On 16 June 2015, the Austrian government approved a draft bill of the Tax Reform Act of 2015/2016 for submission to Parliament. If adopted, most of the changes will become effective as of 1 January 2016. In particular, the draft bill includes the following amendments.
Income Tax Rate
One key element of the draft bill is the reduction of the tax rate for the first tax bracket from 36.5% to 25%. In addition, the number of tax brackets will be raised from currently three to six, meaning a flattening of the progressive rate. On the other hand, for the next five years a new maximum tax rate of 55% shall become applicable to income exceeding EUR 1 million.
Repayment of Capital
The current administrative practice allows for the qualification of a dividend for tax purposes either as profit distribution (which is subject to withholding tax) or capital repayment (which is free of withholding tax) provided that certain conditions are met. This freedom of choice shall be abolished; dividends are to be treated as profit distribution primarily, and only if no distributable profit exists, may they be regarded as a capital repayment.
Depreciation of Buildings Held as Business Assets
Regarding buildings held as business assets, the three currently applicable depreciation rates of 3%, 2.5% and 2% (which depend on the usage of the building) shall be replaced by a uniform depreciation rate of 2.5%. In case a building is rented out for residential purposes, a rate of 1.5% shall apply.
Treatment of Losses from Partnerships
The government plans to restrict the offsetting of losses incurred by individuals from certain types of partnerships to their actual partnership contribution. Any excess loss shall be put on hold and may only be offset against profits derived from the partnership in future years. This rule shall apply if a partner has no liability or only limited liability and if, in addition, he/she has more the position of a passive investor rather than an active entrepreneur.
Allocation of Acquisition Costs of Real Estate
Pursuant to current administrative practice, acquisition costs of real estate are currently allocated between the (depreciable) building and the (non-depreciable) land in a ratio of 80% to 20%. In the future, a statutory (refutable) presumption shall determine that 60% of the acquisition costs are to be allocated to the building, while 40% are attributable to the land.
Dividend Withholding Tax
Income from the letting of capital is currently subject to a uniform 25% withholding tax rate. In the future, two different tax rates shall be applicable: interest derived from cash deposits with banks shall be taxed at 25%, while all other income from the letting of capital shall be taxed at 27.5%. In particular, shareholders receiving dividends will be affected by the increased tax rate.
Sale of Private Property
Currently, income from the sale of property which does not form part of a business is subject to a special income tax rate of 25%. In the future, the rate shall be 30%. Also, the 2% inflation allowance will be abolished.
The premium for research & development activities shall be raised from currently 10% to 12%.
Tax Loss Carry-Forwards
Taxpayers that calculate their profit under cash basis accounting rules are currently entitled to carry forward their losses for three years only. In the future, no time limitation shall apply.
Relocation Incentive for Researchers and Scientists
The relocation incentive for researchers and scientists shall be made more attractive: On the one hand, 30% of the individual's wages shall be exempted from income tax for the first five years after relocation. On the other hand, the Austrian Minister of Finance shall, by way of regulation, be able to eliminate any increased tax burden resulting from the relocation by applying the average income tax rate applicable prior to relocation.
Value Added Tax
The reduced VAT rate regarding specific goods and services shall be raised from 10% to 13%. The new rate shall be applicable, for example, to cultural services, sports events and accommodation.
Real Estate Transfer Tax
In the past, the tax basis for the transfer of real estate was often the very low threefold "standard tax value" (Einheitswert), in particular for transfers between relatives. According to the draft bill, real estate transfer tax shall in the future always be based on the value of the consideration, even in case of transfers between relatives. In case of gratuitous transfers it shall be levied on the value of the transferred real estate.
Whereas previously the tax rate was 2% for transfers between relatives and 3.5% in all other cases, a special tax rate shall generally apply to gratuitous transfers. The rate shall vary as follows:
|EUR 0 – 250,000||0.5%|
|EUR 250,000 – EUR 400,000||2%|
|Over EUR 400,000||3.5%|
To all other transfers of real estate a tax rate of 3.5% shall be applicable.
Currently, real estate transfer tax also falls due in cases where 100% of the shares in a company holding real estate are pooled in the hands of a single shareholder (either a single person or several persons forming a VAT group). In the future, real estate transfer tax shall already be triggered upon the pooling of 95% of the shares in such a company. Furthermore, the reference to a VAT group shall be replaced by reference to a group of companies within the meaning of sec. 9 of the Austrian Corporate Income Tax Act. Another amendment specifies that shares held in trust shall be regarded as the shares of the trustor for real estate transfer tax purposes.
At present, transfers of real estate in the course of restructurings are subject to real estate transfer tax at a rate of 3.5% of the double tax value of the real estate. In the future, the real estate transfer tax shall amount to 0.5% of the property value.
Measures against Tax Fraud
In order to step up the fight against the "black market" economy, the government plans to make fraud-proof cash registers mandatory for companies effecting predominantly cash transactions and having a net annual turnover of at least EUR 15,000. Furthermore, companies shall be obliged to issue receipts to customers paying with cash, while customers shall be obliged to accept the receipt. In addition, payments of more than EUR 500 for construction works shall no longer be deductible if made in cash. Similarly, in the construction industry it shall not be possible to pay wages in cash anymore.
Fiscal Criminal Law
In this area, it is planned to make tax evasion only punishable in the event of gross negligence and willful intent (thus no prosecution in case of only slight negligence).
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.