Tax revenue is a crucial element of the Austrian economy and plays a significant role in funding essential services, including healthcare, education, and public infrastructure. It supports the functioning and development of these key sectors. For more detailed information on the Austrian taxation system, please refer to the article below.
Income tax in Austria
In Austria, the income tax is referred to as "Einkommenssteuer," and it applies to all residents. The very first thing to do is to determine your residency status for tax purposes. If you have resided in Austria for six months or less during the previous tax year, you are only required to pay tax on income earned within Austria. However, if you have been living in Austria for six months or more, you will owe tax on your worldwide income.
It's worth noting that the financial year in Austria follows the calendar year, meaning it starts on January 1st and ends on December 31st.
Income in Austria is subject to proportional taxation based on your annual earnings. The tax rates generally range from 20% to 55%, with minor annual fluctuations. There is also a tax-free threshold, and individuals who earn below this limit are exempt from paying income tax if they meet the requirements. You can refer to the table below to determine the applicable percentage based on your income. It's important to note that political decisions and tax rates can change, but using these tables and the provided calculator makes it easy to calculate your taxes at any time.
For employees, taxes are typically deducted directly from their salary by the employer. However, self-employed individuals must file and pay taxes either online or with the assistance of an accountant.
Tax returns are due by the 30th of April for all residents or by the 30th of June for electronic filings.
Here is the updated tax rate table for annual income in the years 2023/2024:
- A 0% tax rate applies to incomes up to approximately €12,000 per year.
- For up to €18,000, a 20% tax rate is applicable.
- Incomes between €18,000 and €31,000 are subject to a 30% tax rate.
- Incomes between €31,000 and €60,000 face a 41% or 40% tax rate.
- Incomes between €60,000 and €90,000 are taxed at a rate of 48%.
- Incomes between €90,000 and €1,000,000 are subject to a 50% tax rate.
- For incomes exceeding €1,000,000 per year, the tax rate is 55%.
These progressive tax rates are applied based on the respective income brackets, determining the amount of tax payable by entrepreneurs.
Good to know:
Entrepreneurs calculate their taxable income by subtracting expenses, tax-free amounts, and social security contributions from their turnover. They also consider the profit allowance.
Income tax applies to different sources of income, including employment, capital assets, rental properties, trade and craft sales, and self-employment. Capital gains are taxed at a rate of 27.50%.
Various deductions can be claimed for work-related expenses. For more information, you can contact the Ministry of Finance.
Now, let's take a closer look at what employees and freelancers should be aware of. Generally, as an employee, you are not required to equalize your taxes since wage tax and social security contributions are automatically deducted (except for some international organizations in Vienna, such as the UN). However, we will provide examples of situations where you might still need to make adjustments to your wage tax.
Income tax for employees
In Austria, the majority of working individuals are employed. Under a standard employment contract, employees have the right to receive 14 monthly salaries, out of which only 12 are fully taxed. This means that the extra two salaries are subject to reduced taxation.
Even if you work seasonally, such as in the tourism industry, or for a shorter duration, you still have a proportional entitlement to these additional payments and vacation days. This ensures that employees receive their fair share of compensation, regardless of the length or nature of their employment.
In Austria, employment contracts are generally intended to be indefinite. However, there are certain exceptions, such as probationary periods (which benefit both employers and employees), project-based contracts, and temporary substitutes for leave, which have limited durations. Nonetheless, the majority of employees in Austrian companies have permanent employment contracts.
Salaries in Austria are regulated by collective agreements known as "Kollektivvertrag." These agreements set minimum salary standards by law for specific sectors and positions. You can refer to the official website to find the collective agreement and minimum salary applicable to your sector or position. The legally binding texts are only available in German, but you can translate your branch and/or ask your employer, enter the federal state, and then search for the important information. If you cannot find the relevant information, simply contact the Chamber of Labour WKÖ or the Chamber of Commerce AK (by email, telephone, or in person), which will give you direct information about specific salary regulations.
While job advertisements in Austria traditionally displayed monthly salaries in the past, due to international influences, it has become increasingly common to see annual salary information as well. If you have received a job offer, you can use a salary calculator to determine your net income based on the offered annual or monthly salary.
Good to know:
If you were not employed for the entire calendar year, such as when changing jobs or starting employment in September, it could be beneficial to perform tax equalization. This is because you may have paid insurance contributions for the entire year, and as a result, you could receive a tax refund for the period you were not employed.
Also, the church tax, if applicable to you, is now automatically deducted. Additionally, when making the tax adjustment, you can include deductions for donations and other tax-deductible expenses. This allows you to optimize your tax situation and potentially reduce your overall tax liability.
Indeed, costs related to the home office, advertising, materials, and training courses for further education can generally be deducted from taxes. It's important to gather information on the specific rules and guidelines that apply to take advantage of these deductions.
Additionally, commuters are eligible for a commuter allowance, which helps offset the costs associated with traveling to and from work.
It's worth noting that tax equalization can be carried out retrospectively for the previous five years, allowing individuals to make adjustments to their tax returns for that period if necessary.
To learn more about employment contracts, worker rights, employee benefits, education and training grants, and salary information, you can reach out to the Austrian Chamber of Labor ("Arbeiterkammer").
The tax office provides an online platform where you can perform your tax equalization once the previous tax year has concluded. This allows you to conveniently handle your tax matters electronically.
If you need assistance with tax equalization or have questions about certain processes, it's highly recommended to directly contact the tax office. This approach can simplify matters since you can explain your situation and receive an immediate explanation without having to spend hours deciphering complicated documents on your own. Another helpful resource is the Chamber of Labour, where you can also reach out for further information and guidance. Don't hesitate to take advantage of these avenues to make the process smoother and obtain the necessary support.
Income tax in Austria for foreigners
In Austria, the tax system operates on a pay-as-you-earn basis, meaning that your taxes are deducted based on your income. If you are living in Austria but do not have residency status, you will only be subject to a reduced tax rate, and you will only need to pay tax on the income you have earned within Austria.
As a researcher, you have three potential employment arrangements: stipend/grant/scholarship, regular employment, or independent personal services. The specific type of employment you have is crucial in determining whether you are eligible for tax exemptions or not.
If you are receiving a stipend, you would generally be exempt from paying taxes. However, if you are employed under a regular employment contract, taxes would be deducted from your salary, and your employer would be responsible for handling the tax payments on your behalf. On the other hand, if you are working under an independent personal services arrangement, known as a "Werkvertrag," you are considered self-employed. In this case, you are responsible for declaring and paying taxes on your income at the end of each tax year.
As mentioned earlier, in Austria, you are classified as a tax resident if you have official residency status in the country and spend more than 180 days per year within its borders. This determination of tax residency is important for establishing your tax obligations and benefits in Austria.
Income tax for self-employed in Austria
The process of tax equalization differs for self-employed individuals compared to employees. As a self-employed person, your focus is on paying social security contributions throughout the year. While these contributions are reduced during the first two years of self-employment, they will need to be repaid afterwards. It is important to set aside some of your income to cover these future obligations.
The income tax return for self-employed individuals is typically submitted the following year. The deadline for submitting it in writing is the end of April, or if filing online, by the end of June. If you hire a tax consultant, you will have additional time as they handle the process on your behalf. By providing them with your monthly bills, you can enjoy a more comfortable position.
Doing the tax return yourself can initially seem complex, so it may be beneficial to attend a free taxation workshop at the Chamber of Commerce (WKÖ) for guidance and understanding.
If your annual turnover as a small business owner is less than 35,000 euros (since January 2023), you can utilize a simpler calculation method and a flat rate. Additionally, you are not required to charge or pay value-added tax (VAT) and do not need to include it on your invoices.
Maintaining a simple income-expenditure account is sufficient for your small business. While it is recommended to use consecutive numbering for your invoices, there are no specific mandatory systems. It is important to consider when the money is received into your dedicated small business account rather than when the invoice was sent, as this is relevant for tax purposes.
There have been recent changes in tax regulations that allow for certain deductions. For example, you can now deduct 50% of the expenses incurred for public transport, such as the cost of an annual bus or train ticket.
Additionally, there are two new flat-rate deductions available specifically for individuals who work predominantly or frequently from their home office. These deductions provide a simplified approach to calculating expenses related to working from home.
To make the tax calculation process easier, there are online tools available that allow you to enter your data and estimate your tax liability in advance. These calculators provide a convenient way to get an idea of your tax obligations and plan accordingly.
Read more about taxes for freelancers here or on the WKÖ website.
Social insurance contribution in Austria
If you live in Austria, are registered, and work there, it is mandatory to have health insurance. If you are employed, your employer will cover the insurance premiums, and your share will be deducted automatically from your salary (you can also opt for private insurance, if desired). Depending on the industry and type of employment, you will be insured by a specific health insurance company. For instance, employees are generally covered by the largest health insurance company called, WGKK, while civil servants have coverage through the BVA. The coverage and costs for public doctors may vary slightly depending on the specific health insurance company.
If you are self-employed, you are required to obtain insurance through the SVS (Social Insurance for the Self-Employed) and make quarterly social security payments.
In 2023, the following rates apply for freelance workers and the so-called "new self-employed":
- Sickness insurance: 7.65%
- Accident insurance: 1.1%
- Unemployment insurance: 6%
- Pension insurance: For freelance workers: 22.8%, for new self-employed: 18.5%
These rates determine the percentages of your income that you are required to contribute towards various insurance programs, including sickness, accident (optional), unemployment, and pension insurance, depending on your self-employment status.
Double taxation agreements in Austria
The Austrian government has signed double taxation agreements with many countries worldwide to ensure citizens and residents who have lived in both Austria and abroad are not taxed twice on the same income earned. For more information on double taxation, please visit Austria's Federal Ministry of Finance.
Corporate tax in Austria
Corporate income tax is currently at a rate of 25%. This tax applies to both income and capital gains that businesses have earned over the past year. Both foreign businesses that trade in Austria and companies that have incorporated in Austria are obligated to pay this tax. Businesses must also pay a municipal tax, which goes to the local municipality where the company is based.
Sales tax in Austria
Value Added Tax (VAT) is a type of sales tax that is applied to the purchase of most goods and services in Austria. The standard VAT rate is 20%, which is added to the price of the items or services.
However, there are reduced VAT rates for specific products and services. For certain items such as animals and plants, cultural events, and the use of swimming pools, a reduced rate of 13% is imposed. Additionally, there is a reduced rate of 10% for food, books, transportation, rent, and medicine.
In Austria, books are relatively inexpensive compared to other countries. If books are used for your further training related to work, they may even be eligible for tax deductions. This means that you may be able to deduct the cost of books from your taxable income, providing a potential benefit for individuals seeking to invest in their professional development.
Good to know: If you've visited Austria on vacation or you're already living there, you may have noticed the relatively high prices for a cup of coffee in Vienna or a soft drink in a mountain hut. It's not necessarily the food or menus that are more expensive compared to other places in Europe, but rather the drinks. This has been the case even before the current inflation. Interestingly, sometimes beer can even be cheaper than non-alcoholic beverages.
The reason behind this is that drinks are subject to the standard sales tax rate of 20%, while food is only subject to a lower rate of 10%. This disparity in tax rates contributes to the relatively higher prices for drinks compared to food in these establishments.
Other taxes in Austria
There are several other taxes that expats should be aware of when living in Austria. Here are some relevant ones:
For companies:
1. Capital gains tax: This tax applies to the profits made from the sale of assets such as stocks, bonds, real estate, and other investments.
2. Turnover tax: Turnover tax, also referred to as value-added tax (VAT), is a general sales tax applied to the purchase of most goods and services, as discussed earlier.
For private individuals:
Church tax: If you are a member of the Catholic Church in Austria, you may be required to contribute. The church contribution is based on the amount of income and can be paid once or four times a year. Some people are exempt if they have a low income or are still studying.
Real estate transfer tax: When purchasing or transferring real estate, a tax known as real estate transfer tax or property transfer tax is levied on the transaction.
Vehicle tax: Vehicle owners in Austria are required to pay a tax based on the type, size, and emissions of their vehicles.
Dog-owner tax: Individuals who own dogs are subject to a specific tax known as the dog-owner tax, which helps cover the costs of dog-related services and infrastructure.
Expats need to familiarize themselves with these taxes to ensure compliance with Austrian tax regulations and to understand any potential financial obligations that may arise. Consulting with a tax advisor or the local tax authorities can provide further clarity on these tax matters.
Useful links:
Income tax calculator (German)
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