A key element to Austria's tax law reform which comes into effect on 1 January 2016, is the change to progressive income tax, which is expected to lead to an estimated €5bn in overall tax relief.
Most Austrian taxpayers are set to benefit from the reform of the tax tariff amendments, employees as well as individual entrepreneurs. More need for action derives from the set of measures to finance this relief. These measures affect all entrepreneurs, HR and payroll specialists, shareholders, persons planning to sell their real estate and companies with real estate assets.
The tax relief will be financed by a set of government measures targeting unreported earnings, and there will also be an increase of two sorts of flat tax, an increase of the land transfer tax and an increase of VAT rates. Furthermore, a wide variety of benefits in kind will be extinguished and replaced by a general ruling on how to deal with employee discounts.
- The lowest income tax rate applicable for annual taxable income of €11,000 and above is reduced from 36.5% to 25%.
- The current, highest rate of 50% applies to annual taxable income of more than €90,000 (current threshold is €60,000).
- New rate of 55% for annual taxable income of more than €1m (applicable in the years 2016 to 2020).
There are two types of flat tax in Austria, both applicable only for individual persons, not for corporations:
- Capital gains tax (for interests, dividends, grants from private foundations and capital gains). This "Kapitalertragsteuer" or "KESt" increases from 25% to 27.5% in the new year.
- The income tax rate on gains from sales of real estate increases from 25% to 30%.
Grants for research
While under current legislation, Austrian taxpayers are entitled to a 10% cash credit on certain research and development (R&D) expenses (R&D premium), 2016 this premium raises to 12% of all qualifying expenses.
Impact of the changes
Change in corporate bodies and partnerships: land transfer tax is also levied if, due to a change of ownership, at least 95% of the shares in a corporate body are owned by one party. Shares held by a trustee are newly counted as shares of the trustor.
If you are going to hand over property, the real estate transfer tax is generally 3.5 % of the purchase price. For gratuitous acquisitions and interfamily acquisitions (both gratuitous and pecuniary,) the newly introduced "Grundstückswert " is used as the tax base from 1 January 2016 onwards.
For interfamily transactions, the real estate transfer tax rate will be raised from 2 % to a range from 0.5 % to 3.5 % according to the real estate value for interfamily transactions. The "Grundstückswert", a kind of reduced market value, can be calculated in different ways, considering situation, size and age of the real estate.
Income tax on fringe benefits such as company cars are taxed less favourable in the future.
Entrepreneurs will be obliged to provide a bill (with certain content) to the customer, when the customer is paying in cash. This is new with regard to all non-business customers. All businesses must record their cash sales electronically when they exceed the threshold of €15,000 revenues and €7,000 cash revenues per year. For such cases, electronic cash register systems must be in use.
The exemption for businesses based on the street, without any shop or shelter, will be severely restricted. It may only apply where revenues do not exceed €30,000 per year.
Cash payments will be abolished in the building and construction industry: workers will no longer be allowed to be paid in, or take salary payments in cash. Expenses related to building and construction services will not be tax deductible if paid in cash.
Along with the reduced tax rate of 10%, there will be another VAT level set at 13%. This will apply for several goods and services from 1 January 2016.
- The reduced rate that currently applies to transactions including goods and imports of certain live animals and plants, as well as animal feed, some seeds, etc. will increase to 13%.
- The reduced rate for accommodation in furnished living rooms and bedrooms, as well as for tickets in the cultural sector will increase from 1 May 2016 to 13%.
Of significant note is the increase for accommodation (meaning hotels, B&B, but not housing). Austria's tourism industry must recalculate its prices from 1 May 2016. As food stays at 10%, this will require new methods for splitting arrangements, including breakfast, half and full board. The FMF (Federal Ministry of Finance) has published flat splitting ratios depending on the price category. But the hotel may also split the price in relation to the costs.
Since 1 March 2015 every financial institution has been obliged to report every account, account number and owner of the account to the Austrian Federal Ministry of Finance. Every opening and closing of an account is reported. This data can be used by several authorities. The tax authority is allowed to examine the data, if there are doubts as to the correctness of the tax declaration and the taxpayer previously had an opportunity to comment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.