Corporate Taxes in Austria

Austria, a central European country known for its rich cultural heritage and economic stability, offers an attractive environment for enterprises. However, understanding the commercial tax system in Austria is crucial for any company looking to operate in the country. This article provides a comprehensive overview of commercial-taxes in Austria, detailing the tax rates, the tax base, special tax regimes, compliance demands, and the impact of recent reforms.

Overview of Austria’s Corporate Tax System

• Country has a well-structured and transparent commercial tax system that aligns with European Union (EU) adjustments. The system is designed to be competitive, fostering an environment conducive to business growth while ensuring that companies contribute to the public revenue.
• Corporate Income Tax (Körperschaftsteuer): The primary tax levied on commercial entities in country is the commercial income tax. As of 2024, the standard commercial tax rate is 23%, which is a reduction from the previous rate of 25%. This rate is applicable to the worldwide income of Austrian citizen companies and the Austrian-sourced income of non-citizen companies.
• Taxable Entities: Corporate income tax applies to few entities, including public and private limited firms, cooperative societies, and associations. Partnerships, however, are generally treated as translucent entities, meaning the partners are taxed separately on their share of profits.

Determining the Tax Base

• The commercial tax base in Austria is calculated by determining the company’s taxable income, which is derived from the company’s profits as stated in the financial statements prepared under Austrian Generally Accepted Accounting Principles (GAAP). Several adjustments are made to the accounting profit to arrive at the taxable income:
• Allowable Deductions: Ordinary business expenses, including salaries, rents, and operational costs, are deductible. Specific provisions, such as underestimation, are also allowed as deductions, with certain limits and regulations.
• Non-Deductible Expenses: Not all expenses are deductible. For example, expenses related to the investment of land, fines, and penalties, as well as bribes, are not deductible. Additionally, interest on debt sponsoring is generally deductible, but there are restrictions under the interest limitation laws.
• Depreciation Rules: Austrian tax law allows for the depreciation of tangible and intangible assets. Underestimation is usually applied on a straight-line basis over the useful life of the asset. However, certain assets, like buildings, have specific depreciation rates and methods.

Special Tax Regimes and Incentives

• Austria offers few tax incentives and special regimes to encourage investing, innovation, and research and development (R&D). These incentives are designed to make Austria an attractive destination for enterprises, particularly those in high-tech and innovative sectors.
• Research and Development (R&D) Incentives: Companies engaged in R&D activities can benefit from a 14% research premium, which is a direct cash incentive based on eligible R&D expenses. This premium is available to all industries and is applicable to both in-house and outsourced research activities.
• Group Taxation Scheme: Country has a group taxation regime that allows for the offsetting of profits and losses within a group of companies. A group is formed when a parent company holds at least 50% of the shares in a subordinate. The losses of non-citizen group members can also be included under certain conditions, though these are subject to recapture rules if the non-citizen subsidiary becomes profitable.

Withholding Taxes

• Withholding taxes in country are an essential aspect of the commercial tax system, particularly for non-citizen firms and investors. These taxes apply to certain types of income paid to non-citizens:
• Dividends: A 27.5% withholding tax is generally levied on dividends paid to both citizen and non-citizen shareholders. However, this rate may be reduced under applicable double taxation treaties or to 0% under the EU Parent-Subsidiary Directive if specific conditions are met.

• Interest: Interest payments to non-citizens are subject to a 0% withholding tax, except for specific types of income, such as from profit-sharing bonds, which may be taxed at a higher rate.
• Royalties: A 20% withholding tax is imposed on royalty payments to non-citizens. This rate can also be reduced or eliminated under double taxation treaties or EU directives.

Compliance and Reporting Requirements

• Compliance with tax laws in Austria involves several steps and requires meticulous attention to detail. Firms must adhere to filing deadlines and maintain accurate records to avoid penalties.
• Tax Filing: Corporate tax returns must be filed annually, with the deadline typically being the 30th of June of the following year. However, extensions may be granted upon request.
• Transfer Pricing Documentation: Austria follows the OECD guidelines for transfer pricing, requiring documentation to ensure that transactions between related parties are conducted at arm’s length. This documentation must be comprehensive and include a master file, a local file, and a country-by-country report for large multinational enterprises.

Impact of Recent Tax Reforms

• Austria has implemented several tax reforms in recent years to enhance its competitive edge and align with international tax standards. These reforms reflect Austria’s commitment to creating a business-friendly environment while adhering to global tax initiatives like the OECD’s Base Erosion and Profit Shifting (BEPS) project.
• Reduction of Corporate Tax Rate: The commercial tax rate reduction from 25% to 23% in 2024 is a significant reform aimed at making Austria more attractive for enterprises. This reduction positions Austria competitively within the EU, encouraging both domestic and foreign acquisitions.
• Digital Tax: In response to the increasing digitalization of the economy, Austria has introduced a digital tax aimed at large multinational digital companies. This tax, levied at 5% on revenues from digital advertising services, reflects Austria’s proactive stance on taxing the digital economy.

Double Taxation Treaties

• Austria has an extensive network of double taxation treaties (DTTs) with over 90 states. These treaties are crucial for companies engaged in cross-border activities, as they help prevent double taxation and provide legal certainty.
• Benefits of DTTs: The DTTs reduce or eliminate withholding taxes on dividends, interest, and royalties, facilitating smoother international trade and investment. They also include provisions for the interchange of info, which assists in combating tax evasion.
• Application Process: To benefit from the reduced rates under a DTT, firms must typically provide a certificate of residence and other required papers. The Austrian tax bodies may require these documents to be certified by the foreign tax authority.

Future Outlook and Considerations

• Austria’s commercial tax environment is dynamic, with ongoing reforms and adaptations to global economic trends. Enterprises considering entering or expanding in Austria should stay informed about potential future changes, such as:
• Green Tax Initiatives: As the global focus on environmental sustainability intensifies, Austria may introduce more green taxes or incentives aimed at promoting eco-friendly business practices.
• Global Minimum Tax: Country, along with other OECD states, is likely to adopt the global minimum tax rules. This could impact multinational companies operating in Austria by setting a floor on the effective tax rate.
• Digitalization of Tax Administration: The Austrian tax body is increasingly embracing digital tools to enhance tax administration. This shift may lead to more streamlined compliance processes but also requires firms to be technologically prepared.

Conclusion

Understanding commercial taxes in Austria is essential for any business planning to operate in the country. The Austrian tax system offers a balance between competitiveness and compliance, with several incentives that make it an attractive location for investment. By staying informed about the tax landscape and recent reforms, companies can effectively manage their tax obligations while taking advantage of available opportunities. Whether you’re a startup, a multinational corporation, or an investor, Austria’s commercial tax environment supply a solid foundation for business success.