date | theme

05. February 2021 | DBA Austria

25. April 2021 | GmbH & Co KG in Austria: 25% tax at German bodies!

30. April 2021 | GmbH in Austria – Taxes compared to the German GmbH

17. May 2021 | Tax law in Austria: ESt KöSt VAT & real estate income tax

23. June 2021 | No gift tax or inheritance tax in Austria (this contribution)

A transfer of property by gift or inheritance is subject to taxation in Germany. Up to 50 % of the asset may be taxed. This applies even if either the transferring or the receiving person is neither unrestricted nor limited taxable in Germany. In contrast, there is no gift tax or inheritance tax in Austria. Only when transferring real estate does a transaction tax apply. Therefore, one can use this circumstance to avoid gift tax and inheritance tax in Germany by means of suitable tax design.

No inheritance tax & gift tax in Austria

1st introduction

The title of this article already anticipates it: in Austria there is neither a gift tax nor an inheritance tax. Although many tax laws in Austria are comparable to those in Germany, this is one of the most significant differences in the tax policy of these two countries.

This tax advantage for Austria makes an interesting approach to design seem almost self-evident. Because if you own assets in Germany and want to transfer this by donation or inheritance, then the idea of doing this as an Austrian tax subject is of course simply tempting. So in this article we discuss whether this is so easy and what you have to consider everything. And of course we are also developing a tax design model that takes all aspects into account, so that the gift tax or inheritance tax that would be incurred in Germany can be avoided via Austria.

A linguistic note on the sidelines: while in Germany you write inheritance tax and gift tax, in Austria you use the form with another “s” in the middle, i.e. inheritance tax and gift tax. This may also be helpful in distinguishing which taxation jurisdiction is involved.

gift tax and inheritance tax: Germany vs. Austria

2.1. Gift tax and inheritance tax in Germany

As already mentioned and already explained in more detail in numerous other articles, free transfers in Germany are subject to gift tax or inheritance tax. The same rules apply as far as possible, regardless of whether it is a gift or inheritance. Therefore, it is hardly surprising that in both cases one and the same law, namely the inheritance tax and gift tax law, is decisive.

2.2. Gift tax and inheritance tax in Austria

So in Austria there is neither a gift tax nor an inheritance tax. However, it has been different in the past. Before 01.08.2008, the transfer of assets in Austria was certainly subject to the gift tax and inheritance tax still in force at that time. However, with the ruling of the Austrian Constitutional Court in March 2007, in which the judges objected to a constitutional violation, the deadline for adapting the law was not used. Thus, the Austrian legislature simply let the inheritance tax and gift tax law expire on the deadline granted by the judges to correct the law, instead of actively abolishing it.

In addition, two other limitations must be noted in this regard. On the one hand, the free transfer of real estate still requires a real estate transfer tax in Austria. Secondly, a separate tax applies to the contribution of assets to foundations, namely the foundation entrance tax. However, at least the latter is a special case, which we would like to mention here only for the sake of completeness.

So now we look at how a taxpayer in Germany can avoid gift tax and inheritance tax via the way to Austria. On the one hand, the transfer of financial assets and real estate assets should be in the foreground.

3.1. Avoid gift tax and inheritance tax on financial assets in Austria

First of all, we consider the simpler of the two cases, namely the transfer of financial assets, without the gift tax or inheritance tax in Germany or Austria. For this purpose, it is necessary that both the wealthy person resident in Germany, who wants to transfer his property tax-free, and the receiving person move away from Germany. Because in Germany the gift tax or inheritance tax also applies if only one of the two parties is taxable in Germany.

Fortunately, this location-based taxation rule applies only to the people involved. On the other hand, the location of assets in Germany or abroad is irrelevant from the point of view of German tax law. Therefore, the two people who have now moved to Austria can also transfer financial assets that are in a German bank account in Austria without gift tax or inheritance tax.

3.2. Avoid gift tax and inheritance tax on real estate assets in Austria

In a second step, we now want to discuss how real estate assets can be transferred without gift tax or inheritance tax in Austria by means of tax arrangements. We assume that the property is located in Germany. Here, too, we first move out of Germany. Of course, both persons, the transmitter and the recipient are also affected this time. But before that, the giver sells the property to the recipient. Then both move permanently to Austria. There, the seller of the property can then give the recipient of the property transfer the amount in the amount of the purchase price. And since there is neither gift tax nor inheritance tax in Austria, at best a real estate transfer tax in Germany comes into question during the purchase process.

What you still have to pay attention to, however, is that in Germany there is also a link to nationality in the gift tax and inheritance tax (§ 2 paragraph 1 number 1 letter b ErbStG). This is referred to as the extended limited tax liability in Germany if either a transferring or receiving person of German nationality has no residence in Germany and stays abroad for less than five years. In this case, a tax liability to the gift tax and inheritance tax remains.

In addition, an extended limited tax liability also applies via the Foreign Tax Act with regard to the German gift tax and inheritance tax. This is because § 4 AStG states that a German who has been subject to unlimited tax for at least five years in this country in the last ten years before leaving abroad is also subject to tax in Germany with regard to gift tax and inheritance tax if he is either resident in a low-tax foreign country or nowhere, but still has economic interests in Germany.

No gift tax and inheritance tax over Austria? We are helping!

In consideration of all these points, a transfer of assets in Germany by moving to Austria is therefore quite possible, avoiding the German gift tax and inheritance tax. At the same time, this is a good example of how tax design can sometimes be easy. Of course, one must pay attention to the special conditions and conditions. And the present design model is also an excellent example of the fact that the generally lesser known details, with which only a few tax consultants have experience in their practice, can be decisive.