions that could rival the twists and turns of an Alpine pass, we’re here to make sense of it all, ensuring your financial journey in Austria is as smooth as the country’s famed operatic melodies.
Let’s dive in!
What Is The Tax System In Austria?
It sounds simple in theory, but it’s a bit more complex in practice.
There are lots of different types of taxes in Austria, and the country doesn’t have standardized tax legislation. But don’t worry—we’ll give you an overview.
For historical reasons, Austrian tax law is very similar to German tax law.
Like Germany, Austria works with a multi-tax system, with different types of taxes in various categories that can be collected on a federal, state, or municipal level.
Of course, Austrian tax law does have peculiarities of its own.
Employers and self-employed workers formerly paid trade tax, for example, until it was replaced with municipal tax in 1994.
Plus, there are different income tax brackets in Austria than in Germany. But before we get ahead of ourselves, first things first—what kinds of taxes are there in Austria?
What Are The Types Of Taxes In Austria?
According to the Austrian Ministry of Finance, the most important taxes in Austria include:
- Income Tax
- Wage Tax
- Value-Added Tax (VAT)
- Real Estate Gains Tax
- Capital Gains Tax
- Corporation Tax
And there are lots of other specific kinds of taxes, like:
- Alcohol Tax, Beer Tax, Tobacco Tax, and tax on sparkling wine
- Vehicle Tax and Air Travel Duties
- Digital Tax
- Electricity Duty, Natural Gas Duty, Mineral Oil Tax, and Coal Duty
- Land Transfer Tax and Property Tax
- Municipal Tax
- Car registration Tax
- Insurance Tax
What’s The Difference Between Direct And Indirect Taxes?
Taxes are classified as direct or indirect, and it’s an important distinction. It all comes down to who owes the tax and who pays the tax.
With direct taxes, the person or organization that owes the tax is responsible for paying it directly to the tax authority. That’s why it’s also called being “taxed at source.”
For example, employers and self-employed people need to pay municipal tax to their municipality.
It’s based on employees’ gross salary at a rate of 3%. Wage tax is another direct tax deducted from your wage or salary.
The same goes for capital gains tax in Austria: if you generate income by trading securities, you’ll pay tax on this income directly.
With indirect taxes, the person paying the tax isn’t the person who owes it. In other words, the taxes are passed on to the end user.
The best-known example of indirect tax is probably value-added tax, also known as VAT.
Companies pay the value-added tax to the tax office, but before they do, they increase the net price of their goods or services by 20% (or to a reduced rate of 10% or 13%)—which means that the tax is ultimately paid by the person making the purchase.
That’s why bills and receipts always show both the net and gross amounts before and after VAT has been added.
What Types Of Tax Apply To You?
If you’ve got a car, you’ll pay vehicle tax.
You won’t pay this tax if you have a bike. If you avoid flying, stop buying beer and wine, don’t smoke tobacco, and decide not to own your own home, you can avoid the related taxes.
But some taxes can’t be avoided.
These are taxes like value-added tax, insurance tax, electricity duty, and—depending on your supplier—natural gas duty or mineral oil tax.
Generally, these levies are included in the price, and you pay them automatically, regardless of your financial situation.
In contrast, income tax is based on your circumstances.
There are different brackets (also called “bands” or “classes”) for income in Austria. If your annual salary in 2022 was less than €11,000, you won’t pay any income tax at all.
This will increase in 2023 to €11,693. For a yearly income up to €18,000, you’ll pay a 20% income tax rate in Austria — 700 euros more than in Germany.
This will also increase to €19,234 for 2023. The highest income tax rates are set for those with the most significant incomes: 55% for people with an income of more than €1 million a year.
Who Needs To Pay Income Tax In Austria?
All income earned in Austria is subject to income tax.
Non-residents also pay income tax on money earned from Austrian sources. Income could be from sources such as employment, rent, capital assets, trade, etc.
If you’re living and working in Austria for over 6 months, you’ll have unlimited liability to pay tax. This means you’ll be liable to pay taxes on your worldwide income.
Students who are working part-time and earning more than the tax-free allowance of €11,693 are also liable to pay income tax.
If you don’t have Austria as your primary residence but work in Austria, you’ll have limited liability to pay tax. In this case, you’ll be taxed in Austria only on your Austrian income.
Besides this, it’s good to know that under the Austrian tax system, income tax is collected in 2 different ways.
Those who are employed are subject to wage tax in Austria. In this case, the employee deducts the wage tax for you before paying your salary.
Those who are self-employed are subject to income tax and need to file a return themselves. But for ease of understanding, we will refer to both as income tax.
Austrian Income Tax Rates
Under the Austrian tax system, income tax is charged progressively, ranging from 20% to 55%.
You can calculate how much income tax will be deducted by looking at the Austrian income tax rate (2023):
- A 0% tax rate applies to incomes up to approximately €12,000 per year.
- For up to €18,000, a 20% tax rate is applicable.
- Incomes between €18,000 and €31,000 are subject to a 30% tax rate.
- Incomes between €31,000 and €60,000 face a 41% or 40% tax rate.
- Incomes between €60,000 and €90,000 are taxed at a rate of 48%.
- Incomes between €90,000 and €1,000,000 are subject to a 50% tax rate.
- For incomes exceeding €1,000,000 per year, the tax rate is 55%.
If you have limited liability to pay tax because you’re a non-resident in Austria, you must add a fixed amount of €9,567 to your actual income.
This “fictional income increase” ensures fair taxation for residents and non-residents. Additionally, tax-free basic income for non-residents is reduced to €2,000 from €11,000.
Income Tax For Employees
In Austria, the majority of working individuals are employed. Under a standard employment contract, employees have the right to receive 14 monthly salaries, out of which only 12 are fully taxed.
This means that the extra two salaries are subject to reduced taxation.
Even if you work seasonally, such as in the tourism industry, or for a shorter duration, you still have a proportional entitlement to these additional payments and vacation days.
This ensures that employees receive their fair share of compensation, regardless of the length or nature of their employment.
In Austria, employment contracts are generally intended to be indefinite.
However, there are certain exceptions, such as probationary periods (which benefit both employers and employees), project-based contracts, and temporary substitutes for leave, which have limited durations.
Nonetheless, the majority of employees in Austrian companies have permanent employment contracts.
Salaries in Austria are regulated by collective agreements known as “Kollektivvertrag.”
These agreements set minimum salary standards by law for specific sectors and positions. You can refer to the official website to find the collective agreement and minimum salary applicable to your sector or position.
The legally binding texts are only available in German. Still, you can translate your branch and ask your employer, enter the federal state, and then search for the vital information.
If you cannot find the relevant information, contact the Chamber of Labour WKĂ– or the Chamber of Commerce AK (by email, telephone, or in person), which will give you direct information about specific salary regulations.
While job advertisements in Austria traditionally displayed monthly salaries in the past, due to international influences, it has become increasingly common to see annual salary information as well.
If you have received a job offer, you can use a salary calculator to determine your net income based on the offered annual or monthly salary.
Income Tax In Austria For Foreigners
In Austria, the tax system operates on a pay-as-you-earn basis, meaning that your taxes are deducted based on your income.
If you are living in Austria but do not have residency status, you will only be subject to a reduced tax rate, and you will only need to pay tax on the income you have earned within Austria.
As a researcher, you have three potential employment arrangements:
- Stipend/Grant/Scholarship,
- Regular Employment
- Independent Personal Services.
The specific type of employment you have is crucial in determining whether you are eligible for tax exemptions or not.
If you are receiving a stipend, you would generally be exempt from paying taxes.
However, if you are employed under a regular employment contract, taxes would be deducted from your salary, and your employer would be responsible for handling the tax payments on your behalf.
On the other hand, if you are working under an independent personal services arrangement, known as a “Werkvertrag,” you are considered self-employed.
In this case, you are responsible for declaring and paying taxes on your income at the end of each tax year.
As mentioned earlier, in Austria, you are classified as a tax resident if you have official residency status in the country and spend more than 180 days per year within its borders.
This determination of tax residency is essential for establishing your tax obligations and benefits in Austria.
Income Tax For Self-Employed In Austria
The process of tax equalization differs for self-employed individuals compared to employees.
As a self-employed person, your focus is on paying social security contributions throughout the year.
While these contributions are reduced during the first two years of self-employment, they will need to be repaid afterward.
It is essential to set aside some of your income to cover these future obligations.
The income tax return for self-employed individuals is typically submitted the following year.
The deadline for submitting it in writing is the end of April, or if filing online, by the end of June.
If you hire a tax consultant, you will have additional time as they handle the process on your behalf. By providing them with your monthly bills, you can enjoy a more comfortable position.
Doing the tax return yourself can initially seem complex, so it may be beneficial to attend a free taxation workshop at the Chamber of Commerce (WKĂ–) for guidance and understanding.
If your annual turnover as a small business owner is less than 35,000 euros (since January 2023), you can utilize a more straightforward calculation method and a flat rate.
Additionally, you are not required to charge or pay value-added tax (VAT) and do not need to include it on your invoices.
Maintaining a simple income-expenditure account is sufficient for your small business.
While it is recommended to use consecutive numbering for your invoices, there are no specific mandatory systems.
It is essential to consider when the money is received into your dedicated small business account rather than when the invoice was sent, as this is relevant for tax purposes.
There have been recent changes in tax regulations that allow for certain deductions.
For example, you can now deduct 50% of the expenses incurred for public transport, such as the cost of an annual bus or train ticket.
Additionally, there are two new flat-rate deductions available specifically for individuals who work predominantly or frequently from their home office.
These deductions provide a simplified approach to calculating expenses related to working from home.
To make the tax calculation process more accessible, there are online tools available that allow you to enter your data and estimate your tax liability in advance.
These calculators provide a convenient way to get an idea of your tax obligations and plan accordingly.
Do You Need To Fill Out Your Tax Return In Austria?
If you’re working in Austria as an employee, you typically don’t have to file an income tax return.
Your employer will deduct income tax and social security contributions every month and send them to the tax office.
The net amount will be what you receive in your Austrian bank account. But you should file a tax return if your situation has changed.
The Austrian tax office (Finanzamt) deducts the same amount of tax every month as they work with the assumption that your income is the same throughout the tax year.
If that’s not the case for you, then filing an income tax return is necessary. Otherwise, you’ll pay too much or too little tax.
For instance, if you got a promotion, lost your job, or are eligible for tax refunds based on your situation.
How To File Income Tax In Austria
To file taxes in Austria, log in to FinanzOnline and register yourself on the online portal. You can register using ID Austria.
If you don’t have one yet, you will receive access information by post in a few days. Once registered, fill in the L1 form and then declare any tax deductions you may be eligible for.
Alternatively, you can register in person at the tax office.
The deadline for filing taxes in Austria in 2024 is 30th June. If you miss the deadline, you could receive a late payment penalty.
Where Do You Find Your Tax ID In Austria?
In Austria, all tax-paying residents receive a Tax Identification Number (TIN), known as Steuernummer or Steuerliche Identifikationsnummer.
This 9-digit number is crucial for filing your tax return.
To obtain your TIN, visit your local tax office (Finanzamt) or access it through Finanzonline.
As an international resident, you’ll find your TIN on official documents related to your Austrian residency, such as your residence permit and registration certificate.
Social Security Contributions In Austria
Besides paying income tax, you also pay social security contributions.
As an employee in Austria, paying social security contributions is mandatory, and your employee will deduct this amount before paying you your wage.
The total social security amount depends on your monthly earnings.
But both you and your employer share the responsibility of paying social security tax.
As an employee in Austria, you’ll pay 18.12% towards social security contributions, and your employer will contribute the remaining 21.03%.
The maximum monthly social security tax for regular-income individuals is €5,850. Extra payments like bonuses are also subject to social security tax.
Still, there is a yearly limit of €11,700 for special or extra payments.
What Is Tax Refund In Austria?
A tax refund in Austria means getting back some of the money you paid in taxes. This typically happens when the deducted tax exceeds the actual amount of tax owed.
Here’s what you can claim:
- Work-Related Expenses: If you spend money because of your job, like getting to work or buying stuff for work, you can get some of that money back. In 2020 and 2021, you could also get money back for buying office furniture if you work from home.
- Home Office Costs: If you work from home, you can get money back for some of the expenses, like part of your rent or the electricity you use.
- Healthcare Bills: If you paid for things like going to the doctor or getting medicine and your insurance didn’t cover it all, you can get some of that money back.
- Education Expenses: If you’re studying, you can get some money back for things like tuition or books.
- Giving To Charity: If you give money to charities, you can get some of it back as well.
- Saving For Retirement: If you save money for your retirement in a particular account, you can pay less tax.
- Childcare Costs: If you’re paying for childcare, some of those costs can be refunded.
- Loan Interest: If you’re paying interest on loans, you might get some of that money back, too.
To apply for a refund, you can fill out a form called ArbeitnehmerInnenveranlagung and submit it to the Austrian tax office.
Make sure to keep all your receipts and records, and always check the latest tax rules.
Double Taxation In Austria
Double taxation agreements are your financial safeguard, ensuring you’re not hit with double taxes, one in Austria and another in your home country.
They provide clear guidelines on where your income should be taxed.
Austria has thoughtfully established double taxation agreements with approximately 84 countries and territories globally.
If you’re an expat, it’s essential to verify the specific terms and provisions of the agreement between Austria and your home country to ensure you’re paying the appropriate amount of taxes.
What Is The Tax On Property And Wealth In Austria?
In Austria, there is a 27.5% tax rate for capital gains from the disposal of immovable assets (i.e., investments).
Additionally, there is a tax rate of 30% for real estate transfers between family members.
For property tax, each municipality levies an annual tax on Austrian real estate. Notably, this is deductible from rental income.
Property tax is based on the unit value and is decided upon by local authorities.
Usually, a written rental agreement on a property in Austria is liable to a stamp duty rate of 0.5% of the property value.
Ordinarily, stamp duty is borne by the lessee. However, residential lease agreements are exempt from stamp duty.
There is no net worth/wealth tax in Austria, so make sure to protect your finances while living abroad.
Inheritance Tax In Austria
Currently, there is no inheritance tax in Austria. In this way, the process of inheriting property is the same as any other property transaction.
However, when planning your estate in Austria, you must declare gifts of cash, shares, and such to the tax authorities if they exceed €50,000 in the case of relatives or €15,000 in the case of third parties.
What Are Company Taxes And Vat Rates In Austria?
Generally, the tax assessment period in Austria is the calendar year.
That said, a company’s financial year may stray from this.
When the tax and financial years deviate, the assessments are based on the profits derived in the financial year(s) ending in the respective calendar year.
The corporate tax rate was reduced to 24% in 2023.
The minimum amount is €875 for legally independent companies or €437.50 for limited-liability companies. These values apply for each quarter of an entire year.
All Austrian businesses have to pay value-added tax (VAT), which is typically 20% of their income.
However, small businesses that earn less than €30,000 a year don’t have to pay VAT. However, they also can’t claim input tax.
Rebates And Tax Reliefs In Austria
Charitable contributions to certain institutions are deductible up to 10% of the current year’s taxable income.
Additionally, Austrian tax adviser fees are fully deductible. Church tax is also deductible up to €400.
What Is Tax Avoidance And Evasion In Austria?
In Austria, criminal tax evasion is punishable with a prison sentence of up to six months or a fine of up to 360 daily rates.
You can also face a prison sentence of up to 10 years for serious tax fraud. Where false documents are intentionally in use, the fine will exceed €100,000.
If the evasion is down to negligence, it is generally penalized with a fine.
Usually, tax returns are subject to a plausibility check before an assessment is made. Ordinarily, tax return reviews only happen if aspects of the return are unclear to the tax officials.
The Financial Crime Act applies to individuals and legal entities, which means that legal entities are also subject to hefty fines.
Conclusion
Now that you’ve journeyed through the intricacies of the Austrian tax system with us, you’re better equipped to manage your finances in this culturally rich and economically robust country.
With this newfound knowledge, you can confidently approach tax season, knowing you’re maximizing benefits while complying with local laws. Here’s to navigating Austria’s fiscal waters with ease and making the most of your financial voyage!
Tax Mastery!
But wait! There’s lot more that you might be interested in following: