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Austria: Parliament Enacts Tax Reform

(Aug. 20, 2015) On July 23, 2015, Austria’s Parliament enacted a major reform of the country’s tax system that expands the progressive income tax scale for individuals to six brackets, ranging from an initial 25% rate to a ceiling rate of 55%. Other aspects of the reform include, inter alia, doubling the tax-exempt allowance for children per year, reducing the minimum monthly contribution for health insurance for self-employed workers from €724 (about US$782) to €406 (about US$451), and increasing the social security contribution tax credit (negative tax) and making the negative tax available to pensioners. The reform will lead to an estimated tax relief for taxpayers of €5 billion (about US$5.6 billion) and will generally take effect on January 1, 2016. (Steuerreformgesetz 2015/2016 [StRefG 2015/2016] [Tax Reform Act 2015/2016], BUNDESGESETZBLATT [BGBl.] I No. 118/2015, Rechtsinformationssystem [RIS] [Legal Information System of the Republic of Austria]; Steuerreform 2015/16 – Finale im Bundesrat [Tax Reform 2015/16 – Finale in the Federal Council], Parlamentskorrespondenz Nr. 852 [Parliamentary Correspondence No. 852] (July 23, 2015), Austrian Parliament website.)

Several types of compensatory measures have also been adopted, which include an increase of the withholding tax to 27.5% and a reduction of bank secrecy to combat tax fraud. (Bundesverfassungsgesetz, mit dem das Endbesteuerungsgesetz geändert wird [Federal Act That Amends the Final Taxation Act], BGBl. I No. 103/2015; Bundesgesetz, mit dem das Bankwesengesetz geändert, das Kontenregister- und Konteneinschaugesetz, das Kapitalabfluss-Meldegesetz und das Gemeinsamer Meldestandard-Gesetz erlassen, das EU-Amtshilfegesetz und das Amtshilfe-Durchführungsgesetz geändert werden [Federal Act That Amends the Bank Act, Enacts the Bank Account Registration and Bank Account Access Act, the Report of Outflow of Capital Act, and the Common Reporting Standard Act, and Amends the EU-Mutual Assistance Act and Mutual Assistance Implementing Act], BGBl. I No. 116/2015, RIS.)

Features of the Tax Reform Act 2015/2016

Originally, there were three income tax brackets for incomes over €11,000 (about US$12,272), with rates of 36.6%, 42.5%, and 50%; the highest rate was for incomes of more than €60,000 (about US$67,000). Under the new system, income is divided into six different income classes. (Einkommensteuergesetz 1988 [EStG 1988] [Income Tax Act 1988], BGBl. I No. 400/1988, as amended, § 33, ¶ 1.) The rates, based on income per annum, are as follows:

  • 0 to €11,000: tax free
  • €11,000 to €18,000: 25%
  • €18,000 to € 31,000: 35%
  • €31,000 to €60,000: 42%
  • €60,000 to €90,000: 48%
  • €90,000 to €1 million: 50%
  • More than €1 million: 55% (rate applicable from 2016-2020, then subject to review).

The tax exemption for each child will be doubled from €220 to €440 per year, if claimed by a sole wage earner. If it is claimed by two taxable persons for the same child, the tax credit will be €300, up from the previous rate of €132 per child per year. (Income Tax Act 1988, § 106a.)

Social security insurance is compulsory for all employees in Austria. (Allgemeines Sozialversicherungsgesetz [ASVG] [General Social Security Act], BGBl. I No. 189/1955, as amended, § 4, RIS.) Both employees and employers contribute a certain percentage of the salary for the social security insurance. In a provision that is similar to the U.S. earned income tax credit, employees who receive low incomes not exceeding €11,000 and that are therefore not subject to income tax are entitled to a tax credit for their contributions to the statutory social security system (negative tax). The reform raises the tax credit from 10% of the employee’s contributions (a maximum of €110) to 50% (a maximum of €400). (Income Tax Act 1988, § 33, ¶ 8.) Furthermore, for those employees entitled to a deduction from their employment income for commuting expenses (Pendlerpauschale), the total possible tax credit is increased to €500. (Id.) The negative tax will be made available to pensioners with a maximum deductible amount of €110. (Id.)

Features of the Compensatory Measures

As compensatory measures, the Austrian Parliament enacted an increase in the withholding tax on capital income and reduced bank secrecy provisions to fight tax fraud. Currently, a withholding tax on capital income in the amount of 25% applies to dividends from bank deposits and debt securities, interest from stocks and corporate shares, and capital gains from the sale of securities and derivatives. Starting in 2016, capital income will be taxed at 27.5%. (Income Tax Act 1988, § 27a ¶ 1; Endbesteuerungsgesetz [Final Taxation Act], BGBl. No. 11/1993, as amended, § 1 ¶ 4, RIS.) This increase does not apply to interest from bank deposits. (Income Tax Act 1988, § 27a ¶ 1.)

Central Bank Account Register

Under the old provisions, bank secrecy rules prevented authorities from accessing bank account information, unless a person was formally charged with a (financial) crime. The new provisions establish a central bank account register of all Austrian bank accounts that includes the name, birth date, and address of the account holder, but not the bank account balance. (Bank Account Registration and Bank Account Access Act, § 2, RIS (Aug. 14, 2015).) Tax authorities will have access to the bank account information if they can demonstrate that they have legitimate concerns about the correctness of a tax declaration, they have already initiated an investigation, and the taxable person has been given an opportunity to comment. (Id. § 4 ¶ 5 & § 8.) Access will only be granted with a court order. (Id. § 9.)

Bank Reporting Requirements

In addition, banks will be obligated to report bank account outflows or transfers of securities of more than €50,000 to the tax authorities. (Report of Outflow of Capital Act, § 3, RIS (Aug. 14, 2015).) In order to avoid circumvention of the rule, the obligation applies whether €50,000 was transferred in a single transaction or in several individual transactions that are clearly linked. (Id. § 3 ¶ 2.) The reporting obligation applies to outflows and transfers from March 1, 2015, onwards. (Id. § 4.) Furthermore, banks are required to report capital inflows or transfers of securities of more than €50,000 from Switzerland and Liechtenstein. (Id. §§ 5, 6.) The reporting requirement for banks for capital inflows covers the period of July 1, 2011, to December 31, 2012, for Switzerland and the period of January 1, 2012, to December 31, 2013, for Liechtenstein. (Id. § 7.) Account holders who received capital inflows that must be reported can choose to have the untaxed capital taxed at a flat rate of 38%, due by September 30, 2016 (id. § 8), or they can make a voluntary self-disclosure of a financial offense. (Id. § 10.)