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Austria - New Wage Tax Withholding Regulations Starting 2020

Austria - New Wage Tax Withholding Regulations Starting

Changes to the Austrian Income Tax Code were passed recently by the Parliament, which will create an obligation for foreign employers to administer wage tax withholdings in Austria for their employees who are subject to unlimited tax liability in Austria (domestic tax residents) effective January 1, 2020. The new rule will apply even if the employer has no permanent establishment in Austria, and may apply to employees performing their work in an Austrian home office for their foreign employer.

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Changes to the Austrian Income Tax Code were passed recently by the Parliament,1 which will create an obligation for foreign employers to administer wage tax withholdings in Austria for their employees who are subject to unlimited tax liability in Austria (domestic tax residents) effective January 1, 2020. The new rule will apply even if the employer has no permanent establishment in Austria, and may apply to employees performing their work in an Austrian home office for their foreign employer.

WHY THIS MATTERS

The new law that imposes a tax withholding requirement on wages paid by employers having no permanent establishment in Austria is highly relevant for cross-border employment and assignment structures.

Furthermore, the tax authorities have proposed a draft revision of the wage tax withholding regulations2 clarifying that the wage tax should be transferred to the tax ID number of the foreign employer, which could trigger a new tax registration in Austria. Timely review of the employer’s current arrangement is recommended especially if the tax was transferred to the tax ID number of the local entity, which currently is not an option foreseen in the proposed regulations, leaving the employer with a further increased tax exposure when the proposed regulations become final.

Background

The obligation for wage tax withholdings requires Austrian payroll administration that includes:

  • Registration of the foreign employer with the Austrian tax authorities;
  • Administration of a monthly payroll summary;
  • Monthly calculation, withholding, and payments of the Austrian wage tax to the tax authorities (until 15th of the month following the wage payment);
  • Year-end reporting due the end of February following the year of payment (i.e., annual wage statement). 

More Details on New Law

This new law concerns foreign employers of employees who are subject to unlimited tax liability in Austria (taxation of worldwide income), because they have a residence (accommodation at their disposal) or habitual abode in Austria (in general, presence in the country of more than six months). A second residence or a holiday residence in Austria may also trigger the withholding obligation.

Strictly speaking, the obligation of the employer for wage tax withholdings applies to the total income of the employee, regardless of where the duties are performed. If the taxation right over the employment income is (partially) allocated to another country (for example, due to the applicable double taxation treaty), the employment income may in practice be (partially) exempted from Austrian wage tax withholdings if certain criteria are met and proper documentation (travel diary, proof of taxation in the other country, certificate of residence, etc.) is available. The full liability for any wage tax not withheld continues to lie with the employer.

The new law does not have an immediate impact on employees, who are subject to limited tax liability in Austria (because they have no residence or habitual abode in Austria). In such cases, wage tax withholdings can be administered on a voluntary basis by the (foreign) employer.

Generally, the draft-revision of the wage tax withholding guidelines would require every foreign employer to register with the Austrian tax authorities for the purpose of paying wage tax for their employees in Austria.

FOOTNOTES

1  Abgabenänderungsgesetz 2020 – AbgÄG 2020, BGBl I Nr 91/2019 https://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2019_I_91/BGBLA_2019_I_91.pdfsig

2  Lohnsteuerrichtlinie  LStR 2002 - Wartungserlass 2019 Begutachtungsentwurf https://www.bmf.gv.at/steuern/LStR_WE_2019_-_Begutachtungsentwurf.pdf?77qdwq

The information contained in this newsletter was submitted by the KPMG International member firm in Austria.

© 2021 KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, an Austrian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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