Income from employment includes all benefits in cash or in kind received by an individual from an employer and from third parties. Benefits in kind are valued according to specific rules, with some cases of global allocations (mainly cars). Company-provided housing might be valued at 75% of the actual gross rent paid by the company; reimbursement for privately paid housing is fully taxable. Certain minor benefits in kind (e.g. the granting of company stock up to an annual limit of EUR 3,000 per employee) or employee profit sharing (up to an annual limit of EUR 3,000 per employee) are tax exempt.
Reimbursement of an employee's actual relocation costs (due to a transfer or group internal transfer, not when a new job with a new employer will be started; the employee must give up one's residence) is tax-exempt; lump sum relocation allowances are tax-exempt within certain limits (due to a transfer or group internal transfer, not when a new job with a new employer will be started; the employee must give up one's residence). Reimbursement of tax costs is fully taxable.
Bonus payments (e.g. 13th- and 14th-month salaries, i.e. vacation and Christmas pay) up to an annual amount equal to two average monthly salaries are taxed as follows:
|Other remuneration (EUR)||Wage tax (%)|
|for the first 620||0|
|for the next 24,380||6|
|for the next 25,000||27|
|for the next 33,333||35.75|
|above 83,333||regular tax rate, typically 50%|
Special rules apply to employee share schemes granted to all employees or to certain groups of employees. The acquisition of shares of an employee (from the employer or a group company) either at a favourable purchase price or free of charge is considered tax-free up to an amount of EUR 3,000 per calendar year. Amounts exceeding EUR 3,000 are taxed at the progressive tax rate. Generally, the shares have to be deposited with a European Community (EC) bank, an Austrian branch of a foreign bank, or a trustee (may be located abroad). A transfer of shares within five years after acquisition is taxable if the employment contract is still in force (the originally tax free amount has to be taxed). The employee has to prove by 31 March of each year that the shares have not been sold. Otherwise, the originally tax free amount is taxable.
An additional beneficial tax treatment applies to non-transferable stock options granted between 1 January 2001 and 31 March 2009. A prerequisite is that the options have to be granted to all employees or certain groups of employees. The benefit is available for shares up to a value of EUR 36,400 at the date of grant. Up to a maximum of 50% of the stock options income can be considered tax-free. The taxability of the remaining amount can be deferred up to a maximum period of seven years after the grant of the options. The income for shares not covered by this rule is fully taxable.
Employee profit sharing
Special rules apply to employee profit sharing schemes granted to all employees or to certain groups of employees. The payment of a bonus is considered tax-free up to an amount of EUR 3,000 per calendar year. Amounts exceeding EUR 3,000 are taxed at the progressive tax rate. The bonus is linked with and limited by the profit of the company.
Taxable profit is the total income realised from carrying on business activities, whatever the nature of the income or business.
As a general rule, the taxable profit of a small business (up to a turnover of EUR 700,000) and special freelance professionals (e.g. lawyers, tax advisors, artists, doctors) is determined on a cash basis. For a larger business, the profit is calculated on an accrual basis of accounting.
Capital income encompasses, inter alia, interest income, dividends, and capital gains, as well as income from investment funds.
Interest income from (publicly placed) interest-bearing securities is subject to tax at 27.5%, whereas interest income from bank deposits/savings is taxed at a rate of 25% (interest from privately placed securities and private loans is taxed at the progressive income tax rate). With this WHT deduction by the Austrian bank, the income tax in general is deemed to be satisfied (final or definitive taxation).
Losses (negative capital income) cannot be offset against positive interest from bank accounts/deposits but can be offset against coupon interest from debt securities acquired after 30 March 2012.
Interest income from securities in foreign deposit accounts that is not subject to the WHT deduction must be included in the income tax return and is taxed at a 27.5% special tax rate.
If the individual’s average tax rate is less than 27.5%, then, upon assessment application, a reduction to the lower average tax rate is possible where all definitively taxable income, as well as income subject to the special tax rate, must be included.
Domestic earnings from dividends are definitively taxed for income tax purposes with the 27.5% WHT deduction by the corporation distributing the dividend.
Foreign dividend earnings paid to a domestic deposit account are also subject to final taxation through the 27.5% WHT deduction. In this case, however, banks are only liable for WHT insofar as they know the nature of the capital income.
Dividend income paid to foreign deposit accounts must be included in the tax return. Such income is subject to the special 27.5% tax rate.
If the investor applies for assessment of the capital income, dividend income is subject to the average tax rate. Regardless of a double taxation treaty (DTT) with the corresponding source country, foreign paid taxes on foreign dividends can be credited up to maximum of 15% (by the Austrian depositary bank).
Where disposal profits or income from capital assets are derived from abroad, then the corresponding double taxation convention must be taken into account.
Under the Austrian capital gains regulations effective since 1 April 2012, capital gains resulting from sales of shares (including qualifying participation's), securities, or other financial assets (e.g. securitised derivatives, certificates) are subject to 27.5% income tax as a final tax if the assets have been acquired after 31 December 2010 (or 30 March 2012 for interest-bearing securities and securitised derivatives). Realised capital gains from the sale of securities or other financial assets bought before the above mentioned date ('grandfathered' assets) are generally tax free. The grandfathering provisions do not apply to holdings where the relevant person owned at least 1% of the total issued capital of a company at any time within the five-year period preceding 1 April 2012.
The capital gain taxation provides for calculation of the realised capital gains by deducting the acquisition costs from the disposal proceeds (each inclusive of accrued interest, where applicable, but excluding transaction charges and other costs for individuals). Acquisition costs for securities with the same security identification number are derived from a moving average of the actual costs of acquisitions.
Realised capital losses on assets may be offset against capital income and gains earned within the same calendar year. The following exceptions apply:
- Capital losses and losses from derivatives cannot be offset against interest earned on interest bearing securities that were acquired before 1 April 2012.
- Income and gains/losses subject to tax at 27.5% cannot be offset against income and gains/losses that are not subject to tax at 27.5%.
- Interest expenses (interest paid on a loan or overdraft) cannot be offset against positive interest.
- Capital losses arising from the disposal of 'grandfathered' assets are not taxable in Austria and cannot be offset against gains realised elsewhere.
- For private investors, a loss carryforward is not possible. If the investments are held as business assets, one half of the excess amount can be carried forward.
The basic principle of taxation of both Austrian and foreign investment funds is transparency (if foreign investment funds comply with the Austrian reporting requirements, the same taxation rules are applicable as for domestic funds).
Taxable income from investment funds consists of both ordinary income (e.g. dividends and interest income) and income from capital gains realised at the fund level. Both types of income may be distributed or accumulated within the investment fund. Distributions of ordinary income and income from capital gains are taxable with 27.5% with no difference between domestic and foreign funds. The key difference in treatment depends on whether the foreign investment fund is registered as a reporting fund or not registered and therefore a non-reporting fund.
Capital gains realised by the fund are taxable; however, for private investors, only 60% of accumulated realised capital gains are taxable (applicable for Austrian funds and in Austria registered foreign reporting funds, but not for non-registered foreign non-reporting funds).
The accumulated income of a fund is deemed to be distributed to the fund holders and taxed accordingly. The Austrian tax figures have to be filed by an Austrian tax representative within five months after the fund’s financial year-end for domestic investment funds and within seven months after the fund’s financial year-end for foreign investment funds.
Income (distributed or accumulated) from domestic Austrian investment funds and foreign investment funds held by a private investor on a domestic deposit account is basically subject to immediate and complete final taxation with 27.5% Consequently, domestic and foreign reporting investment funds held by a private investor on a domestic deposit account do not have to be included into the annual tax return.
Non-reporting foreign investment funds will be taxed differently. The tax rates are the same, but the calculation of the taxable amounts is different. As for these investment funds, the composition of the income (interest, dividends, capital gains) is not known. The calculation of the taxable deemed distributed income (DDI) is based on a lump sum calculation rule: taxable as DDI are 90% of the growth in value during the year, but at least 10% from the value of the fund at the end of the year. The DDI calculated will be taxed at 27.5%. The actual distribution and the capital gains when the shares of the fund are sold are usually available. For this reason, the actual amounts can be calculated and are taxable at the 27.5% rate.
Income from investment funds held by a private investor on a foreign deposit must be included in the investor’s annual income tax return and is taxed at a 27.5% special tax rate.
Rental income is subject to the individual progressive tax rates.
Rental income is the difference between the rent payments received less any deductions for expenses paid (e.g. mortgage, repairs).
In case of foreign rental income, the conditions of the applicable DTT have to be considered, and foreign rental income has to be converted into Austrian rental income, based on the Austrian tax rules.
Only income mentioned in the income tax act is taxable. For this reason, heritages, gifts, earnings from gambling or bets, specific awards, finder’s fees, etc. are income tax free.