Depreciation and amortisation
Generally, only the straight-line method is accepted for tax purposes, whereby the cost is evenly spread over the useful life of an asset. For certain assets, depreciation rates relevant for tax purposes are prescribed by the tax law and shown in the following chart:
|Assets||Depreciation rate (%)|
|Buildings for living space||1.5|
Buildings used as business assets are depreciated at a rate of 2.5%, irrespective of the use of the building. The exception is buildings for residential use, which are depreciated at a rate of 1.5%.
Tax depreciation is not required to conform to financial depreciation under Austrian GAAP. If depreciated property is sold, the difference between tax value and sale proceeds is taxed as a profit or loss in the year of sale.
Trademarks are usually amortised over 15 years. Other intangibles have to be amortised over their useful lives.
With the Economic Strengthening Act 2020 (‘Konjunkturstärkungsgesetz‘), the declining-balance method was introduced for fixed assets acquired or created after 30 June 2020 in the maximum amount of 30% per annum, based on the residual book value. The declining-balance method does not apply to intangible and used assets, buildings, goodwill, certain kinds of passenger vehicles, and estate cars/station wagons, as well as fixed assets used for promotion, transport, or storage of non-renewable energy sources and fixed assets that make direct use of non-renewable energy sources (e.g. planes). A change from the declining-balance method to the straight-line method in the course of the useful life is permissible, but not vice-versa.
Goodwill arising in the course of an asset deal for tax purposes must be amortised over 15 years. Goodwill that arose in the course of a share deal can be amortised only if the acquired company is included in a tax group and if the share deal was effected until 28 February 2014 (see the Group taxation section. Goodwill arising as a result of a corporate merger cannot be amortised.
Organisational and start-up expenses
Generally, organisational and start-up expenses are tax deductible.
Interest payments (also inter-company) are generally tax deductible if they meet the general arm's-length requirements. See Thin capitalisation in the Group taxation section and Payments to foreign affiliates below for more information.
According to current tax law, interest expenses resulting from the debt-financed acquisition of shares are usually tax deductible. This is so even if the Austrian participation exemption regime applies (see the Income determination section).
However, interest expenses relating to the debt-financed acquisition of shares from related parties or (directly or indirectly) controlling shareholders are generally non-deductible. This disallowance of interest also applies in circumstances where the shareholder acquiring the shares has been funded by a debt-financed equity contribution (insofar as the equity contribution was made in direct connection with the share acquisition). The deductibility of interest expenses incurred in connection with the debt-financed acquisition of shares from a third party is not covered by this rule.
All financing costs (e.g. fees, foreign exchange expenses, legal advice) that relate to tax-exempted international participations are non-deductible.
Interest expenses to foreign affiliates that are effectively taxed below 10% are not deductible (see Payments to foreign affiliates below).
Earnings-based interest limitation
Based on Art. 4 of the EU Anti-Tax Avoidance Directive (ATAD), Austria would be required to implement an earnings-based interest limitation clause, which allows interest of just up to 30% of earnings before interest, taxes, and amortisation (EBITA) to be deducted as an expense (from fiscal year [FY] 2019 onwards). However, due to the option to apply the grandfathering clause (Art. 11 para. 6 of the ATAD), the Austrian government decided not to implement a similar rule already in 2018 but to wait for 2024. However, the European Commission (EC) did not confirm the comparability of Austrian interest limitation clauses with the earnings-based interest limitation clause under Art. 4 of the ATAD. Therefore, it is currently unclear whether Austria would have been required to implement the interest limitation rule into national law until 31 December 2018. Austria did not implement the interest limitation rule until that date. It remains to be seen how the European Commission proceeds in the case (infringement procedure).
On 25 July 2019, the European Commission sent a letter of formal notice to Austria requesting it to implement an interest limitation clause as set out in the ATAD, as the European Commission does not consider the national provisions to be 'as effective' as the ATAD interest barrier and that a postponement of the implementation of the relevant provision until 1 January 2024 was not justified. With this step, the formal infringement procedure was initiated.
On 27 November 2019, the European Commission decided to submit a reasoned opinion to Austria asking to transpose the interest limitation rule as required by the ATAD into national law. If Austria does not act within the next two months, the European Commission may decide to bring the case before the European Court of Justice (ECJ).
With the COVID-19 Tax Measures Act (‘COVID-19-Steuermaßnahmengesetz’), which was published in the Austrian Federal Law Gazette on 7 January 2021, an interest limitation rule was implemented in the Austrian Corporate Income Tax Act in order to transpose the respective provision of the EU ATAD. Accordingly, a company’s financing expenses are deductible only up to a maximum extent of 30% of the EBITDA. Net interest expenses in the amount of EUR 3 million are deductible in any case, additionally further exceptions can apply (equity escape clause, tax group clause, etc). The law entered into force on 1 January 2021 and is applicable to fiscal years beginning after 31 December 2020.
Certain accruals (such as provisions for liabilities and impending losses) running for more than 12 months as of the closing date of the accounts have to be discounted, depending on their actual duration. The discount rate to be used is 3.5%. Exempted from this reduction are provisions for personnel benefits (severance payments, pensions, vacations, and anniversary awards) for which specific reduction and computation methods have been provided and provisions that were already calculated by discounting a future obligation.
In general, lump-sum accruals and accruals for deferred repairs and maintenance are not allowed for tax purposes.
With the COVID-19 Tax Measures Act (‘COVID-19-Steuermaßnahmengesetz’), which was published in the Austrian Federal Gazette on 7 January 2021, lump sum provisions are accepted for tax purposes for financial years ending after 31 December 2020.
Valuation allowances for bad debts are, in principle, deductible for tax purposes, unless they are calculated on a lump-sum basis. In case of inter-company receivables, appropriate documentation regarding the compliance with the arm's-length principle is required.
With the COVID-19 Tax Measures Act (‘COVID-19-Steuermaßnahmengesetz’), which was published in the Austrian Federal Gazette on 7 January 2021, general bad debt provisions are accepted for tax purposes for financial years ending after 31 December 2020.
Donations to certain charitable institutions are generally tax deductible, up to a limit of 10% of the current year’s profit.
Furthermore, donations to certain public Austrian institutions, such as universities, art colleges, or the academy of science, and to non-profit organisations performing research and educational activities mainly for the benefit of the Austrian science or economy may also be deducted as operating expenses, up to the limit of 10% of the current year’s profit. The same is valid for donations granted to foreign institutions with residence in the EU/EEA or third countries with which Austria has concluded an agreement on mutual assistance regarding the exchange of information. The requirement for deductibility is that the activities of the organisation are carried out mainly for the benefit of Austrian science or the Austrian economy.
Meals and entertainment
The deductibility of costs for business lunches generally is limited to 50% of actual expenses incurred (provided the business lunch had the purpose of acquiring new business). Between 1 July 2020 and 31 December 2020, 75% of the costs for business lunches are deductible.
The deductibility of entertainment expenses is restricted to advertising expenses.
Payments to a member of the supervisory board (Aufsichtsrat) are tax deductible up to a limit of 50%. Salaries (including all payments in cash and in kind, excluding privileged severance payments) exceeding EUR 500,000 per person and per year are not tax deductible. This rule also covers bonus payments and pension schemes. However, for pension schemes there is a EUR 500,000 per annum threshold to be considered separately from the other salary payments.
This rule also covers costs on-charged in relation with employees for foreign (group) companies that are an active part of the organisation of the Austrian company (e.g. foreign group staff acting as managing director for an Austrian group company).
Severance payments granted by companies to employees that go beyond statutory obligations (voluntary severance payments) at the level of the employer represent non-deductible expenses.
Fines and penalties
Fines and penalties are generally not tax deductible.
Austrian and foreign taxes on income and other personal taxes, as well as VAT insofar as it relates to non-deductible expenditures, are non-deductible. Other taxes, such as payroll taxes, are deductible.
Net operating losses
Tax losses can be carried forward without any time limit. However, tax loss carryforwards generally can be offset against taxable income only up to a maximum of 75% of the taxable income for any given year. Some exceptions apply (i.e. in connection with tax groups, in the case of liquidations or the recapture taxation of foreign losses), allowing a company to charge tax loss carryforwards available against 100% of annual taxable income.
The Austrian tax law generally does not provide for a carryback of tax losses. However, due to the worldwide COVID-19 pandemic, the government has implemented a new loss carryback (i.e. offset of operating losses incurred in 2020 against profits from 2018 and 2019). See Incentives related to COVID-19 in the Tax credits and incentives section for more information.
Tax loss carryforwards may be lost in the case of a share deal being classified as loss-trafficking (so-called 'Mantelkauf') or in the course of a legal restructuring leading to similar results.
Under Austrian tax law, a share deal against compensation is classified as a Mantelkauf if, from a substance-over-form perspective, the 'economic identity' of a company is changed due to the transaction. The change of economic identity of a company is realised if all of the following structural changes are made to the acquired Austrian company having the tax loss carryforwards available:
- Change of shareholder structure.
- Change of the organisational structure.
- Change of the business structure.
All three conditions cumulatively have to be met. There is no exact time period defined within which they have to be met; however, meeting them within one year after the share transfer usually is regarded as a strong indication for a Mantelkauf.
Payments to foreign affiliates
Generally, there are no restrictions on the deductibility of royalties, interest, and service fees paid to foreign affiliates, provided they are at arm's length (which should be appropriately documented by agreements, contracts, calculation sheets, etc.). Payments to affiliated companies exceeding the arm's-length threshold are treated as a hidden distribution of earnings (i.e. they are not tax deductible, and WHT is usually triggered at source). See Transfer pricing in the Group taxation section for more information.
In addition, interest and royalty payments made by an Austrian company to affiliated companies (beneficial owner) located in low-tax jurisdictions (effectively taxed below 10%) are non-deductible as well. Special attention in this context has to be drawn to the fact that the low-taxation test has to be passed at the level of the beneficial owner of the income (interest income, royalties). According to the Tax Reform Act 2020, the CFC rules (see Controlled foreign companies (CFCs) in the Group taxation section for more information) prevail the non-deductibility in order to avoid double taxation.
Note that the domestic implementation of the EU Interest Royalty Directive, which abolishes WHT on cross-border payments of interest and licence fees (regardless of whether taken out by deduction or by assessment) between affiliated companies in the member states, should be considered.