All questions

Direct taxation of businesses

i Tax on profits Determination of taxable profit

Resident taxpayers are taxed on their worldwide income. Taxable profits are derived from the accounting profits, which are generally based on accruals. Through the effective tax reconciliation, accounting profits are adjusted to follow mandatory tax rules that differ from the accounting rules. For example, corporate dividend income is mostly tax-exempt, which leads to a deduction from the accounting profits. On the contrary, accounting profits might be increased with regard to, for example, amortisation periods, the recognition or amount of provisions, or non-deductible expenses.

Business expenses are those expenses that are caused by the business. Non-deductible expenses include representation costs, half of hospitality costs (reduced to 25 per cent by 31 December 2020 because of the covid-19 crisis), fines and penalties, income taxes, half of the payments to members of the supervisory board, and payments over €500,000 for personal services (e.g., employees, managing directors) per person and year. Expenses in direct connection with tax-exempt income are also non-deductible. However, despite the tax exemption for intercompany dividends, interest for the acquisition of intercompany shareholdings is deductible. On the contrary, a deduction is denied if the shareholding is acquired within a group of companies. There is also no deduction for interest or royalties that are paid within a group of companies and are tax-exempt or taxed with less than 10 per cent at the level of the receiving company. Finally, there are several rules limiting the tax-deductible depreciation of intercompany shareholdings.

The acquisition costs of business assets that are subject to wear and tear for a period of more than a year must be depreciated over their useful life. Depreciation is generally linear, but the possibility of a degressive depreciation was introduced because of the covid-19 pandemic as of 1 July 2020. There are statutory depreciation periods for buildings (40 years; 66.67 years for domiciles), goodwill (15 years) and vehicles (eight years). Assets that have an acquisition cost of not more than €800 can be fully depreciated in the year of purchase. The valuation of business assets at the end of the business year might lead to an extraordinary depreciation or an amortisation up to the (ordinarily depreciated) acquisition costs.

Capital and income

For corporate taxpayers, all income (including capital profit) is considered business income. For other businesses, any capital profit arising from business assets is also considered business income, but is subject to a flat tax of 27.5 per cent (25 per cent for bank interest) if derived by an individual (also if operating in the form of a partnership).

Losses

Losses from capital that would be covered by the above-mentioned flat tax (only applicable to individuals) can only be balanced at the end of the business year with other business income to the extent of 55 per cent of the losses.

Losses in connection with business income may be carried forward indefinitely. For corporations, losses may only be deducted up to 75 per cent of business income, subject to certain exceptions (inter alia, liquidation, insolvency). For losses from 2020, a loss carry-back was introduced because of the covid-19 pandemic.

The deduction of losses is denied in the case of a shell company purchase, which occurs in case of a substantial change in the organisational and economic structure of the corporate taxpayer together with a paid substantial change in the shareholder structure. An exception applies in case of a financial reorganisation that should save a substantial number of jobs.

Rates

The corporate income tax rate is 25 per cent. There is a minimum corporate income tax for resident taxpayers. For an AG, it is €3,500 per year. For a GmbH, it is €1,750 per year, although it is reduced to €500 in the first five years and €1,000 in the subsequent five years. The minimum corporate income tax can be credited against later corporate income tax liabilities.

Personal income tax rates are progressive up to 55 per cent (for income >€1 million).

Administration

An income tax return has to be filed electronically by the end of June for the previous year. If the taxpayer is represented by a tax adviser, the deadline is extended to the end of March of the second-following year. The tax year usually coincides with the calendar year. Corporations and certain individuals may apply for a different tax year. The income tax liability is determined in a tax assessment and becomes due one month after its issuance. Income tax prepayments are based on the income tax of previous years and are due in the middle of each quarter. They are credited against the final income tax liability.

Income taxes are federal taxes in Austria. As of 2021, there will be only two tax authorities: one general tax authority and one tax authority for large businesses (i.e., financial institutions, private foundations, members of a tax group, or taxpayers with >€10 million in revenues, covered in a country-by-country report, or subject to horizontal monitoring).

There is no regular routine for tax audits. The tax audits are conducted by the tax authorities described in the last paragraph. As of 2021, there will be a separate audit authority for wage-related taxes and contributions. Since 2019, businesses have been able to apply for horizontal monitoring instead of tax audits. This leads to a permanent contact between the taxpayer and the tax authorities, and implies an increased disclosure obligation on behalf of the taxpayer. In return, the tax authorities have to give advice regarding the taxpayer's situation, whether or not facts and circumstances have already been fulfilled or are planned.

For all taxpayers, there is the possibility of a binding ruling from the tax authorities. However, only planned tax cases can be covered, which must concern one of the following areas: tax reorganisations, tax groups, international tax law, value added tax (VAT) law or the existence of tax abuse. Besides, non-binding rulings may be obtained from the tax authorities that may be relied on in good faith. Cases concerning international tax law may also be directed to the Ministry of Finance, which makes its assessment of the case publicly available in an anonymous way.

Tax assessments may be challenged before the Austrian Federal Tax Court within one month. The tax court is independent from the tax authorities. The tax court may waive the tax assessment and direct the case back to the tax authorities if the facts of the case have not been fully or correctly determined. Otherwise, the tax court decides the case itself and may change or waive the tax assessment. Against judgments of the tax court, appeals to the Supreme Administrative Court or the Supreme Constitutional Court may be possible within a period of six weeks.

Tax grouping

A tax group for corporate income tax purposes can be applied for under the following conditions:

  1. group parent may be a resident or a non-resident from the European Union or European Economic Area (EEA) with a registered branch in Austria;
  2. group members may be residents or non-residents from the European Union or a country that provides comprehensive mutual assistance (only direct subsidiaries of resident taxpayers);
  3. >50 per cent in capital and voting rights during the whole tax year;
  4. agreement on tax clearance between the resident group members and the group parent; and
  5. minimum period of existence of three years.

Within a tax group, there is a full consolidation of profits and losses between resident companies. With regard to non-resident group members, only losses – not profits – can be attributed to the group parent in the extent of its own and all the group members' shareholdings. Losses of non-resident group members are only deductible up to 75 per cent of the resident group members' and the group parent's income per year. The exceeding amount can be carried forward. In case of a possible loss utilisation abroad or an exit from the tax group, the losses of non-resident group members are recaptured.

ii Other relevant taxesWage tax

Employment income is taxed by way of withholding. This wage tax is a mere collection form for the personal income tax and may be credited against the employee's assessed income tax liability. If wage tax has been withheld and the taxpayer earns no other income, no personal income tax return has to be filed.

VAT

VAT law is harmonised to a great extent within the European Union. VAT exemptions are granted for, inter alia, financial services, the sale of immovable property, certain letting of immovable property, health services and small businesses. Austria levies VAT at a standard rate of 20 per cent. Reduced rates of 10 per cent and 13 per cent apply to certain supplies. A reduced rate of 5 per cent was introduced because of the covid-19 pandemic for certain affected industries (e.g., hotels, culture), currently applicable until the end of 2021.

Stamp duty

Austria levies stamp duties on a wide range of legal transactions, including, inter alia, surety agreements, lease agreements, out-of-court settlements and assignment agreements. The prerequisites for the stamp duty are a written and signed deed evidencing the transaction and a certain Austrian nexus. However, these stamp duties can in many cases be avoided by way of careful structuring.

Real estate transfer tax

The transfer of Austrian real estate triggers real estate transfer tax. In the case of a sale of Austrian real estate, the tax base is generally the purchase price, and the tax rate amounts to 3.5 per cent. In addition, a 1.1 per cent court registration fee based on the fair market value of the property transferred falls due.

Further, real estate transfer tax at a rate of 0.5 per cent of the fair market value of the real estate is triggered if Austrian real estate is part of the assets of a corporation or a partnership, and at least 95 per cent of the shares in such corporation or interests in such partnership are pooled in the hand of a single buyer or in the hand of a tax group. The same applies in the case of a partnership holding Austrian real estate if at least 95 per cent of the interests in such a partnership are transferred to new partners within a period of five years.

Bank tax

Austria levies a bank tax on the adjusted balance sheet total of credit institutions licensed pursuant to the Austrian Banking Act and foreign credit institutions authorised under the Austrian Banking Act to carry out banking business in Austria by way of a branch (in the case of the latter, only the balance sheet total attributable to the Austrian operations is taken into account).