Tax guide for Americans in Austria

Resident vs. non-resident of Austria

The Austrian tax system distinguishes between residents and non-residents, as this status determines the extent of an individual's tax liability. The primary difference lies in the scope of taxable income:

• Residents of Austria are taxed on their worldwide income. This includes income earned both inside and outside of Austria.
• Non-residents of Austria are taxed only on their Austrian-sourced income. This typically includes income from activities or assets located in Austria.

Who can be considered to be a resident of Austria?

The criteria for determining residency in Austria are based on physical presence and intent to remain. An individual is generally considered to be a resident of Austria if he or she meets one of the following conditions:

• If a person establishes a residence in Austria that he or she maintains and uses regularly, he or she is likely to be considered a resident. This residence must be more than just a temporary accommodation; it should indicate the person's intention to maintain a permanent presence in Austria.
• Residence may also be determined by the length of stay in Austria. Generally, if a person stays in Austria for more than six months within a calendar year, he or she is considered a resident for tax purposes. This period does not have to be continuous but is calculated over the entire tax year.

Types of taxes in Austria

The Austrian tax system includes several types of taxes, each with its own set of rules and rates. Americans living in Austria need to understand these taxes, as they directly affect their financial planning and tax compliance. The following is an overview of the major types of taxes in Austria.

Personal income tax rates

In Austria, personal income tax is levied on an individual's worldwide income if he or she is considered a resident, or on his or her Austrian-source income if he or she is a nonresident.

The country uses a progressive tax rate system, meaning the tax rate increases as the income level increases. The tax brackets are as follows (2024):

Local income tax

Austria has no local income tax. This means that, unlike some other countries where local or municipal taxes are levied in addition to national taxes, individuals and companies in Austria are only subject to federal income tax.

Capital Gains Tax

CGT in Austria applies to gains from the sale of assets such as real estate, stocks or bonds. The standard capital gains tax rate is 27.5%.

This rate applies to most capital gains, including those from the sale of securities and investment fund units. However, some exceptions and special rules are depending on the type of asset and how long it has been held.

Value-Added Tax

VAT is an important aspect of the Austrian tax system, especially for Americans engaged in business or trade. Knowledge of VAT is critical to tax compliance and effective financial management.

Input VAT

Input VAT is the VAT paid on goods and services used for business purposes. In Austria, businesses can recover the VAT they pay on business-related expenses, which is a critical factor in managing cash flow and overall business expenses.

This recovery process allows businesses to offset the VAT they owe on their sales (output VAT) against the VAT they have paid on their purchases (input VAT).

For American expats running businesses in Austria, it's important to keep accurate records of all VAT paid on business expenses.

These records are essential for claiming input VAT credits. Qualifying expenses can include a wide range of goods and services, from office supplies and equipment to professional services.

Filing and paying VAT

In Austria, VAT returns and payments are usually made on a monthly or quarterly basis. The exact frequency depends on the company's annual turnover and other criteria set by the Austrian tax authorities.

VAT returns must be filed electronically through the online system of the Austrian tax authorities. The return must detail the total output VAT collected and input VAT paid during the reporting period. It's important to ensure that all information is accurate and submitted on time to avoid penalties.

The net VAT payable, which is the difference between the output VAT and the input VAT, must be paid to the tax authorities by the deadline specified in the VAT return. If the input VAT exceeds the output VAT, the business may be entitled to a VAT refund, which is usually paid into the business's bank account by the tax authorities.

Taxes on net worth

Austria does not currently have a net wealth tax. This means that individuals, including American expats, are not taxed on the total value of their worldwide assets.

Inheritance tax

Austria abolished inheritance tax in 2008. As a result, heirs do not have to pay tax on the assets they inherit, regardless of the value of the inheritance. This applies to all individuals, including American expats living in Austria.

Estate tax

Similar to the inheritance tax, Austria does not have an inheritance tax. This means that when an individual dies, his or her estate is not subject to taxation in Austria.

Gift tax

Austria also has no gift tax. Individuals are free to make gifts without incurring any tax liability in Austria, regardless of the amount or value of the gift.

Real estate tax

Property tax in Austria is an annual tax levied by the local authorities. The tax is calculated based on a percentage of the assessed value of the property, known as the 'Einheitswert'.

The rate is set by each municipality and can vary, but generally ranges from 0.1% to 0.2% of the assessed value.

This amount is then multiplied by a municipal factor, which can be as high as 500%. The maximum rate of property tax usually does not exceed 1% of the assessed value. This tax is usually paid in quarterly installments.

Luxury and excise taxes

Austria levies excise taxes on certain luxury and specific consumer goods. These taxes apply to products such as tobacco, alcoholic beverages, and certain energy products such as petroleum.

The rates of these taxes may vary depending on the product category. For example, tobacco products are taxed at a rate that combines a percentage and a fixed amount per unit, while alcoholic beverages are taxed based on their type and alcohol content.

Stamp tax

Stamp duty in Austria is a tax imposed on certain legal documents and transactions. This includes a wide range of agreements such as leases, real estate purchase agreements, and company statutes.

The rate of stamp duty varies depending on the type of document or transaction, with some being fixed rates and others being a percentage of the value involved in the transaction.

Self-employment & business taxes for expats

For American expatriates in Austria who work for themselves or run a business, understanding the local tax system is critical.

Self-employment income is subject to income tax at the same progressive rates as earned income. In addition, self-employed individuals must pay social security contributions, which cover pension, health, and unemployment insurance.

Corporations in Austria are subject to corporate income tax on their profits. The current corporate income tax rate is 25%. Businesses must also comply with VAT regulations, which include charging VAT on goods and services and can reclaim VAT paid on business-related expenses.

Austrian income tax return filing

When to file tax returns?

In Austria, the tax year is the calendar year and tax returns are generally due by April 30 of the following year.

For those who choose to file electronically, the deadline is extended to June 30.

How to file a tax return?

Tax returns in Austria can be filed either on paper or electronically. The electronic filing system, known as FinanzOnline, is efficient and user-friendly.

To file electronically, one must first register on the FinanzOnline portal.

The system guides taxpayers through the filing process, making it easier to provide the necessary information and documentation.

Penalties for late or incorrect filing

• Failure to file a tax return on time or filing an incorrect return may result in penalties.
• Late filing may result in a standard assessment, which may not take into account all possible deductions and exemptions, potentially resulting in a higher tax bill. In addition, interest is charged on late payments.
• In cases of incorrect filing, if it's deemed that there was an intent to evade tax, more severe penalties may be imposed, including fines.

Types of income in Austria

The Austrian tax system includes several types of income, each with its tax implications.

For American expats living in Austria, it's important to understand these different types of income, especially earned income and capital gains, as these are common sources of income for many expats.

Employment income

Earned income in Austria includes all forms of compensation received from employment, such as salaries, wages, bonuses, and allowances.

This income is subject to Austria's progressive income tax rates, which range from 0% for lower income levels to 55% for higher income levels.

For American expats, it's important to note that earned income in Austria is subject to Austrian income tax laws.

In addition, benefits in kind, such as company cars, housing, or other non-cash benefits, are also considered part of taxable employment income and are valued according to specific rules established by the Austrian tax authorities.

Equity compensation

Equity compensation refers to non-cash compensation that represents ownership in the company, such as stock options, restricted stock, and performance shares. In Austria, this form of compensation is often used to incentivize employees, especially in start-ups and multinational companies.

The taxation of equity compensation in Austria depends on the type of equity granted. For example:

1. Stock options: The benefit from stock options is generally taxed at the time of exercise. The taxable amount is the difference between the fair market value of the shares at the time of exercise and the exercise price.
2. Restricted Stock Units (RSUs): For RSUs, taxation generally occurs at the time of vesting when the employee purchases the shares. The taxable amount is the fair market value of the shares at the time of vesting.
3. Performance shares: These are generally taxed when the shares are granted to the employee, based on the fair market value of the shares.

Equity compensation can be complex and the tax implications can vary depending on the specific terms of the equity plan.

Profit sharing for employees

Employee profit sharing is a form of compensation in which employees receive a share of the company's profits, typically in addition to their regular salary. This type of income is becoming increasingly popular as a way to incentivize and reward employees for contributing to the company's success.

For tax purposes in Austria, profit-sharing bonuses are treated as taxable income and are subject to the same progressive income tax rates as regular employment income. The tax rate varies depending on the total amount of income earned by the individual, including the amount of profit sharing.

American expats participating in profit-sharing programs in Austria should be aware that this income will be included in their taxable income and should plan accordingly for any tax liability.

It's also important to consider any potential implications under US tax laws, as US citizens and tax residents are required to report their worldwide income to the IRS.

Capital income

Interest income

In Austria typically comes from savings accounts, bonds, and other interest-bearing investments. Taxation of interest income depends on the type of investment:

• Interest earned on bank deposits is subject to a 25% withholding tax. This tax is usually deducted by the bank and paid directly to the tax authorities.
• Interest income from publicly traded securities, such as bonds, is taxed at a higher rate of 27.5%. Similar to bank deposit interest, this tax is usually withheld and paid by the financial institution managing the securities.

Dividend income

Dividend income in Austria refers to income distributed by a company from its profits to its shareholders.

Dividend income is taxed as follows:

• Dividends received from Austrian corporations are subject to a withholding tax of 27.5%. This tax is generally withheld and paid by the company distributing the dividends.
• The tax treatment of dividends received from foreign companies may vary. If the dividends are paid into an Austrian account, the 27.5% withholding tax applies.

However, if the dividends are paid into a foreign account, the individual must declare this income in his or her Austrian tax return and it will be taxed at the 27.5% rate.

Investment fund

Investment funds, including mutual funds and ETFs, are popular investment vehicles in Austria and are subject to specific tax rules:

• Dividends or interest income distributed by investment funds are subject to a capital gains tax of 27.5%. This tax is usually withheld at source by the fund management company.
• For mutual funds that accumulate gains instead of distributing them, the gains are still subject to the 27.5% capital gains tax. This is known as the "exit tax" and is levied when the investor sells their fund shares.

Rental revenue

Rental income in Austria is a common source of income for many property owners, including American expats. This type of income is generated from the rental of real estate, such as apartments, houses, or commercial space.

In Austria, rental income is subject to income tax and must be declared as part of the annual tax return. The taxable amount is calculated as the gross rental income less allowable expenses. These expenses may include mortgage interest, property maintenance and repairs, insurance premiums, and property management fees.

The tax rate applied to rental income follows Austria's progressive income tax rates, which range from 0% to 55%. Property owners need to keep detailed records of both their rental income and related expenses to accurately report and optimize their tax liability.

Exempt income

In Austria, certain types of income are exempt from taxation, providing relief in certain circumstances. These exemptions are particularly important for American expats to understand, as they can affect overall tax planning and reporting.

1. In Austria, inheritances and gifts are exempt from income tax. This exemption can have a significant impact on estate planning and wealth transfer strategies for expats.
2. Some insurance payouts, such as those from life insurance policies, may be exempt from income tax under certain conditions.
3. Winnings from lotteries and certain types of gambling are tax-exempt in Austria. However, it's important to note that these winnings may be subject to different tax treatment under US tax laws.
4. Scholarships and grants for educational or research purposes are generally exempt from income tax provided they are used for the intended educational or research activity.

Austrian Social Security

Social Security in Austria is a comprehensive system that provides a range of benefits to employees, including health insurance, pensions, accident insurance, and unemployment benefits.

This system is funded by contributions from both employers and employees, and it's mandatory for all employees working in Austria, including American expats.

The Austrian social security system covers various risks such as sickness, maternity, industrial accidents, occupational diseases, unemployment, old age, and death.

Social security contributions are calculated as a percentage of the employee's gross salary. These contributions are shared between the employer and the employee. The exact percentage varies depending on the type of insurance but typically ranges from 15% to 18% of gross salary.

Benefits include medical care, sick pay, maternity and paternity leave, pension payments, and unemployment benefits. The extent of these benefits depends on the amount and duration of contributions.

Austria pension system

The pension system in Austria is a key component of the country's social security framework and is designed to provide individuals with income during retirement.

Both employers and employees contribute to the pension system through their social security contributions. The pension contribution is a significant part of the total social security contribution.

The standard retirement age in Austria is currently 65 for men and 60 for women, although there are ongoing discussions and changes aimed at equalizing the retirement age for both sexes.

The amount of the pension is calculated based on the individual's earnings during their working life and the number of years of contributions. The more years an individual contributes and the higher their earnings, the higher the pension they can expect to receive.

Early retirement options are available under certain conditions but usually result in a lower pension due to the shorter contribution period.

American expats working in Austria can accumulate pension rights through their contributions. However, it's important to understand how these rights may be affected if they move back to the US or another country. International treaties and totalization agreements can play a role in determining pension eligibility and calculations.

Austrian tax deductions for expats

Navigating the Austrian tax system can be a complex process for expatriates, especially when it comes to understanding available tax deductions.

These deductions can significantly reduce taxable income and, therefore, overall tax liability.

Deduction for earned income

In Austria, individuals with earned income are entitled to various deductions that can reduce their taxable income.
Key aspects include:

1. All employees in Austria are automatically entitled to a standard deduction on their earned income. This deduction is intended to cover typical work-related expenses such as travel to and from work, work clothing, and other minor expenses.
2. If an employee incurs work-related expenses that exceed the standard deduction, these expenses can be claimed as additional deductions. This could include expenses for job training, work-related travel beyond the usual commute, or necessary work equipment not provided by the employer.
3. For expats who maintain one household in their home country and a second in Austria due to work, expenses related to the second household may be deductible. This may include accommodation and travel costs between the two households.

Expenses for ergonomic furniture

Recognizing the importance of a comfortable and efficient home office, the Austrian tax system allows deductions for ergonomic office furniture:

Expenses for ergonomic furniture such as desks, chairs, and desk lamps used in a home office are deductible.

The deduction is limited to EUR 300 per year, provided the individual has worked from home for at least 26 days in the calendar year.

To claim this deduction, it is essential to keep receipts or invoices of the furniture purchased for audit purposes.

Personal deductions

In Austria, personal deductions play a crucial role in reducing taxable income for individuals, including American expats. These deductions can significantly reduce the overall tax burden.

Special expenses

Special expenses in Austrian tax law refer to certain types of expenses that are not directly related to employment or business income but are considered deductible for tax purposes. These include:

• Payments for life, accident, health, and liability insurance are deductible up to a certain limit.
• Expenses related to continuing education or retraining, especially if related to your job, may be deductible. This includes language courses and computer training.
• Donations to approved charities and non-profit organizations in Austria and the EU are deductible.
• Contributions to recognized religious organizations are deductible up to a certain amount.
• Alimony payments to a separated or divorced spouse are deductible under certain conditions.

Non-recurring expenses

Extraordinary expenses are significant costs that are unexpected and do not occur regularly. These expenses may be deducted if they exceed a certain amount based on the taxpayer's income, marital status, and number of children.
Examples of extraordinary expenses include:

• Medical expenses not covered by insurance, such as special treatments, surgeries, or medical equipment, may be considered extraordinary expenses.
• Expenses incurred due to natural disasters (such as floods or landslides) that are not covered by insurance may be claimed.
• Funeral expenses can be deducted up to a certain limit if they are not covered by funeral insurance.

Family Bonus Plus

The Family Bonus Plus is a significant tax break in Austria designed to provide financial assistance to families with children.

The Family Bonus Plus is a tax credit that reduces the amount of income tax paid. It is available for each child for whom family allowance is received.

The annual tax credit is EUR 1,500 per child up to the age of 18. For children aged 18 and over, provided they are still entitled to family allowances (e.g. students), the credit is EUR 500 per year.

If both parents are eligible and choose to claim the Family Bonus Plus, the total amount may be split between them. This split can be arranged to maximize the family's total tax benefit.

To be eligible, you must be subject to income tax in Austria and eligible for family allowances. This includes expatriates who meet these criteria.

Losses

In the context of Austrian tax law, losses refer to the negative balance that may result from business or investment activities.

If a taxpayer incurs losses from a business or self-employment, these losses can be offset against other categories of income in the same tax year. This can reduce the total taxable income and therefore the tax liability.

In certain cases, if losses cannot be fully utilized in the same year, they can be carried forward to future tax years. This allows taxpayers to offset these losses against future profits, providing a form of tax relief in subsequent years.

Losses from investments, such as the sale of stocks at a loss, can also be used to offset capital gains from other investments. However, there are specific rules and limitations on how investment losses can be treated, so it is important to understand these nuances.

Tax Treaty between the US and Austria

The United States and Austria have a bilateral tax treaty that provides several benefits to expats from both countries. This treaty is designed to prevent double taxation and tax evasion, making it an important consideration for American expats.

Tax treaty advantage

• The treaty outlines the tax obligations of American expats in Austria and vice versa, ensuring that income is taxed only once. This is especially important for expats with sources of income or assets in both countries.
• The treaty may reduce the withholding tax rate on dividends, interest, and royalties, benefiting expats with investments.
• The treaty provides clarity on which country has the right to tax certain types of income, such as pensions, income from government services, and capital gains.

Totalization Agreement between the USA and Austria

In addition to the tax treaty, the United States and Austria have a totalization agreement, which is particularly important for expats regarding social security contributions.

• The treaty helps determine which country's social security system an expat should contribute to. This is important for those who work in both countries during their career.
• The treaty ensures that expats can aggregate their social security credits from both countries, helping them qualify for retirement, disability, or survivor benefits.
• Expats are protected from paying social security contributions to both countries on the same income, reducing the financial burden.

Most popular tax forms for US expats

For American expatriates living in Austria, compliance with US tax laws is critical. This includes understanding and correctly filing certain tax forms that are commonly required for US citizens living abroad. Here are some of the most common tax forms that US expats are likely to encounter:

1. Form 1040: The standard US individual income tax return. All US citizens and residents must file Form 1040 and report their worldwide income, including income earned in the United States.
2. Form 2555 (Foreign Earned Income Exclusion): This form is used to claim the Foreign Earned Income Exclusion, which allows expats to exclude a certain amount of their foreign-earned income from US taxation.
3. Form 1116 (Foreign Tax Credit): If you pay income tax in Austria, Form 1116 can be used to claim a credit on your US tax return, helping to avoid double taxation.
4. FBAR (FinCEN Form 114): US expats with foreign financial accounts that exceed certain thresholds must report these accounts annually using the FBAR, which is filed electronically with the Financial Crimes Enforcement Network (FinCEN).
5. Form 8938, Statement of Specified Foreign Financial Assets: Similar to the FBAR, this form is part of the Foreign Account Tax Compliance Act (FATCA) requirements and must be filed with the IRS under certain conditions.

Austria tax forms for US expats

In addition to US tax forms, American expats in Austria need to be familiar with Austrian tax forms, especially if they have sources of income or assets in Austria.
Key forms include:

1. E1 (Einkommensteuererklärung): The Austrian income tax return form for individuals. This form is used to report income earned in Austria, including employment income, self-employment income, rental income, and other types of taxable income.
2. U1 (Umsatzsteuererklärung): This form is used for VAT reporting by businesses, including self-employed expats. It's a monthly or quarterly declaration of VAT collected and paid.
3. L1 (Erklärung zur ArbeitnehmerInnenveranlagung): For employees, this form is used to claim various tax deductions and credits, such as work-related expenses, special expenses, and family allowances.
4. K1 (Körperschaftsteuererklärung): This form is used for corporate income tax reporting.