Residents are subject to tax on their worldwide income. For tax purposes, a resident is defined as an individual whose home is in Austria or who has been in Austria for more than six months, retroactive to the start of the individual's stay. Non-residents are subject to tax only on certain Austrian-sourced income. However, they are generally ineligible for personal deductions. Tax treaties should provide protection against those living temporarily in Austria or non-residents being taxed twice on the same income.
Taxable Income and Rates
In the 2006 tax year, the first €10,000 of earned income is tax-free. There are four tax bands in which the marginal rate for those at the top of the band is 0% at €10,000, 23% at €25,000, 33.5% at €51,000 and 50% at amounts above €51,000. The first €620 of special payments such as the so-called 13th or 14th salary is tax-free. Above that amount, tax is paid at generally 6% on these special payments unless these bonuses are higher than two months’ normal salary. If that is the case, any excess is taxed as part of annual salary if no other special tax benefits are applicable.
Determination of Taxable Income
For residents of Austria, taxable income is worldwide earned income if an applicable tax treaty does not grant beneficial tax treatment. A number of tax credits and deductions are available, many of which are deducted at source by the employer. There are automatic tax credits related to the number of income-earning individuals in the household and whether there are children (eg €669 for a single-earner two-child household in 2006) and to cover travel to work, eg €495 in 2006 for distances between 20km and 40km). It is also possible to take a flat rate deduction for “special expenses” for certain types of insurance premium, investment (particularly in start-up companies), and the purchase of a house or home improvements. Some other types of savings, particularly towards retirement, are deductible in full up to a ceiling of €2,920 per person. However, the ceiling is higher for a single-income or single-parent household, or for families with three children or more.
Deductions are possible for work-related expenses. Some of these are at a flat rate, which can be replaced by a claim for actual expenditure if this is higher. Deductible expenses can include the cost of keeping a flat close to the workplace if a long commute is not feasible, professional use of a home computer and broadband Internet connection, a mobile phone or a car.
Most unearned income is taxable and tax is withheld at source. However, interest from certain types of savings products is tax-exempt or tax-exempt up to certain levels of interest. Some capital gains are also taxed. Rules on taxation of savings income and capital gains have been reformed to eliminate anomalies and boost Austrian capital markets.
A 25% withholding tax applies to interest earned from bank deposits; ordinary, convertible or profit-sharing bonds; and loans secured by a mortgage on real property. The same tax applies to dividend income. The tax is final in the case of personal taxpayers. Personal taxpayers do not have to declare income from which tax has been withheld. They may do so if their effective tax rate is lower than 25%, as they can then reclaim that part of the tax that exceeds their effective tax rate. Interest and dividend income from sources without an Austrian paying agent must be declared; they are now also subject to only 25% or an effective lower tax rate. Where tax has been withheld at source on foreign income and dividends and the rate at which tax is withheld is higher than the Austrian rate, the difference can be reclaimed under double taxation treaties – although not always in full. Non-residents can in most cases reclaim tax withheld in Austria.
Capital gains on shares held for less than one year are taxed as earned income. There are some exemptions for stock options, employee share schemes and shares in start-up companies. Capital gains on the sale of shares in companies in which the investor has held more than 1% at any time in the previous five years are subject to tax at half the normal income tax rate. Capital gains are also taxable where the underlying transactions are deemed to have been speculative. This tax is waived under the terms of some double taxation agreements. Capital gains on investment property held for longer than ten years are tax-free if it is not business income.
Twenty per cent of any capital gain in a fund investing in Austrian shares and realised after January 1st 2001 is taxed at 25%. Where the money is held in a foreign investment fund marketed in Austria and deposited in an Austrian bank, the capital gains are assessed as income and 25% tax of 6% of the call price will be withheld unless the investor can prove that the tax authorities are aware that they hold the investment. Under pressure from the EU, the law has been changed to remove discrimination against individuals with savings in foreign-investment funds.
Special Expatriate Tax Regime
There is no specific expatriate tax regime in Austria. Nevertheless, the tax authorities are prepared to accept a number of deductions reflecting the additional cost-of-living expenses incurred by expatriates.
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