Tax law in Austria has many things in common with German tax law. So there is a comparable sales tax, even if the tax rates there are slightly higher. There are also many similarities in income taxes. The differences are often in the details. For example, profit distributions to a holding company in Austria are usually completely tax-free. However, there are also significant differences between tax law in Austria and Germany. For example, tax law in Austria knows neither a gift tax nor an inheritance tax. A trade tax is also unknown to tax law in Austria. And also the transaction tax in the sale of real estate is regulated differently there. Because the tax law in Austria provides here in addition to the real estate transfer tax generally also a real estate income tax. Unlike in Germany, there is no speculative period. Other tax concessions are possible for this.

25% Taxes in Austria: Tax design with medium-sized organizations

We clarify how you pay 25% tax with a GmbH & Co KG in Austria & an organization in Germany.

1st Tax Law in Austria – Introduction

As in Germany, tax law is quite extensive in Austria. Therefore, we consider the contribution offered here merely as an introduction to the subject of tax law in Austria. Although many interesting details should have an effect on you, dear readership, we do not claim to be complete. But even a short overview may surprise you. On the one hand, there are many similarities with German tax law. On the other hand, tax law in Austria also has many peculiarities.

Tax Law in Austria – Income Tax

2.1. Tax law in Austria – Tax liability

In principle, an unlimited tax liability applies in Austria on income earned worldwide. A prerequisite for this is that as a natural person you either have a residence in Austria or your usual residence is in Austria.

2.2 Tax Law in Austria – Types of Income

In the case of income tax, the same types of income are known in Austria as in Germany. Thus, § 2 (3) EStG lists in sequence income from agriculture and forestry, from self-employment, from business, from non-self-employment, from capital assets, from rental and other income. The definition of profit and surplus income also corresponds to that used in Germany.

For commercial income, one of two methods of determining profit is used. There is also some consistency with German tax law. In Austria, for example, companies of a certain size and above produce a company balance sheet that roughly corresponds to the German trade balance. The company balance sheet is also subject to the obligation to publish, namely with the competent company register court. Smaller companies, on the other hand, can use a surplus income statement to determine their profit. The latter largely corresponds to the revenue surplus in Germany.

2.3 Tax Law in Austria – Tax Rates

In addition, income tax law in Austria is similar to tax law in Germany in that a progressively increasing tax rate is used. However, the top tax rate in Austria is 10% more than in Germany. For this purpose, tax law in Austria provides for the approach with the top tax rate of 55% for income above EUR 1,000,000. But also the range between an income of EUR 90,000 to EUR 1,000,000 is subject to a significantly higher tax rate in Austria than in this country with 50%. The taxation of income in Austria starts at EUR 11,000, with a tax rate of 20% being applied. However, even at EUR 18,000, the tax rate increases to 35%. It continues with a tax rate of 42 % from an income of EUR 31,000. And from EUR 60,000, the tax rate for the next EUR 30,000 is even 48%.

You also know a capital gains tax in Austria, using the abbreviation KESt. It is also a withholding tax and withholding tax. Here the tax rate is 25%. However, a slightly increased tax rate of 27,5 % applies to dividends and similar capital gains. Just as in Germany, tax law in Austria provides for an alternative taxation of capital gains if the individual tax rate is lower.

2.4 Tax law in Austria – other income

Apart from the tax rates and the income limits to which they apply, there are different requirements in Austria, especially in the tax treatment of other income, than in Germany.

On the one hand, there is no taxation of income from the sale of precious metals or cryptocurrencies, if they occur after a one-year speculative period. On the other hand, there is also no speculative period when selling real estate from private assets. Although there was also a ten-year speculative period for the sale of real estate some time ago. However, Austria abolished it on 01.04.2012 and introduced a real estate income tax instead.

2.5 Tax Law in Austria – Real Estate Income Tax

2.5.1. Level of tax rate

In addition to the taxation of proceeds from renting and leasing, Austria levies another tax in connection with real estate. However, the so-called real estate income tax is related to the sale of real estate. Because if you sell a property in Austria, then there is a tax on the profit. It amounts to 30 % of the profit from the private sale of real estate.

2.5.2. Tax-free exemptions for real estate sales

Under certain conditions, tax-free profits may also be possible when selling real estate. This is especially true if the sold building served as the main residence. If a house or condominium has been the principal residence of the vendor for at least five years in the past ten years and the vendor now moves away to a new address, then the sale is tax-free. This also applies if the property was the primary residence for at least two years between the acquisition and the sale. This is also regulated if the house was built privately and was not used for a paid rental or lease for at least ten years. In addition, further tax exemptions are provided for in specific situations. In all these cases, however, a tax exemption of the profit share through the sale of the land is excluded.

2.5.3. Determination of the tax base

In determining the capital gain as a basis for the assessment of real estate income tax, tax law in Austria differentiates according to the age of the property. Real estate acquired before 31.03.2002 is classified as so-called old real estate. Their sale results in a flat-rate approach to the capital gain, which is 14 % of the proceeds. On the other hand, for all other real estate (new real estate) the approach with the actually verifiable acquisition costs applies.

2.5.4. Taxation procedure for real estate income tax

By the way, the real estate income tax is also a withholding tax. However, curiously, the legal representatives involved in the sale, i.e. lawyers or notaries, are responsible for determining the tax. They also pay the tax to the tax administration. Therefore, the purchase price paid by the buyer to the seller always flows through the account of a lawyer or notary responsible for the sale process. The legal representatives also receive all documents of the seller, which serve to determine the acquisition cost of the property and thus the profit. Even tax consultants are usually outside in this regard.

Similar to income tax, tax law in Austria also provides for a distinction between limited and unlimited corporate tax liability. However, the registered office or management in Austria must be regarded as a criterion for unlimited tax liability. As corporations, companies such as Aktiengesellschaften (GmbH, AG) and cooperatives as well as commercial clubs are taxable. The world income principle also applies here.

By the way, the abbreviation KÖSt is used in Austria for the term corporation tax.

3.2. Tax rate on corporate tax in Austria

The corporate tax is uniformly 25% in Austria. This is 10% higher than its German counterpart. However, one should also consider the role of trade tax as an additional corporate tax in Germany. In Austria, there has been no trade tax since 1994. Thus, the total amount of corporate taxation in Austria is generally slightly lower than in Germany.

3.3. Further provisions on corporate taxation

Another difference lies in the taxation of profits a corporation receives from other corporations. If the shareholding in the subsidiary is at least 10 %, a limited liability company in Austria does not pay corporate tax on the profits distributed. This avoids double taxation. In Germany, on the other hand, at least 5% of such profit is subject to taxation.

Also as a corporation you have to pay a real estate income tax on the profit on the sale of real estate. However, the tax rate here is only 25 % instead of 30 % that natural persons pay in real estate income tax.

Also taxable is the sale of company shares by a corporation. When a holding company sells a subsidiary, the company is subject to corporate tax on a regular basis. But even if the holding company transfers the profit to the shareholder, a taxation is incurred under the capital gains tax. In fact, this corresponds to double taxation when selling subsidiaries of a holding company in Austria. In Germany, however, the sale of a subsidiary at the holding company level is almost tax-free.

3.4. Minimum corporate tax

Another special feature of tax law in Austria is the minimum corporate tax. Unlike in Germany, tax law in Austria also provides for corporate taxation if there are no profits. The amount of the minimum corporate income tax depends on the age of the company and on the statutory amount of the minimum share capital or the minimum share capital. For example, an Austrian GmbH accrues at least EUR 500 per year in corporate tax in the first five years. In the following five years, this annual amount increases to EUR 1,000. According to this, a legal person in Austria pays at least EUR 1,750 in corporation tax annually. The tax code in Austria stipulates that the minimum corporate tax is normally 5 % of the statutory minimum capital. Thus, the minimum corporate tax of a public limited company in Austria is twice as high (regularly EUR 3,500).

Since this also applies to marketing years in which a loss can be ascertained instead of a profit, the tax law on corporate tax in Austria also includes an accounting method. This is because the minimum corporate tax that a legal person pays in a loss year takes the taxation of a future profit as a tax reduction approach. In this way, the taxation of corporations differs considerably from the loss carry-forward, which is used in Germany in such situations.

Technical advice for

Tax law in Austria

4th Tax Law in Austria – Property Transfer Tax

Just as in Germany, there is also a real estate transfer tax in Austria. However, the real estate transfer tax in Austrian tax law is a federal tax. Therefore, the level of the tax rate is uniformly regulated there. It amounts to 3,5 % of the market value of the property purchased.

However, tax law in Austria also provides for some exceptional cases. Because in the free transfer of real estate cheaper tax rates apply according to a special stepped tariff. Initially, 0.5% of the real estate assets are incurred, provided this corresponds to a value of EUR 250,000. The remaining EUR 150,000 up to a total of EUR 400,000 is then subject to a tax rate of 2%. For each additional euro above a value of EUR 400,000, the property transfer tax is then calculated with the regular tax rate of 3.5%.

5th Tax Law in Austria – Sales Tax

The main features of VAT in Austria correspond to the guidelines agreed by all EU member states. There is a standard tax rate and a reduced VAT rate in Austria. Tax law in Austria provides for a taxation of 20 % of turnover at the standard tax rate. Tax reductions of 10%, on the other hand, are foodstuffs, books and certain other items. Unlike in Germany, this also includes medicines.

Exceptions are also provided for in special cases. Here, a special reduced VAT rate of 13 % applies, for example, to animals, plants (including seeds), cultural performances and the sale of wine ex farm. For this purpose, tax law in Austria sets 13 % as sales tax.

As in Germany, Austria has lowered the VAT rates in the course of combating the economic consequences of the COVID-19 pandemic. However, the time limit in Austria applies until the end of 2021. The reduced rate and the specially reduced rate are 5%. But here, too, there are special regulations, such as the sales tax on newspapers and magazines.

Although we have already briefly pointed this out before, we want to emphasize it again: there is no trade tax in Austria. However, it did exist many years ago. In 1994 Austria abolished the business tax and replaced it with a municipal tax of 3 % on gross wages. In this way, tax law in Austria involves the municipalities in the tax revenue of companies.

Since then, the abolition of the Austrian trade tax has been regarded as a model worthy of discussion for the reform of the trade tax, which is legally controversial in Germany.

Tax law in Austria – no gift tax and inheritance tax

Some other important differences to Germany, the tax law in Austria also in connection with the free transfer of assets. Because in Austria you know neither a gift tax nor an inheritance tax. However, you also have to submit a notification to the tax office from a certain asset.

In addition, the transfer of real estate is subject to a payment of real estate transfer tax. This also applies to the transfer of real estate within the closest family circle. However, reduced rates are applied here. For example, tax law in Austria provides for a tax rate of only 0.5% for the transfer of real estate by parents to their children.