Income Tax Rates: Austria's Comprehensive Guide

Austria's income tax system is known as Einkommensteuer, and it is a pay-as-you-earn model, with taxes paid throughout the year. In 2016, a tax reform was implemented, reducing income tax rates. Austria's income tax rates are progressive, meaning that as an individual's income increases, so does the rate at which their income is taxed. Those who have established residency in Austria are subject to unlimited tax liability, while those who work in Austria but reside elsewhere are taxed only on their Austrian-sourced income. Austria also offers tax benefits and allowances to attract foreign scientists and researchers.

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Income tax rates and bands

Income tax in Austria is progressive, meaning that the rate at which an individual's income is taxed increases as they earn more. There are seven tax bands in total. People who earn less than €11,000 annually do not pay any tax. The highest marginal tax rate is 55% for people whose yearly income exceeds €1,000,000. The tax is paid monthly.

In 2016, there was a tax reform in Austria that changed income tax rates. The tax rate for the highest level of income is 55%, the fourth-highest in the EU after Sweden, Portugal and Denmark. The 13th and 14th-month salaries (known as 'special payments') are taxed at 6%. The first €620 is tax-free.

Austria's tax system allows for exceptional situations, such as special expenses and extraordinary burdens, and it is therefore possible to receive a tax rebate. Such burdens include, for example, doctors' fees and hospital costs, as well as the costs of childbirth and dental treatment. To claim such extraordinary burdens, individuals can file an application known as an ArbeitnehmerInnenveranlagung with the tax office.

Stipends for educational purposes are tax-free under certain conditions. For example, a grant received for writing a master's or PhD thesis is tax-exempt as long as it is not a substitution for income and is no higher than the yearly amount of the Austrian Study Grant (Studienbeihilfe), which was €8,580 in 2023. If the stipend is higher, it is then subject to tax.

In addition to income tax, there are other taxes that residents of Austria must pay. These include sickness insurance, accident insurance, unemployment insurance, and pension insurance. Employees and freelance workers also pay 0.5% of their gross income as a Chamber of Labour contribution and 1% as a housing construction promotion levy.

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Tax-free allowances

In Austria, taxes are levied by the state, and the tax revenue in Austria was 42.7% of GDP in 2016, according to the World Bank. The income tax in Austria is progressive, meaning that the rate at which an individual's income is taxed increases as they earn more.

There are various tax-free allowances in Austria. Firstly, people who earn less than €11,000 annually are exempt from paying any income tax. Secondly, the first €620 of special payments, such as the 13th and 14th-month salaries, are also tax-free. These special payments include additional salaries received before the summer holidays and Christmas, as well as bonuses. Thirdly, stipends for educational purposes, such as grants for writing a master's or PhD thesis, are tax-free as long as they do not exceed the yearly amount of the Austrian Study Grant (€8,580 in 2023). Fourthly, relocation expenses paid by employers to employees transferring locations are exempt from tax. Finally, self-employed persons can use a tax allowance of €3,900 per year.

Austria also offers various other financial support and allowances. These include commuter allowances, free travel for students, support for further training, and family and childcare allowances. Additionally, Austria provides tax benefits to scientists and researchers from outside the country to attract them to live and work in Austria. These benefits include tax-free stipends for specific projects and generous allowances for special expenses and extraordinary burdens, such as medical and hospital costs.

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Tax on foreign income

In Austria, income tax is known as Einkommensteuer, and it is paid throughout the year as a pay-as-you-earn. Those who have established residency in Austria are subject to unlimited tax liability, meaning they pay tax on their worldwide income. This includes income from trade or business, profession, employment, investments, and property.

On the other hand, non-residents of Austria are taxed only on their Austrian-source income at normal rates, with a fictitious income increase of 10,888 euros. They are also eligible for a partial refund of taxes by filing an income tax return if they have incurred deductible business or special expenses or did not have a constant salary for 12 months.

Austria has bilateral arrangements with over 80 countries, including the United States, the United Kingdom, Germany, and Switzerland, to prevent double taxation with its Double Taxation Conventions (DTCs). These treaties ensure that taxpayers do not pay tax on the same income to two different countries.

For those who work in Austria but are not official residents, there is limited tax liability. This means they only pay tax on the income earned in Austria and not on income earned elsewhere. Additionally, if their total income from sources outside of Austria does not exceed €11,000, or if 90% of their earnings originate from Austria, they can choose to file an Employee Tax Assessment Declaration (Erklärung zur ArbeitnehmerInnenveranlagung).

It is important to note that there are no local income taxes payable in Austria.

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Tax benefits for researchers and scientists

Austria offers several tax benefits for researchers and scientists, particularly for those relocating to the country. These benefits are part of the country's efforts to attract experts in these fields from abroad. Here is an overview of the tax advantages available:

Zuzugsbegünstigung or Influx Benefit

This regulation provides tax advantages for foreign researchers and scientists who relocate to Austria. To be eligible, the move must be in the public interest of Austria, supporting science and research. Examples include university professors, scientists working in their habilitation subject at a university, and persons with postdoctoral "excellence scholarships". The applicant's high academic qualifications must be sufficiently documented. Additionally, the centre of the applicant's life interests must shift to Austria, indicated by moving with their family. If the applicant previously resided in Austria, there should be a period of 5 to 10 years between their departure and return.

To apply for this benefit, a written application must be submitted to the Austrian Federal Ministry of Finance (BMF) or the Austrian Tax Office ("Finanzamt Österreich") within six months of relocating to Austria. The application must include documentation proving that the move is in the public interest, such as an employment contract, curriculum vitae, and a list of publications.

Tax Deduction or Zuzugsfreibetrag

Eligible researchers and scientists can claim a tax deduction of 30% on their income from scientific activities, both domestic and foreign, for up to five years. This deduction is applicable if the income is subject to the regular Austrian income tax rate.

Elimination of Additional Tax Burden

To prevent double taxation, Austria has implemented agreements with numerous countries. Additionally, certain foreign income can be taxed at a flat average rate of at least 15%, eliminating any additional tax burden.

Tax-Deductible Expenses

Researchers and scientists can take advantage of generous benefits for tax-deductible expenses. These include expenses directly related to their work, such as studying fees, work clothes, relevant literature, language courses (for foreign researchers), and the costs of basic and further training. Commuters are also entitled to deduct transportation costs.

Tax-Free Stipends

Stipends for educational purposes, such as grants for writing a master's or PhD thesis, are tax-free under certain conditions. However, the stipend must not be a substitution for income and should not exceed the yearly amount of the Austrian Study Grant (Studienbeihilfe), which was €8,580 in 2023.

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Social security contributions

The monthly rates of compulsory pre-tax social security contributions are calculated based on a maximum assessment basis (gross salary) of EUR 6,450 per month for current payments, applied to both the employer and the employee. Special payments receive a tax-favoured treatment (20.48% for the employer and 17.07% for the employee, for a total of 37.55%). The maximum assessment basis (gross) amounts to EUR 12,900 per year. Family members can be co-insured without any additional contributions. However, an additional insurance contribution of 3.4% from the calculation base is collected if the co-insured person does not raise a child or children in the common household or has done so for at least four years.

In addition to social security contributions, employers are liable for the Family Burdens Equalisation Levy at 3.7%, the municipal tax on payroll at 3% of monthly gross salaries and wages, and a public transportation levy of EUR 2 per week per employee in Vienna. A contribution to the Chamber of Commerce is levied at a rate between 0.31% and 0.40% of monthly gross salaries, depending on the province. A contribution to the mandatory employee pension fund is also payable at 1.53% on monthly gross salaries for employments subject to Austrian employment law.

The social security system in Austria covers areas such as prevention, sickness, incapacity for work, maternity, unemployment, old age, death of a person liable to provide maintenance, survivors' pensions, nursing care, and social needs. Insured persons are legally entitled to some benefits if they fulfil the conditions. Funding comes from income-related insurance contributions and state support, following the principle of solidarity, where those with higher incomes contribute more to fund benefits for those with lower incomes.

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