Income tax v4 - UKCFR · contents contents i the austrian income tax act (ita) 5 1 scope of application 5 1.1 personal scope of application 5 1.2 unlimited and limited tax liability

THE AUSTRIAN PERSONAL INCOME TAX AND CORPORATE INCOME TAX

Contents

Contents

I THE AUSTRIAN INCOME TAX ACT (ITA) 5 1 SCOPE OF APPLICATION 5 1.1 PERSONAL SCOPE OF APPLICATION 5 1.2 UNLIMITED AND LIMITED TAX LIABILITY 5 2 TAXABLE INCOME 6 2.1 WORLDWIDE TAXABLE INCOME 6 2.2 TAXATION OF NON-RESIDENTS 7 2.3 TAX EXEMPTIONS 7 2.4 DETERMINATION OF TAXABLE INCOME 8 2.4.1 Methods for determining taxable income 8 2.4.2 Deductions 8 3 METHODS OF LEVYING 9 3.1 ASSESSMENT 9 3.2 WAGE TAX 10 3.3 CAPITAL YIELDS TAX 10 3.4 SPECIAL WITHHOLDING TAX FOR NON-RESIDENTS (20 %) 10 4 CALCULATION OF INCOME TAX 11 4.1 GENERALSCHEMEOFASSESSMENT 11 4.2 STANDARD TAX RATES 11 4.3 HALF RATE TAXATION 12

II THE AUSTRIAN CORPORATION TAX ACT (CTA) 13 1 SCOPE OF APPLICATION 13 1.1 PERSONAL SCOPE OF APPLICATION 13 1.2 UNLIMITED AND LIMITED TAX LIABILITY 13 2 TAXABLE INCOME 13 2.1 REFERENCE TO THE INCOME TAX ACT 13 2.2 TAX EXEMPTIONS 13 2.3 DETERMINATION OF TAXABLE INCOME 14 2.3.1 Methods for the calculation of taxable income 14 2.3.2 Deductions 14 3 METHODS OF TAX COLLECTION 15 3.1 ASSESSMENT 15 3.2 CAPITAL YIELDS TAX 15 3.3 WITHHOLDING TAX FOR COMPANIES SUBJECT TO LIMITED TAX LIABILITY 16 4 CALCULATION OF CORPORATION TAX 16 4.1 TAX RATES 16 4.2 MINIMUM TAX 16 4.3 EXAMPLE: TAXATION OF DIVIDENDS AT CORPORATE AND ON SHAREHOLDER’S LEVEL 16 5 GROUP TAXATION 17

III COMMON PROVISIONS 18 1 TREATMENTOFLOSSES 18 2 DEPRECIATION AND AMORTIZATION 18

Contents

3 TAXABLE YEAR 19 4 PROCEDURALASPECTSOFTAXASSESSMENT 19 5 AVOIDANCE OF DOUBLE TAXATION 19 5.1 TROUGH DOMESTIC MEANS 19 5.2 THROUGH TAX TREATIES 20 6 ADVANCE RULINGS 20 7 ADVANCE PRICING ARRANGEMENTS (APA) 20

IV OTHER TAXES COVERED BY TAX TREATIES 21 1 TAXES ON CAPITAL 21 1.1 THE LAND TAX (DIE GRUNDSTEUER) 21 1.2 THE TAX ON THE VALUE OF VACANT PLOTS (DIE ABGABE VOM BODENWERT BEI UNBEBAUTEN GRUNDSTÜCKEN) 21 1.3 THE TAX ON AGRICULTURAL AND FORESTRY ENTERPRISES (DIE ABGABE VON LAND- UND FORSTWIRTSCHAFTLICHEN BETRIEBEN) 21 2 INHERITANCE AND GIFT TAXES 21

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1 Scope of application

1.1 Personal scope of application

Individualsaresubjecttoincometax.TheextenttowhichindividualsaretaxabledependsonthenexustheyhavewithAustria(seechapterI.1.2).InAustriapartnershipsaretreatedfiscallytransparentandareneithersubjecttoincome taxnortocorporateincometax,whichmeansthatthepartnersaretaxedontheirshareofthepartnershipincome. Under theAustrian IncomeTaxAct each individual is taxable on his/her own income. There isno joint taxationofmarriedcouplesorhouseholds.

1.2 Unlimited and limited tax liability

Unlimited tax liabilityappliestopersonshavingeithertheirresidence or habitual abode in Austria. If that is the case,thosepersonsaresubjecttotaxontheirworldwideincome(seechapterI.2.1).

• Aresidenceisconstitutedifapersonhasahomewhichispossessedundercircumstancesindicatingthatitwillbemaintainedandusednotmerelyonatemporarybasis.Suchhomeisconsideredtobepossessedbytheperson,ifitisactuallyusedorthepersonhastherighttouseitfordwellingpurposes.AnAustrianresidenceisgenerallyconstitutedifthepersonintendstomaintainthehomeformorethansixmonths.

• Thehabitual abodeissituatedattheplacewhereapersonispresentundercircumstancesindicatingthatheorshewillstayatthatplacenotjusttemporarily.Whetherastayisofatemporarynatureornotisassessedonacase-by-casebasis.However,physicalpresenceinAustriainexcessofsixmonthsresultsinunlimitedtaxliability.IftheperiodofactualpresenceinAustriaexceedssixmonths,theperson’shabitualabodeisdeemedtobeestablishedatthebeginningofthesix-monthperiod.

• EU and EEA citizenswhoneitherhavetheirresidencenortheirhabitualabodeinAustriabutreceivethemainpartoftheirincomefromAustriansourcesmayopttobetreatedasbeingsubjecttounlimitedtaxliability.Theoptionmaybeexercisedif90 % of the income is obtained in Austria or the total amount of income generated abroadisnothigherthanEUR11,000.Despitethisoptiontaxationisstillrestrictedtodomesticallysourcedrather thanworldwide income.However, thebenefitof thisoption is that taxbenefitswhicharegenerally enjoyedonlybyresidentsarealsoavailabletothenon-residentindividualuponsuchoption,e.g.certainindivi-dualtaxdeductions(sole-earnerdeduction,single-parentdeduction,support-moneydeduction),extraordinary expensesaswellasthegeneralincometaxthresholdofEUR11.000.

• Specialrulesapply,ifataxpayerhashisorhercentreofvitalinterestoutsideAustriaformorethanfiveyears.Inthiscase,maintaininganAustriansecondary residencetriggersunlimitedtaxliabilityinAustriaonlyforcalendaryears,inwhichthepersonhasusedtheresidence(aloneortogetherwithotherresidences)formorethan70days.Iftheresidenceisusedforlessthan70daysinthecalendaryear,thepersonisonlysubject to limited taxliability.ThepersonhastokeeprecordsofthedayswheretheAustriansecondarydomicilehadbeenused.However,unlimitedtaxliabilityisconstitutedinAustria,ifthetaxpayerusestheAustrianresidenceofhisorherspousewhoissubjecttounlimitedtaxliabilityinAustria.

• SpecialrelieftoindividualswhotakeuparesidenceinAustriamaybegrantedbytheMinistryofFinance,ifthemovementtoAustriaprovidestopromotescience,research,artsorsportsandthereforelieswithinthepublic interest.

Limited liability to taxapplies to thosepersonswhoneitherhavetheirresidencenor theirhabitualabode inAustria.TheyaresubjecttotaxonlywiththeirincomefromAustriansources(seechapterI.2.2).

I The Austrian Income Tax Act (ITA)

The Austrian Income Tax Act (ITA)

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2 Taxable income

2.1 Worldwide taxable income

Taxable income is the total amount of income from all categories described under the Income Tax Act. The Income TaxActcomprisessevencategoriesofincome:

1. Income from agriculture and forestry,e.g. • incomeearnedbyfarmers,market-gardeners,winegrowers,stockbreeders.2. Income from independent personal services,e.g. • incomefromscientific,artistic,literary,teachingoreducationalactivities; • professionalactivitiesofdoctors,lawyers,taxadvisers,notaries,architects,journalistsorinterpreters; • incomefromtheadministrationofproperty(e.g.incomederivedbyfacilitymanagers,trustees,alsoin- cludingincomederivedbymembersofasupervisoryboardofdirectors); • salariesandotherformsofcompensationofanykindgrantedbyacompanytosubstantialshareholders. Apersonisdeemedtobeasubstantialshareholder,ifhisorhershareinthesharecapitalofthecompany amountstomorethan25%; • incomeofpartnersofapartnership,iftheactivityofthepartnershipisofanindependentprofessional characterandeachofthepartnersperformprofessionalservices.3. Income from commercial activities,whichisincomefromanybusinessthatisnotconsideredasagricultural orforestryactivityorasincomefromprofessionalservices.4. Income from employment,whichincludes • anyremuneration,incashorinkind,derivedbyanemployedperson; • pensionincomereceivedbyaretireefromsocialsecurity, fromapensionfundorfromtheemployer himself. 5. Income from capital investment,unlessthisincomederivediscoveredbyoneofthefirstfourcategoriesof income. It includes e.g.: • dividendsandotherdistributionsfromparticipationsinstockcompanies,inlimitedliabilitycompanies orcommercialcooperatives; • incomefromaparticipationinacommercialbusinessasasilentpartner; • distributionsfromaprivatefoundation; • allkindsofinterest.6. Income from rental, leasing and royalties,unlesstheincomeiscoveredbyoneofthefirstfivecategoriesof income. It includes e.g.: • incomefromrentingorleasingoutrealestateandrightsgovernedbytherulesofcivillawonrealestate; • incomefromrentingorleasingoutconglomerationsofassets,suchasthoseofanenterprise; • royaltiesfromthelicenceoftherighttouseworksprotectedbytheAustrianFederalCopyrightAct,like literaryandartisticworks; • royaltiesfromtheassignmentofindustrialpropertyrights,patentsandknow-how.7. Other specific income,whichisexhaustivelydefinedandwhichisincomederivedbyaperson,iftheincome isnotattributabletooneofthefirstsixcategoriesofincome.Itincludes: • recurringearnings,e.g.certainannuities; • incomefromoccasionalservices,includingincomefromservicesasanagent; • incomefromtheleasingofmovableproperty; • incomefromthealienationofpersonalpropertywithinaperiodof1year(e.g.shares)orwithinaperiod of10years,ifimmovablepropertyisconcerned(speculativegains); • income from the sale of private participations in domestic and foreign companies, provided that a minimumparticipationof1%washeldinthatcompanyatanytimewithinthe5precedingyears.

Incomenotbelongingtooneoftheabove-mentionedcategories,isnotsubjecttoincometax,e.g.incomederivedfrom: • lotterywinnings;• awards;• compensationforpain,otherthanthatpaidintheformofannuities;• alienationofprivateproperty,otherthanspeculativegainandqualifiedparticipations.


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2.2 Taxation of non-residents

Individuals subject to limited tax liability are only taxable with certain income fromAustrian sources. The followingtypesofincomearesubjecttolimitedtaxliability:

• Incomefromdomesticagricultureorforestry.• IncomefromindependentpersonalservicesthatareorwereperformedorutilizedinAustria.Theservices are: o ‘performed’inAustriaifthetaxpayerwaspersonallyactiveinAustria; o ‘utilized’inAustriaiftheserviceisnotinfactpersonallyrenderedinAustriabutthebenefitsdirectly contributetotheAustrianeconomy.• Incomefromcommercialactivities,if o apermanentestablishmentismaintainedinAustria;or o apermanentagentisappointedinAustria;or o immovablepropertyislocatedinAustria; o ifnopermanentestablishmentismaintainedornoagentisappointedthefollowingincome: − incomefromtechnicalorcommercialadvisoryservicesperformedinAustria; − incomefromthehiring-outoflabourperformedAustria; − income of a sportsman, artist or as a participant in an entertainment performance if the activity isperformedinAustria.• Incomefromemployment,if o theworkisorwasperformedorutilizedinAustriaoraboardanAustrianship;or o suchincomeisgrantedoutofdomesticpublicfundsinconsiderationforpresentorpastemployment inparticularfromsocialsecuritypensions.• Incomefromcapitalinvestments: o dividendsandotherassimilatedincome; o profitdistributionstosilentpartners; o distributionsfromprivatefoundation; o interestderived fromdebt claimsbutonly if theyaredirectlyor indirectly securedbyAustrian real estate; o distributionsofAustrianorforeignrealestatefunds,iftherealestateislocatedinAustria.• Incomefromleasingofproperty,conglomerationofassetsorrights, inparticularpatentsorknow-how, ifsuchpropertyis: o locatedinAustria; o recordedinadomesticpublicbookorregister;or o usedinadomesticpermanentestablishment.• Incomefromspeculativecapitalgains, if theyarederived fromthealienationofdomestic realestateor domesticrights,treatedasimmovableproperty.• Incomefromthealienationofqualifiedparticipations,iftheparticipationwasheldinacompanyhaving itsseatorplaceofmanagementinAustria.

2.3 Tax exemptions

Thefollowingincomeinparticularistaxexempt:

• benefitsinkindorreimbursementsofthestatutorysocialsecuritysystem;• certain social payments such as: unemployment compensations, maternity allowances; parental-leave benefits,parental-leaveassistanceandchild-carebenefits;• paymentsfromcertainfundsinordertoenhanceartandscience;• grantsmade to foreign students, if they are employed inAustria for no longer than sixmonths under theconditionofreciprocity;• incomefromAustrianofficialsondutyinaforeigncountry;• incomefromcertainqualifiedemployeesofdevelopmentaidorganisationsfortheirworkindeveloping countriesaccordingtotheDevelopmentCooperationAct;


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• income from employment, if the employee is on the payroll of a domestic company and carries out constructionworkorassemblingactivitiesabroadforaperiodofmorethanonemonth.

2.4 Determination of taxable income

2.4.1 Methods for determining taxable income

Businessincome,whichistheincomefromthefirstthreecategories(agricultureandforestry,professionalandother independent personal services and commercial activities), is defined as „profit“ and computed under specialrulessetoutinSecs.4-14oftheIncomeTaxAct.Incomefromtheotherfourcategories(non-business income)isdefinedasthesurplusofreceiptsoverexpensesandissubjecttoamoresimplifiedmethodofcalculating the taxable income. One of the most important differencesof thetwoconcepts is thatgains from the disposal of assets held inabusinessarealwaystaxable(withcertaintemporaryrelief)whereassuchgainswhicharederivedoutsidethebusinessarebasicallynon-taxable (exceptspeculative incomeandincomefromthealienationofqualified participations).Anotherdifference is thatbusiness incomegenerallyhas tobecomputedonanaccrual basis,exceptforliberalprofessionsandsmallbusinesses,whereasthenon-businessincomeiscomputedonacashbasisexclusively.

2.4.2 Deductions

Income-related expenses

In general expenses related to a business are deductible, if they are caused by the conduct of the business.Expenses related to non-business income aredeductible if they are connectedwith acquiring, securing andmaintainingtaxableincome.Theseexpensesareingeneralnotdeductibleiftheyemanatefromtheprivatesphereofthetaxpayer. Expenseswhicharedirectlyrelated with non-taxable incomeandthosewhicharedirectlyrelatedtoincomesubject to a final withholding taxarenon-deductible.Furthermore,bribes and associations fines are not deduc-tible. Insomecasesthetaxpayerhastheoptiontocalculatetheexpensesatanaverage rateappliedtothederivedturnovers.

Special expenses

Expensesnotrelatedtothegenerationofincomebutspeciallyenumeratedinthelawcanbedeductedwhencal-culating the income tax base:

• annuities.Iftheyarepaidasconsiderationforthetransferofassets,theyareonlydeductibletotheextent thepaymentsexceedthevalueoftheannuityobligationcapitalizedonthedateoftransfer(nolimitation);• contributionstoqualifiedchurchesandreligiouscommunities(limitedtoEUR200peryear);• expensesforprivatetaxadvice(nolimitation);• specialdonationsupto10%oftheincome(afterlossset-off)oftheprecedingyear;• lossestobecarriedforward(seechapterIII.1).

Thefollowingspecialexpensesaresubjecttothelimitationsasstatedbelow:

• privatehealth,lifeandaccidentinsurancepremiums;• contributionstopensionfundsandpensioninsurancepremiums;• expensesfortheconstructionandrenovationofresidentialbuildings;• expensesforthepurchaseofsharesissuedinthecourseoffoundingacompanyorinthecourseofacapital increase(newshares);• expensesforthepurchaseofcertainparticipationcertificates;


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ThemaximumamountwhichcanbeclaimedforthetotalofsuchexpensesisEUR2,920pertaxpayerraisedbyEUR2,920ifthetaxpayermayclaimthesingle-earnertaxcreditandbyanotherEUR1,460ifthetaxpayerhastosupportthreeormorechildren.Only25%oftheactualexpensesareallowedasataxdeductionprovidedthat25%ofthemaximumamountarenotexceeded.BetweenanannualincomeofEUR36,400andEUR60,000thedeductionisreduceddowntozeroproportionallytotheincreaseinincome.

Extraordinary expenses

Extraordinary expenses reduce the taxable base. They are defined as expenses that are extraordinary and inevitableandthatconsiderablyaffectthetaxpayer’seconomicperformanceandareneitherincomerelatednorcoveredbythetermspecialexpenses(e.g.medicalexpenses). Ingeneralthesedeductionsareonlydeductibletotheextentthattheyexceedacertainpercentageoftaxable income before calculating the deduction. The percentage ranges from 6% to 12% of the taxable income as follows:

income %uptoEUR7,300 6%morethanEUR7,300 8%morethanEUR14,600 10%morethanEUR36,400 12%

Thesepercentagesarereducedby1%ifthetaxpayerisentitledtoasingle-earnerorsingle-parenttaxcreditaswellasforeachchildthatentitlesthetaxpayertoachild-alimony-tax-creditformorethansixmonthsinthegivenyear.

Tax credits

Tax credits reduce the tax amount.Suchcreditsaree.g.:

• child-tax-credit:EUR58,40/month/childorachild-alimony-tax-credit:EUR29,20to58,40/month/child;• sole-earner and single-parent tax credit: between EUR 364 and EUR 669 dependent on the number ofchildren(uptotwochildren)+EUR220forthethirdchildandeachfollowingchild;• transportationtaxcredit:EUR291/year;• employeetaxcreditorcross-borderworker’scredit:EUR54peryear;• pensionertaxcredit:max.EUR400/year;betweenanannualincomeofEUR17,000and25,000thecredit isreducedproportionallytotheincomedowntozero;

3 Methods of Levying

3.1 Assessment

Generally,taxesareleviedaccordingtotheassessment procedure.Taxreturnsaredueon30Apriloftheyearfollowingthetaxyear.Iftaxreturnsaresubmittedelectronicallyvia‘FinanzOnline’thetaxreturnsaredueon30Juneoftheyearfollowingthetaxyear.Uponrequestanextensionoftimemaybegrantedundercertaincircum-stances. Also a non-residentsubjecttolimitedtaxliabilityhastofileanincometaxreturninAustria,ifrequestedbythetaxofficeoriftheaggregateamountofincomeonwhichnoAustrianwithholdingtaxatsourceisleviedex-ceeds EUR 2,000.Consequently,ifanon-residentexclusivelyreceivesincomewhichissubjecttowithholdingtaxheisnotrequiredtofileataxreturnunlesshereceivesincomefromasilentpartnershiporincomeattributabletoadomesticpermanentestablishment.


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Ifnomandatoryassessmentisrequired(e.g.onlyincomesubjecttowagetaxisreceived)avoluntary assessment mayberequestedwithinaperiodoffiveyearsinordertoenjoyalowerprogressivetaxrateandtoclaimdeduc-tionsofexpenseswhereapplicable.

3.2 Wage tax

Employmentincomeofresidentsandnon-residentsissubjecttowagetax.Wagetaxispart of the income tax. The employerisliabletowithholdwagetaxandtransferthetaxtothecompetenttaxauthority. Socialsecuritypensionsandannuitiespaidoutofapprovedpensionfundsaredeemedtobeemploymentincome and are subject to wage tax.

3.3 Capital yields tax

Certain domestic income from capital investmentofresidentsandnon-residentsissubjecttoafinalwithholdingtax(capitalyieldstax)ataflatrateof25 %.Taxpayershavetheoptiontoapplyforanassessmentprocedureinordertoapplytheprogressivetaxrate. Thewithholdingtaxisimposedon:

• certainincomefromcapitalinvestmentifthedebtoroftheincomeisresidentinAustria: o dividendsandotherassimilatedincome; o interestderivedfromcashdepositsatbanks; o profitdistributionstosilentpartners; o distributionsfromprivatefoundations.

Inthecaseofdividendsandinterestalsoforeignsourcedincomeissubjecttowithholdingtaxifpaidby anAustrianpayingagent. Ingeneral,interestpaidtonon-residentsisnotsubjecttotax.

• income from bonds, securities and participations in investment funds if the bank or issuer is located in Austria.

Inordertotreatcomparabletypesofincomefromcapitalinvestmentequally,regardlessofwhethertheyhaveanAustrianornon-Austriansource,sometypesofincomearenotincludedinthecalculationofthetaxpayer’sincomebutaretaxedataspecialrateof25%andarethereforeequallytreatedasdomesticincomefromcapitalinvestmentswhichissubjecttoawithholdingtaxof25%.

3.4 Special withholding tax for non-residents (20 %)

Certaindomesticincomeofpersonssubjecttolimitedtaxliabilityissubject to a withholding taxataflatrateof 20 %whichisleviedonagrossbasis.UndercertaincircumstancespersonsresidentintheEUorEEAmaychoosethatwithholdingtaxiscalculatedonanetbasistowhichaflatrateof35 %(25%forpersonssubjecttotheCorporationTaxAct)isapplied.Inanyevent,personssubjecttolimitedtaxliabilitymayfiletaxreturnssotobetaxedonnetincomeatprogressiverates.

Suchincomeconcernsthefollowing:

• incomefromindependentpersonalservicesasauthor,lecturer,entertainer,architect,sportsman,artistor participantinanentertainmentperformanceiftheactivitiesareperformedorexploitedinAustria;• profits froma cross-bordermulti-tiered transparent partnership, if the recipients of the income are not disclosed;• royaltiesandfeesfortheuseofknow-how;


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• directors’fees;• incomefromcommercialortechnicalconsultancyactivitiesperformedinAustria;• incomefromcross-borderhiringoutoflabour;• distributionsordeemeddistributionsofAustrianornon-Austrian real estate funds, if the real estate is locatedinAustriaundertheconditionofpublic-placement(inthatcasethetaxrateis25%).

4 Calculation of income tax

4.1 General scheme of assessment

TaxableincomeisthetotalamountofincomefromallcategoriesdescribedundertheIncomeTaxActaftersettingofflossesarisingfromthesecategoriesandafterdeductingspecialallowancesandextraordinaryexpenses.

Theannualincometaxiscalculatedaccordingtothefollowingscheme:

1. Incomefromagricultureandforestry Businessincome2. Incomefromindependentpersonalservices (profits)3. Incomefromcommercialactivities4. Incomefromemployment Non-businessincome5. Incomefromcapitalinvestment (surplusofreceiptsover6. Incomefromrental,leasingandroyalties expenses)7. Otherspecificincome = Total amount of income - Specialexpenses - Extraordinaryexpenses - Itemizeddeductions = Taxable income * Tax rate = Tax amount - Tax credits = Annual tax due - Taxes withheld = Assessed annual tax - Advancedpayments =Taxtobepaid/taxtobereimbursed

4.2 Standard tax rates

Ifnofinalwithholdingtaxisapplicable,thetaxrateforthetaxableincomeiscalculatedaccordingtothefollowingformulas:


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income income tax (EUR)fromEUR11,001toEUR25,000 (income–11,000)x5,110 14,000fromEUR25,001toEUR60,000 (income–25,000)x15,125+5,110 35,000overEUR60,000 (income–60,000)x0,5+20,235

Theapplicationofthisformulameansthat:

• incomeupto EUR11,000peryearistaxedatanaveragerateof 0%,• incomeof EUR25,000peryearistaxedatanaveragerateof 20,44%,• incomeof EUR60,000peryearistaxedatanaveragerateof 33,73%,• incomeover EUR60,000peryearistaxedatrateof 50%.

4.3 Half rate taxation

Halftheaveragetaxrateappliestocertaintaxableincome,whichconcernsespeciallythefollowingtypes:

• dividendsandotherdistributionsfromparticipationsinstockcompanies,inlimitedliabilitycompaniesor commercialcooperatives;• distributionsfromprivatefoundations;• extraordinary incomewhich is e.g. capital gainsderived by an individual on the sale or liquidation of (apartof)abusiness,ifasevenyearsperiodhaselapsedandthetaxpayerhasdied,becomeunabletocarry onhisbusinessortoperformhisdutiesandobligationsasco-entrepreneur,orisatleast60yearsoldand hasgoneoutofbusiness;• incomefromtheexploitationofpatent-protectedinventionsdevelopedbythetaxpayer.


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II The Austrian Corporation Tax Act (CTA)

1 Scope of application

1.1 Personal scope of application

Thelawappliesto:

• legalentitiesorganizedunderprivatelaw(e.g.stockcompanies,limitedliabilitycompanies,foundations, associationsandco-operatives)andcomparableforeignentities;• corporationsunderpubliclawandbusinessescarriedonbycorporationsunderpubliclaw;• institutionsandfunds(e.g.specificpurposefunds)withoutlegalpersonalityiftheirincomeisnotdirectly taxableinthehandsofanotherperson.

1.2 Unlimited and limited tax liability

Unlimited liability to taxappliestocompanieshavingtheirseatorplaceofmanagementinAustria,whichmeansthattheirworldwideincomeissubjecttotax(seechapterI.2.1).CompaniesestablishedunderAustriancommer-ciallawmusthavetheirlegalseatinAustriaastheAustriancompanylawfollowsthelegalseattheory. Limited liability to tax applies to companieshavingneither their seatnor theirplaceofmanagement inAustria,whichmeansthattheyareonlysubjecttotaxontheirincomefromAustriansources(seechapterI.2.2). Corporationsunderpubliclawandtaxexemptlegalentities(e.g.charitablecorporations)areonlytaxablewiththeirincomesubjecttowithholdingtax(capitalyieldtax,seechapterII.3.2)orcomparableforeignincome(called limited liability to tax of the second order).

2 Taxable income

2.1 Reference to the Income Tax Act

TheCorporationTaxActreferstothedefinitionof‘taxableincome’ascontainedintheIncomeTaxAct(seechap-terI.4.1).Furthermore,thesourcingrulesforthetaxationofnon-residentsoftheIncomeTaxAct(seechapterI.2.2)applyforcorporationtaxpurposesaswell. Inprincipal,alegalentitymayderiveincome from all seven categoriesofincomeasdefinedintheIncomeTaxAct(seechapterI.2.1).However,sec7(3)CTAexplicitlystatesthattheincomeoflegalentitieswhosefinancialaccountinghastobebasedondoubleentrybookkeepingundercommerciallawfallsinonesinglecategoryofincome: income from commercial activities.

2.2 Tax exemptions

TheCorporateTaxActexemptscertainlegal entitiesfromtax,e.g.charitableentitiesundercertainconditions.

The following domestic income is exemptfromcorporationtax:• intercorporate dividends and other profit distributions received under the national and international participationexemption;• certaintypesofincomeofaprivatefoundation;• profitsarisingfrommergersandreorganizations,undercertainconditions.

The Austrian Corporation Tax Act (CTA)

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Under the national participation exemption any capital yields from a participation received by a residentcompanyfromanotherresidentcompanyorcooperativeisexemptfromcorporationtax.Thereisnominimumparticipationrequirementandnominimumholdingrequirement.

Under the international participation exemptionschemeanycapitalyieldsfromaparticipationof 10 % or more areexemptfromcorporationtaxunderthefollowingconditions:- theparentcompanyislegallyrequiredtokeepbooksandrecordsaccordingtotheAustrianCommercialCode (cooperatives,mutual insurance entities, savings banks) or theparent company is a foreign company that qualifiesasaresidentofAustriaforcorporationtaxpurposes(i.e.dualresidentcompanies);- theparticipationisheldforatleastaone-yearperiodincessantly;- theforeignsubsidiaryhasalegalformlistedintheParentSubsidiaryDirective(90/435/CEE)oriscomparable toadomesticcompany.Capital gains fromsuchparticipations in foreigncompaniesareexempt fromcorporation taxaswell, losses,however,arenotdeductible.Ifthetaxpayeroptstotreatpotentialcapitalgainsastaxableincome,thenoccurring losses remaindeductible.Theoptionhas tobedone in theyearof theacquisitionof theparticipationand is irrevocable.AccordingtotheCorporationTaxActa switch-over from the exemption to the credit methodtakesplaceif:• foreign-sourceincomeissubjecttotaxationwhichisnotcomparabletotheAustriancorporationtax(ifthe foreigntaxdoesnotexceed15%);and• themainaimofthebusinessoftheforeigncompanyistodirectlyorindirectlyderiveinterest,incomefrom leasingofmovableorintangibleassetsorthealienationofparticipations(taintedpassiveincome).

Insuchcasestheunderlyingforeigncorporationtax,ifany,iscredited.

Under the international participation exemptionschemeanycapitalyieldsfromaparticipationof less than 10 % areexemptfromcorporationtaxunderthefollowingconditions:- theforeignsubsidiaryhastohavealegalformwhichislistedintheParentSubsidiaryDirective(90/435/CEE)- theforeignsubsidiaryhattobeacompanyofanEEAMemberState,ithastobecomparabletoadomestic companyandtherehastobeanextensiveexchangeofinformationandadministrativeassistanceinthereco- veryoftaxeswiththeforeigncountryinwhichthecompanyisaresident.AccordingtotheCorporationTaxActa switch-over from the exemption to the credit methodtakesplaceif:• the foreigncompany isactuallynot subject toa taxwhich is comparable to theAustriancorporation tax, neitherdirectlyorindirectly;• theprofitsoftheforeigncompanyaresubjecttoataxwhichiscomparabletotheAustriancorporationtax,but therateapplicableislessthan15%;• theforeigncompanybenefitsfromanextensiveexemptionfromtax(exceptexemptionsfordomesticcapital yields).Insuchacasetheunderlyingforeigncorporationtax,ifany,iscredited.

Foreign companiesresidentinanotherEUMemberStateareentitledtotheparticipationexemptionifthequali-fiedparticipationisheldbyapermanentestablishmentlocatedinAustria.

2.3 Determination of taxable income

2.3.1 Methods for the calculation of taxable income

Profitsofthecompanyhavetobedefinedaccordingtothenet worth comparison method.Profitsaredefinedasthedifferencebetweenthecompanies’netassetsatthebeginningandattheendofthetaxyear,adjustedbycapitalcontributionsandwithdrawals.

2.3.2 Deductions

Income-related expenses

Inprinciple,allexpensescausedbytheconductofthebusinessaredeductibleaccordingtotheconceptoftheIn-comeTaxAct(seechapterI.2.4.2).Accordingtospecial rulesoftheCorporationTaxActinterestexpensesrelated


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to the debt financingoftheacquisitionofparticipationsforwhichtheparticipationexemptionisapplicablearedeductible.Asregardsremunerationspaidtomembersofthesupervisory board or the administrative board onlyhalfofthemaredeductible.

Special expenses

Asregardsspecialexpensesonlythefollowingarerelevantforcompanies:• annuitiesandpermanentchargestothesameextentasforindividuals;• specialdonationsaredeductibleupto10%oftheincome(afterset-offoflosses)oftheprecedingyear;• lossestobecarriedforward(seechapterIII.1).

3 Methods of tax collection

3.1 Assessment

In general, taxes are levied according to the assessment procedure. The time limits for filing tax returns correspondtothoseforindividuals(seechapterI.3.1).

3.2 Capital yields tax

TheIncomeTaxActdefinestheincomefromcapitalinvestment,whichissubjecttotaxregardlessofwhetherpaidtoindividualsorcompanies(seechapterI.3.3).Thedifferenceforcompaniesisthatinmostcasesthetaxisnot finalandthereforetheincomefromcapitalinvestmenthastobeincludedinthetaxreturn. In addition to the exemptionsfromwithholdingtaxonincomefromcapitalinvestmentreceivedbyindivi-duals(seechapterI.3.3),nowithholdingtaxisdueonthefollowingincome:

• dividends,interestandotherearningsfromparticipationsinstockcompanies,participationsinalimited liabilitycompanyorcommercialcooperativeif o paidtoaresidentcompany;and o theminimumparticipationrequirementof25%isfulfilled;• interestincomefromcashdepositswithbanksandotherdebtclaimswithbankswhicharebasedonabank transaction,andincomefrombondsif o therecipientprovesthattheinterestconstitutesbusinessincomeofadomesticorforeignbusiness;and o thebeneficialowneroftheinterestinformsthecompetentauthority; o thebondsandthecouponsaredepositedwithabank;• certain investment income paid to an investment fund, a real estate investment fund or a private foundation.

In accordance with the Parent-Subsidiary Directivedividendsareexemptfromwithholdingtaxes,if• theparentcompanyhasalegalformlistedintheDirective;• theparentcompanydirectlyownsatleast10%ofthecapitalofthesubsidiary;and• theshareholdinghasbeenheldforatleastaone-yearperiodincessantly.

Withholdingtaxesmayberefundedbythetaxauthorityunderthefollowingconditions: • theparentcompanyisresidentinonEUMemberstateorinanEEAMemberStatewithwhichonextensive exchangeofinformationandadministrativeassistanceintherecoveryoftaxeshasbeenagreedon;and • thewithholdingtaxesmaynotbecreditedintheresidentstateoftheparentcompany.


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3.3 Withholding tax for companies subject to limited tax liability

Companiessubjecttolimitedtaxliabilityaresubjecttoaspecialwithholdingtaxwhichcorrespondstotheoneforindividuals(seechapterI.3.4).InaccordancewiththeInterest and Royalty Directiveanexemptionforcompaniesisapplicableif

• thepersonliabletowithholdtaxissubjecttounlimitedtaxliabilityorapermanentestablishmentofan EUcompany;• thebeneficialownerisanotherEUcompanyorapermanentestablishmentintheEUofanEUcompany;• adirectparticipationofatleast25%inthecapitalisheld;• theparticipationhasbeenheldforatleastaone-yearperiodincessantly;• a certificate of residence issued by the competent authority and a confirmation by the taxpayer on the fulfilmentoftheminimumparticipationandholdingrequirementismadeavailabletothepersonliableto withholding taxes.

4 Calculation of corporation tax

4.1 Tax rates

The corporation tax rate is25 % (flat rate).A lower tax rate applies to certain investment income of privatefoundations(12.5%),whichisanintermediarytaxthatiscreditedtothetaxesleviedonthecontributionsmadetothebeneficiaries.

4.2 Minimum tax

ForstockcompaniesanannualminimumtaxofEUR3,500andforlimitedliabilitycompaniesaminimumtaxperyearofEUR1,750islevied.BanksandinsurancecompaniesarechargedaminimumtaxofEUR5,452.Theminimumtaxisconceivedasataxinadvanceandcanbeset off against any future corporation tax. Withholding taxesarecreditedagainstthecorporationtax.Excessamountsarerefundable.

4.3 Example: Taxation of dividends at corporate and on shareholder’s level

Consideringthe25%corporationtaxrateandthe25%withholdingtaxonprofitdistributionstoshareholders,thetotaltaxburdenontheprofitsdistributedisasfollows:

EUR Taxableprofitatcorporatelevel 100Corporationtax:25% (25)Profitaftertaxatcorporatelevel(=distributableprofit) 7525%withholdingtaxonprofitdistribution (18,75)Income after tax at shareholder level 56,25Total tax burden 43,75

The25%withholdingtaxonprofitdistributionsmaybereducedunderDouble Taxation Conventions.


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5 Group Taxation

Themainpurposeofthegrouptaxationschemeisthatlegallyindependentcompaniesbelongingtoagroupofcompaniesareregardedasasingleunitfortaxpurposes,withtheresultthatprofitsandlossesarecompensatedwithinthegroup.Thegrouptaxationsystemappliestodomesticandforeigncompanies.Thekeyconditions and elementsfortheformationofagroupare:

• The parent company is a domestic company or a foreign company with a permanent establishment, registeredinthetraderegisterinAustria,towhichtheparticipationsareattributable.• A‘morethanoneparent’groupmaybeformed.Thus,severalcompaniesatthetopofthegroupmayhold financialparticipationsofmorethan50%intotal.Inthiscase,amainshareholderwithaparticipationofat least40%isrequired.Theothergroupparentcompaniesmustholdaparticipationofatleast15%each.• Thegroupmembersmaybedomesticorforeigncompanies.Onlyfirst-tierforeignsubsidiariesmaybecome membersofagroup.• Financial integration in the form of a (direct or indirect) participation ofmore than 50% of the share capitalwith amajority of voting rights is required. Thisparticipationhas to beheldduring thewhole accountingyear.• Thegroupparentandallgroupmembersareobligedtohavethesamebalancesheetdate;• Anapplicationmustbefiledwiththecompetenttaxauthorities.• Agroup formationwhich isbinding for at least threeyears is required. If thegroupbreaksupwithin‚ three years after formation, the tax effects resulting from the group formation will be retroactively neutralized.

The main consequencesoftheformationofagrouparethefollowing:

• Theschemeprovidesfortheattributionof100%oftheprofits/lossesofadomesticgroupmembertothe groupparenteventhoughtheactualparticipationislower.• Inthecaseofforeigngroupmembersonlylossesareattributabletotheparentcompanyaccordingtothe percentageoftheparticipation.Profitsofaforeigngroupmemberarenotattributedtothegroupparent.• A recapture of taxes takes place, if the foreign losses are or may be set off against profits abroad in subsequentyearsoriftheforeigngroupmemberceasestobeagroupmember.• If a participation in connectionwith the group formationwas acquired after 31 December 2004, there isanoptiontoamortizethegoodwillinherentintheacquisitioncostonastraight-linebasisoveraperiod of15years.Theamountamortizedisrestrictedto50%oftheacquisitioncosts.Inordertoavoidabuse, acquisitionsofparticipationsheldbygroupcompaniesareexcludedfromgoodwillamortization.Goodwill amortizationislimitedtodirectlyhelddomesticparticipations.• Thewriteoffofparticipationsistaxneutralwithinthegroupsincethegroupparentcompanymakesuse ofthelossesofitsgroupsubsidiariesdirectly.


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III Common provisions

1 Treatment of losses

Lossessufferedinonecategoryofincomearedeductedfromthefinancialresultofanothercategoryofincomeinthesameyear.Suchalosscompensationisnot allowed,ifthelossesaresufferedfromabusinessthatmainlyconsistsofthemanagementofintangibleassets(e.g.leasecontracts)orfromaleasingbusinessorfromapartner-shippubliclyofferingitslossesfortheclearpurposeoftaxsparing.Suchlossesmayonlybesetoffagainstfutureprofitsofthesamebusiness. Foreignlosseswhichmaynotbesetoffagainstprofitsabroadmaybeset-offagainstdomesticprofitseventhough a double tax conventionwhichusestheexemptionmethodexists.Arecaptureoftaxestakesplace,ifinsubsequenttaxyearstheforeignlossesareormaybesetoffabroad. Businesslosses(lossesfromagricultureandforestry,independentpersonalservices,commercialactivities)whichcannotbedeductedfromotherincomeinthesameyearmaybecarried forward and deducted from the totalamountofincomeupto75%ofthattotalasaspecialexpenseinsubsequentyears.Thislimitationdoesnotdeprivethetaxpayerofusingthoselossesinsubsequenttaxyears.Lossesincurredmaybecarriedforward indefinitely under the condition that they are computed according to double entry bookkeeping. For losses calculatedaccordingtothecashmethodthecarry-forwardislimitedby3years. Theloss-carryforwardforcompaniesissuppressediftheeconomicidentity of the companyhaschangedduetoachangeinownershipincombinationwithamodificationoftheorganisationalstructure.Theloss-carryforwardremainsavailableiftherestructuringwasdoneinordertopreserveasubstantialnumberofworkingplaces.

2 Depreciation and amortization

Thecostofdepreciableassetsisdepreciatedin equal amounts over their useful life.Depreciationcan,ingeneral,beeffectedwithregardtoallassetsusedinbusiness.Depreciationonlystartsassoonastheassetsareputintouse in the business. Theannualamountofdepreciationisallowediftheassetshavebeenusedformorethan6monthsinthe respectiveaccountingyear;otherwise,depreciationisallowedforhalfoftheamount. Theallowablededuction fordepreciationoffixedassetsused inabusiness is computedaccording to the useful lifeoftheassetintherespectivebusiness.Onlyinspecificcasestheusefullifeofassetsisexplicitlydefinedin the law:

• buildingscanbedepreciatedatarateof2%,2.5%or3%dependingonthenatureoftheiruse;• productioncostsincurredforbuildings under preservationaredepreciatedatarateof10%;• goodwillhastobewrittenoffoveraperiodof15years;• carshavetobewrittenoffoveraperiodof8years.

Movable assets whose net costs do not exceed EUR 400 can bewritten off to the full extent in the year ofacquisition. Inadditiontothecurrentdepreciationassetshavetobewritten downtothegoing-concernvalueifthevalueofbusinessassetsfallsbelowthebookvalue.

Common provisions

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3 Taxable year

Generallythetaxyearisthecalendar year.Personswithbusinessincomeorincomefromagricultureandforestryandwhoarerequiredtokeepbooksareentitledtouseanaccountingyeardifferentfromthecalendaryear.Theaccountingyearcomprisestwelvemonths.Iftheaccountingperiodsarechangedtheaccountingyearmaycom-prisefewerthantwelvemonthsbutnevermorethantwelvemonths.Incasetheaccountingyeardiffersfromthecalendaryeartheprofitsaretaxableintheassessmentyearinwhichtheaccountingyearends.

4 Procedural aspects of tax assessment

Theperiodoftimeforanappeal against a tax assessment notice is one month.Theappealhastobefiledwiththerevenueofficethathasissuedtheassessmentnotice.TherevenueofficemaydecideontheappealorforwardtheappealtotheIndependentTaxTribunal.IftheIndependentTaxTribunalmaydecideagainstthetaxpayer,the decisionmaybeappealedagainstattheAdministrativeSupremeCourtand/ortheConstitutionalSupremeCourt.Anappealtothosecourtsmustbelodgedwithin6 weeksafterthedecisionoftheIndependentTaxTribunal.Theappeal is free of charge,butitdoesnotsuspendthepaymentoftaxes. Taxesarepayablewithinonemonthafterthedatetheassessmentnoticehasbeenissued.Quarterly prepay-mentsoftaxes(i.e.on15February,15May,15Augustand15November)mustbemadeontheadjustedbasisoftheprecedingtaxassessment. Thetaxpayerhastheoptiontoapplyforasuspension of the collectionoftaxesincaseofanappeal.Inothercases,arequestforasuspensionofthecollectionorforpaymentininstalmentsmaybefiledifthepaymentofthefullamountconstitutesconsiderablehardshipandifthecollectionofthetaxesdueisnotjeopardized.Ifthecollectionisdeferredorpaymentininstalmentsispermitted,interestisdue.

5 Avoidance of double taxation

5.1 By domestic means

Unilateralreliefisgrantedbywayofexemptionwithprogressionunderthefollowingconditions:• thetaxpayerissubjecttounlimitedtaxliability;and• nodoubletaxconventionisapplicableontherespectiveincome;and• theincomeissubjecttoanaveragetaxburdenofatleast15%;and• oneofthefollowingtypesincomeisconcerned: o incomefromimmovablepropertysituatedabroad; o business income or income from independent personal services derived by a foreign permanent establishment; o incomefromaforeignbuildingsiteorconstructionorinstallationproject; o incomefromeducationalandteachingactivitiesexercisedabroad; o incomefromparticipationinanentertainmentperformanceabroad; o incomefromemploymentexercisedabroad.

Asfarasdividends,interestandroyaltiesareconcernedandforactiveincomethatdoesnotqualifyfortheabove-mentionedexemption,unilateralreliefisgrantedbywayofaforeign tax credithavingregardofthetaxcreditlimitations.Thereliefisalsograntedforlocalincometaxeswhichareleviedinthesourcestatebutremainoutsideofthescopeofanapplicabledoubletaxtreaty.

Common provisions

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5.2 By tax treaties

Austriahasconcludedmorethan80conventionsfortheavoidanceofdoubletaxation(DTC).Thedoubletaxati-onconventiondefinestheresidentstateofthetaxpayerandallocatesthetaxingrightsoftheincometothetwo contractingstates.Themethodarticlesdefinethemethodofavoidingdoubletaxation(exemptionorcreditmethod). Furthermore,non-discriminationprovisions,provisionsontheexchangeofinformation,onthecollectionoftaxesand on arbitration are included.

TheAustrianconventionsfollowtheOECDModelTaxConventiontoalargeextent.SomehighlightsoftheAus-trian double tax treaty policy include the following: • nowithholdingtaxesoninterest,royaltiesandinter-companydividends;• applicationoftheexemptionmethod;• applicationoftheCommentarytotheOECDModelConventionforinterpretationpurposes;• avoidanceofdiscriminatorytreatmentvis-à-visotherEUmemberstates.

6 Advance rulings

For the time being there is no statutory advance rulingprocedureinAustria. However, legalquestionsoninternational tax issuesmaybeansweredbytheFederalMinistryofFinanceaccording to the EASprocedure(express-answer-service).

7 Advance pricing arrangements (APA)

Advancepricingarrangementscanbeachievedontheinternational levelbyusingmutualagreementproceduresasprovidedforindoubletaxationconventions.Mutualagreementproceduresareconductedbythecompetentauthoritiesofthetwocontractingstates,whichinAustriaistheFederalMinistryofFinance.

Common provisions

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IV Other taxes covered by tax treaties

1 Taxes on capital

1.1 The land tax (die Grundsteuer)

Thelandtaxisaformofcapitaltaxwhichisleviedondomesticrealestate.Realestateheldbycertainentities(e.g.politicalsubdivisionsandlocalauthorities,churches,sportsclubs,foreignstates)isexemptfromthelandtaxifitisusedfortax-favouredpurposes(e.g.forpublicuse,religiousorcharitablepurposesorforembassiesincaseofreciprocity). The land tax is a tax leviedbycommunities. In case communities fullyexercise their taxing right the tax burden,ingeneral,amountsto0.8%ofthestandardizedtaxvalueoftherealestateasdeterminedbytheFederalTax Administration. IfthelandtaxexceedstheamountofEUR75itisleviedquarterly,otherwiseanannualone-timepaymentuponassessmentisrequired.

1.2 The tax on the value of vacant plots (die Abgabe vom Bodenwert bei unbebauten Grundstücken)

Thetaxonthevalueofvacantplotsisanadditionallandtaxwhichisleviedonthevalueofvacantplotswhichcouldhavebeenusedforconstructionpurposes.ThelandtaxisataxleviedbytheFederalTaxAdministration. Vacantplotswhichareexemptfromthelandtaxareexemptfromthetaxonthevalueofvacantplotsaswell.Therearesomemoreexemptionsprovidedforinthelaw. TherateablevalueofthevacantplotisthetaxbaseiftheamountofEUR14,600isexceeded.Thetaxrate applicableis1%.

1.3 The tax on agricultural and forestry enterprises (die Abgabe von land- und forstwirtschaftlichen Betrieben)

Thetaxisleviedonagriculturalandforestryenterprisesandonvacantplotsusedforagriculturalandforestrypurposes. Thetaxablebaseisderivedfromthecalculationschemeforthedeterminationofthelandtax.Forvacantplotsaseparatebasevaluehastobecalculated.Inordertodeterminetheannualamountofthetaxamultiplierof400%isappliedonthetaxbase.

2 Inheritance and gift taxes

Since1August2008theinheritanceandgifttaxeshavebeenabolished.Giftsnowhavetobenotifiedtothelocaltaxauthorities.The transferof capital toprivate foundations,whichwaspreviously subject toa special formofgifttax,isnowsubjecttoanewprivatefoundationsentrytaxatarateof2.5%.Undercertainconditionsin relationtoforeignprivatefoundationstherateis25%.

Other taxes covered by tax treaties

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Publication details:Editor,ownerandpublisher:FederalMinistryofFinance,DivisionV/7PublicRelationsandCommunication,HintereZollamtsstraße2b,1030ViennaResponsibleforthecontents:FederalMinistryofFinance,DivisionIV/4InternationalTaxLawGrafics:PrintshopoftheFederalMinistryofFinancePrintedbytheprintshopoftheFederalMinistryofFinanceVienna,July2009www.bmf.gv.at

Income tax v4 - UKCFR · contents contents i the austrian income tax act (ita) 5 1 scope of application 5 1.1 personal scope of application 5 1.2 unlimited and limited tax liability

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