Austria's Tax System: Worldwide Income And Its Taxation

Austria's tax system is complex, with a variety of taxes, including income, corporate, and value-added taxes (VAT). The country's tax laws are similar to Germany's, but there are differences in income tax brackets. Austria's income tax is known as Einkommensteuer, and it is a pay-as-you-earn system, with taxes paid throughout the year. Those who have established residency in the country face unlimited tax liability, meaning they must pay taxes on their worldwide income, including earnings from employment, business, investments, and property. This is in contrast to non-residents, who are taxed only on their Austrian-sourced income.

Who pays income tax in Austria?

The Austrian tax system collects taxes based on residency. This means that individuals who are considered residents of Austria for tax purposes have to pay taxes in Austria.

You are considered a resident taxpayer of Austria if:

• Your primary residence is in Austria, meaning you live more than 183 days per calendar year in the country
• You are a full-time student in Austria
• You earn additional income in Austria, for example, from real estate or investments

If you are a resident of Austria for tax purposes, you will have unlimited liability to pay tax. This means you will be liable to pay taxes on your worldwide income. Students who are working part-time and earning more than the tax-free allowance of €11,693 are also liable to pay income tax.

If you are a non-resident taxpayer in Austria, you live in Austria for less than 183 days per calendar year and earn a portion of your income in Austria. In this case, you will have limited liability to pay tax, and you will be taxed in Austria only on your Austrian income.

In Austria, only natural persons are liable for income tax. The Austrian Income Tax Act distinguishes between unlimited and limited liability to pay tax. The nationality of the person is only a material factor in exceptional cases.

All individuals who have a domicile in Austria or for whom Austria is their usual place of residence are subject to unrestricted income tax. This means that, in principle, all of their Austrian and foreign income is subject to Austrian income tax.

Additionally, even individuals who are not domiciled in Austria may be liable for tax on certain income generated in Austria ("restricted tax liability"). EU/EEA citizens who are not domiciled in Austria may be subject to unrestricted income tax if their main source of income is in Austria. This ensures that personal circumstances are considered for tax purposes, and the full tax-free minimum subsistence level of at least €12,816 is guaranteed.

Income Tax Brackets in Austria

Under the Austrian tax system, income tax is charged progressively, ranging from 20% to 55%. The income tax brackets for 2024 are as follows:

• €12,817 - €20,818: 20%
• €20,819 - €34,513: 30%
• €34,514 - €66,612: 41%
• €66,613 - €99,233: 48%
• €99,234 - €1,000,000: 50%

Types of Income Tax in Austria

There are two types of income tax in Austria: income tax and wage tax. The type of employment determines which tax is paid.

If you are in paid employment, you pay wage tax in Austria. Taxes are automatically deducted from your gross salary before you receive it. If you are self-employed, you pay income tax in Austria. This is the case for freelancers and small business owners. Taxes are not automatically deducted from your salary, and you need to file them yourself.

How does tax work for expats in Austria?

Austria's tax system can be complicated, especially for expats. Here's a detailed overview of how taxes work for expats in Austria:

Resident vs. Non-Resident

Austria's tax system distinguishes between residents and non-residents, as this status determines the extent of an individual's tax liability.

Residents are taxed on their worldwide income, including income earned both inside and outside of Austria. To be considered a resident, an individual must meet at least one of the following conditions:

• Establish a residence in Austria that is maintained and used regularly, indicating an intention to maintain a permanent presence.
• Stay in Austria for more than six months within a calendar year. This period doesn't have to be continuous but is calculated over the entire tax year.

Non-residents are taxed only on their Austrian-sourced income. This includes income from activities or assets located in Austria.

Income Tax

Austria's income tax is called "Einkommensteuer." The country uses a progressive tax rate system, meaning the tax rate increases as income levels increase. The tax brackets for the 2023/2024 tax year are:

• €11,693 – €19,134
• €19,134 – €32,075
• €32,075 – €62,080
• €62,080 – €93,120
• €93,120 – €1,000,000
• Over €1,000,000

The income tax rate ranges from 0% for lower income levels to 55% for higher income levels.

Tax Residency

Determining your tax residency status is crucial, as it affects your tax obligations and the amount of tax you need to pay. In general, you are considered a tax resident in Austria if you meet either of the following criteria:

• You have a permanent home in the country.
• You spend more than 183 days in Austria during a calendar year.

If you are unsure of your tax residency status, it is recommended to seek guidance from a tax professional. You may need to provide documentation such as proof of residence and work permits.

Tax Filing Requirements

In Austria, tax laws require anyone who earns income in the country to file a tax return, including both residents and non-residents. However, the specific requirements may vary depending on individual circumstances such as income level, marital status, and the type of income earned.

Tax Deadlines

The tax year in Austria follows the calendar year, from January 1 to December 31. The deadline for filing income tax returns varies depending on the filing method:

• Paper tax returns are due by April 30.
• Online tax returns have an extended deadline of June 30.

Double Taxation Agreements (DTAs)

Austria has established DTAs with many countries worldwide to ensure that individuals do not pay taxes twice on the same income. These agreements are particularly beneficial for expats, and the complete list of treaty partners can be found on Austria's Federal Ministry of Finance website.

Social Security

Austria has a comprehensive social security system that provides benefits such as health insurance, pensions, accident insurance, and unemployment benefits. Both employers and employees are required to contribute to this system, and it covers all employees working in Austria, including expats. The contributions are calculated as a percentage of the employee's gross salary, typically ranging from 15% to 18%.

Tax Deductions and Exemptions

Austria offers various tax deductions and exemptions that can reduce taxable income and overall tax liability:

• Standard deduction for all employees to cover work-related expenses such as travel and work clothing.
• Additional deductions for work-related expenses that exceed the standard deduction, such as job training and work-related travel.
• Deductions for expenses related to maintaining two households (one in the home country and one in Austria) due to work.
• Deductions for ergonomic office furniture expenses of up to EUR 300 per year.
• Special expenses, such as insurance payments, continuing education expenses, donations to approved charities, and alimony payments, are also deductible.
• Extraordinary expenses, such as medical expenses not covered by insurance and natural disaster-related expenses, may be claimed.
• Family Bonus Plus: A tax credit of EUR 1,500 per child up to the age of 18, and EUR 500 per year for children aged 18 and over who are still entitled to family allowances.

US Expat-Specific Information

For US expats in Austria, it is important to note that as US citizens or residents, you are required to file a tax return with the Internal Revenue Service (IRS) every year, reporting your worldwide income. Additionally, Austria has a tax treaty and a totalization agreement with the US, which help prevent double taxation and detail social security contributions, respectively.

Income tax for self-employed workers in Austria

Austria's income tax system is progressive, meaning that the rate of taxation increases with earnings. The rate ranges from 20% to 55% of taxable income. Self-employed workers fall into the same tax brackets as employees, but they can expect to pay a tax rate of about 25% if their income surpasses the tax-free threshold of €12,465. If their earnings exceed €30,000, they must also pay value-added tax (VAT).

Self-employed workers are responsible for filing their own income tax declarations, as freelance work is considered a form of self-employment. They can offset several business-related expenses against their income tax return.

In Austria, income tax is known as the Einkommensteuer. It is a pay-as-you-earn system, with taxes paid throughout the year. People who have established residency in Austria face unlimited tax liability and must pay tax on their worldwide income. Those who work in Austria but are officially resident elsewhere are subject to limited tax liability, meaning they only pay tax on income earned in Austria.

Austria has double taxation agreements with over 80 countries, including Germany, Switzerland, the United States, and the United Kingdom. These treaties ensure that taxpayers do not pay tax on the same income in two different countries.

How to file your income tax return in Austria

In Austria, income tax is known as Einkommensteuer. It is a pay-as-you-earn system, with taxes paid throughout the year. If you live and work in Austria, you are likely liable to pay income tax and file a return.

The Austrian government levies tax on residents' salaries, wages, or any other forms of remuneration. Salaried employees and pensioners pay wage tax (Lohnsteuer), while self-employed workers pay income tax (Einkommensteuer). The tax brackets are the same, but the collection method differs.

The Austrian Income Tax Act (Einkommensteuergesetz) stipulates seven types of earnings that are liable for taxation and splits these into two groups: business or profit income, and non-business or receipts over expenditure income.

• Determine your tax liability: Austria differentiates between limited and unlimited tax liability. You have unlimited tax liability if Austria is your primary country of residence and you receive an income. This includes cross-border employees, those receiving income from a foreign employer, foreign diplomatic missions or international organisations, and foreign pensions.
• Understand the tax brackets: Austria's income tax system is progressive, meaning the rate of taxation (up to 55% of taxable income) increases the more you earn. The tax brackets for 2023/2024 are: €11,693–€19,134, €19,134–€32,075, €32,075–€62,080, €62,080–€93,120, €93,120–€1,0000,000, and €1,000,000.01 and above.
• Register for tax: You can register for a tax number and submit your tax return online via the government's tax office portal, FinanzOnline. Alternatively, you can register and submit your return in person at your local tax office by booking an appointment.
• Fill out the necessary forms: If you are legally required to complete an income tax return, you will need to use the following forms: E1 for personal income tax, and E1a for business income and expenditure (if self-employed). These forms are in German and cover personal and contact details, tax credits, exemptions, deductions, childcare allowance, benefits, pension contributions, and a detailed description of all sources of income.
• Provide additional information: Depending on your sources of income, you may need to attach supplementary forms. For example, E1b for income from rentals, E1c for sole traders with lump-sum income from agriculture and forestry, and L1i for income from non-self-employed work without deduction of wage tax.
• Understand deductions and tax relief: You can claim certain deductions against your taxable income in Austria. These include sickness, life, and accident insurance premiums, extraordinary burdens (such as illness or disaster costs not covered by insurance), voluntary employer pension contributions, building or renovation expenses, and family benefits.
• File your tax return by the deadline: The deadline for submitting your tax return depends on the method. Paper returns must be submitted by 30 April of the following year, while electronic submissions via FinanzOnline are due by 30 June. These deadlines may be extended upon request.
• Calculate and pay your taxes: Most taxpayers use FinanzOnline to pay their income tax electronically. Other options include direct bank transfer or payment at a bank using a deposit/payment slip. Remember to include your tax identification number and specific payment codes.
• Appeal if necessary: Once you submit your tax return, the tax office will issue an assessment. If you disagree with the assessment, you can submit an appeal within one month to the competent tax office, providing a declaration and justification for any requested amendments.

Austria's double taxation agreements

Austria has entered into agreements, known as Double Taxation Agreements (DTAs) or Double Taxation Conventions (DTCs), with over 80 countries worldwide to prevent double taxation. These treaties ensure that taxpayers do not have to pay tax on the same income in two different countries.

A DTA regulates which of the two countries may apply its domestic tax law and which one has to forgo its taxes, either partially or entirely. In all cases, the aim is to ensure effective single taxation. For a trader to make use of a DTA, it is a precondition that the trader should be a resident of Austria and can prove this to the other country by presenting an Austrian Certificate of Residence.

DTAs provide for various ways of avoiding double taxation. There are two main methods: tax paid abroad can be credited to an individual's tax bill (the credit method), or income earned abroad can be exempted from tax, even if it is still considered when calculating the progressive tax rate to which the individual is subject (the exemption method).

Austria has concluded DTCs with countries including Germany, Switzerland, the United States, the United Kingdom, Canada, Japan, and the United Arab Emirates.

Frequently asked questions