Basis of Income Tax in Austria
Who is liable for paying income tax in Austria? ➢ Tax liability
How do I obtain a tax number? ➢ Starting up as self-employed
How do I calculate my income from self-employed work? ➢ calculating your taxable income
Which expenses am I allowed to recognise in my revenue and expenditure account? ➢ Operating expenses
When, how and where do I have to file a tax return? ➢ Tax return
How is income tax calculated? ➢ Calculation of income tax
Self-employed persons who are domiciled or have their habitual residence (= place where you spend more than six months /183 days a year) in Austria, are taxable for income tax purposes without limitation, i.e. beyond a defined threshold they must send an income tax return to the tax office and pay income tax on the assessed earnings. Taxable without limitation means that the state of residence has a comprehensive right to tax all earnings generated worldwide.
Persons who do not have a place of residence in Austria are subject to tax with limitations. For defined domestic earnings, they may be liable to pay taxes in Austria. (see chapter Withholding Tax for Foreigners)
Starting up as self-employed
How do I get a tax number?
To notify the tax office of your self-employment, you need to fill in the Questionnaire for Taxation (“Fragebogen zur steuerlichen Erfassung“), which you may either request directly at the tax office responsible for your place of residence or business, or download from the website of the Federal Ministry of Finance tax office will then issue a tax number under which your tax account is set up and into which all payments for all taxes (i.e. e.g. income tax and VAT) are made.
Alternatively, you may apply for a tax number via FinanzOnline. After logging in with your access code, you may apply for a (business) tax number under the menu item “Eingaben/Anträge/Erklärungswechsel“.
In the questionnaire, you will be asked to estimate your turnover and profit for the first year. This estimate is the basis for the provisional income tax pre-payments. Therefore, you should be rather conservative when estimating your turnover and profit, otherwise you might be confronted with high tax pre-payments and, possibly, you may also be assessed for mandatory social insurance by the social insurance institution for business and trade (Sozialversicherungsanstalt der Gewerblichen Wirtschaft, SVA) [link to the chapter Social Insurance – when is insurance with SVA become mandatory].
Calculating your taxable income
How do I calculate my taxable income from self-employed activity?
The taxable income of self-employed persons is generally ascertained by applying a cash-based system of revenue and expense accounting. This simplified system for ascertaining taxable income records all operating income and expenditure actually received and/or spent during the calendar year. The difference between revenue and expenditure is either a surplus or a shortfall from self-employed activity.
Which expenses am I allowed to deduct in my revenue and expense account?
Self-employed persons may offset all expenses which are connected to their business activity as operating expenses. Expenses for private purposes such as rent and energy for a residential apartment, clothing, child-care, personal upkeep etc. are not deductible as operating expenses.
Operating expenses typically include:
- Rent and energy costs for premises used for business purposes (office, studio, rehearsal/event/storage room,………. ). If the room you work in is in your private home, rent and energy costs may be deducted on a pro-rata basis, provided that this room is used exclusively for business purposes and is the centre of the taxable person‘s business activity (e.g. a studio for a painter, a study for a writer).
- Office supplies (stationery, printer cartridges, photocopying, business cards, …)
- Working equipment: Devices used for business purposes up to an acquisition cost of EUR 400 (e.g. mobile phone, camera, musical instruments); for acquisitions above EUR 400: see “Depreciation“)
- Telephone and internet expenses (possibly reduced by a shared private use)
- Maintenance and repair (e.g. repair of office equipment, …)
- Business/ working clothes: This however must be clothing that cannot be worn in everyday life (e.g. uniform, ballet garments)
- Subcontractor invoices
- Further education and training expenses
- Technical literature
- Consulting fees: tax advisor, lawyer
- Mandatory social insurance contributions
- Business meals: For such expenses to be recognized, you must submit evidence with whom and for which purpose the meal was hosted (it would be useful to note that on the bill). Even if this requirement is met, entertainment expenses are deductible by 50% only.
Objects acquired for business purposes are fully deductible as an operating expense, if the cost of acquisition does not exceed EUR 400. Costlier investments must be written down over their useful life. The useful life depends on how long the object can be used meaningfully for the business operation. IT devices for instance can be written down over three years, furniture and office equipment are generally written down over ten years. The statutory useful life of passenger vehicles is eight years.
Six-month rule: if an asset is acquired in the first half of the year (by 30 June at the latest), the write-down amount can be claimed for the entire years. If it is acquired after 1 July, only one half of the write-down amount is deductible in the year of acquisition (the missing six months are added at the end of that period, they are not lost).
A photographer buys a PC for EUR 900 during the first six months of 2016. He can write-down the device over three years, meaning that he can deduct EUR 300 in the years 2016, 2017 and 2018 as operating expense in his revenue and expenditure account.
If he had acquired the PC in the second half of 2016, he could write down only EUR 150 for 2016, EUR 300 each for 2017 and 2018, and in 2019 again EUR 150.
Self-employed persons who need to travel for business may include the accruing travel costs for which they are not reimbursed in their revenue and expenditure account. Travel expenses include
- travel costs (passenger vehicle, cab, public transport, bicycle etc.),
- additional subsistence allowance (per diems),
- overnight costs (per noctems) and
- ancillary expenses.
Travel costs are deductible expenses for travel from home to the place of work, as well as all expenses incurred for other travel required for business purposes. The cost of public transport (e.g. plane, rail, bus) or a rental car are also tax-deductible at their actual amount.
When using a passenger vehicle two different scenarios apply: If a passenger vehicle is used for business purposes at an extent of more than 50%, it is considered as being part of the operating assets. In this case, the accruing costs can be claimed as operating expenses at their actual amount (possible reduced by a share for private use). Here, mileage allowance may not be claimed.
If a passenger vehicle is used for business purposes at an extent of less than 50%, this is considered as use of a private passenger vehicle for business purposes. In this case, you may either claim the actual costs on a pro-rata basis, or the official mileage allowance. The official mileage allowances is EUR 0.42 per kilometre and covers all expenses (including parking fees, highway toll sticker and toll fees). In order to document travel costs, you need to keep a logbook or any other records which allow for a reliable assessment. Mileage allowance can be claimed up to a maximum annual mileage of 30,000 km.
Additional subsistence allowance (per diem)
When travelling, you generally incur extra costs for food and drink. This extra cost is tax deductible in the form of flat-rate per diems. To be able to claim a per diem, the destination must be at least 25 km from the place of business, the business trip must last at least three hours and it must not “create a further centre of business activity”. Such is assumed, if somebody recurrently travels to that a on more than 5 consecutive days, of for five days at regular intervals, at least once weekly, or on 15 days within a calendar year. If there you are not on official business at that place for 6 calendar months, the 5-day calculation starts anew.
Within Austria, the maximum deductible amount per day is EUR 26.40 EUR and/or EUR 2.20 per started hour of a business trip.
For travel abroad, the deductible per diem equals the maximum amount for travel abroad of federal employees. This depends from country to country. The full per diems apply to 24-hour periods.
Example for a trip within Austria
A musician travels from Vienna to Innsbruck to perform a concert. She leaves Vienna at 9:00 a.m. on the first day and returns at 5:30 p.m. the following day. She may claim the following per diem: EUR 26.40 EUR for the first 24 hours (9:00 a.m. on the first day to 9:00 a.m. on the second day) as well as 9 started hours for the timespan 9:00 a.m. to 5:30 p.m. on the second day, i.e. 9/12th of 26.40, which is EUR 19.80. In total, the per diem for the trip amounts to EUR 46.20.
A visual artist travels from Salzburg to Munich in order to set up his exhibition and attend the vernissage. He leaves Salzburg at 10:00 a.m. on the first day and returns to Salzburg on the third day at 3:45 p.m. The per diem is calculated as follows: 10:00 a.m. of day 1 to 10:00 a.m. day 3:48 hours, i.e. twice the full per diem for Germany: EUR 35.30 x 2 = 70.60; add the time from 10:00 a.m. to 3:45 p.m. on day 3, which is 6 started hours, i.e. 6/12th of EUR 35.30, or EUR 17.65 Euro; the total deductible per diem is EUR 88.25 EUR.
If there is a domestic and a foreign part to the trip, these must be split: domestic per diem (pro-rated) until the border is crossed, foreign per diem (pro-rated) from the time of border-crossing. With air trips, the time of departure is considered as foreign travel to the country of destination. In that case, the foreign trip lasts until arrival at the domestic airport.
Overnight expenses (per noctem)
Self-employed persons may either deduct overnight expenses at their actual amount as operating expense from taxes, or claim a flat-rate compensation. Per noctems are tax-free only, if a stay overnight is documented (e.g. by hotel bills). With distances of over 120 km, there is no need to submit evidence that the overnight was actually spent.
Within Austria, you may claim EUR 15 without having to prove the actual costs of overnight (flat-rate for overnight including breakfast) as tax deduction. For foreign trips, again the Rates for overnight travel for federal employees apply.
Flat-rate deduction of operating expenses
If your taxable income is ascertained using a cash-based system of accounting, there is a possibility to make a lump-sum deduction (basic flat-rate assessment pursuant to section 17 Austrian Income Tax Act). In this case, a flat-rate percentage is deducted from the net income/turnover without submitting evidence of actual costs incurred. This option may be more favourable in given circumstances than an itemized evidence of operating expenses.
The flat-rate for artistic activities is 12% of (net) turnover, a reduced flat-rate of 6% applies to earnings from a writing, lecturing, scientific, teaching or educational activity.
In addition to this flat rate, only the following expenses may be deducted at their full amount: goods purchased, wages paid and third-party fees (subcontractor invoices) as well as mandatory social insurance contributions.
If, in the ascertainment of taxable income, you switch from a flat-rate deduction of operating expenses to itemized accounting (by vouchers), you can only return to flat-rate taxation after five business years.
As an alternative to general basic flat-rate deduction, there is a specific regulation on lump-sum taxation for artists and writers. The average rate is 12% of turnover, limited at a maximum of EUR 8,725 per year. The following expenditure is subject to flat-rate deduction: costs for common technical devices, telephone, office supplies, technical literature, admissions, clothing/expenditure for the external appearance, per diems, studies in a private home and entertainment. Other operating expenses are tax-deductible in addition.
Income tax return
When, how and where do I have to file an income tax return?
You need to file an income tax return, if:
- Your taxable income (profit) from self-employed work exceeds EUR 11,000 and this amount does not contain any earnings subject to wage tax;
- You receive other income in addition to income from self-employed work (e.g. earnings subject to wage tax) whose total amount is more than EUR 730 per year, and the total income is more than EUR 12,000;
- You carry out two or several employed activities and your income exceeds EUR 12,000, and if
- The tax office requests you to file a tax return.
How and where?
The income tax return must, necessarily, be sent electronically (FinanzOnline). Only if this is unreasonable for lack of technical facilities (e.g. no internet conncection), you may hand in the tax return in writing using the appropriate form (Einkommensteuererklärung – E1) with the tax office that is responsible for your place of residence or business.
You need to transmit your revenue and expenditure account to the fiscal office, but fill in the enclosure to the income tax return form (E 1a) which contains a model statement of operating income and expenditure.
You need not submit original vouchers to the tax office, but retain these for seven years (records concerning landed property must be retained for 12 years, and records concerning personnel matters for 30 years).
In order to be able to use FinanzOnline you need to first register:
The deadline for filing the income tax return in 30 April of the following year (30 June if you submit your tax return electronically via FinanzOnline) with the competent tax office. This deadline may be extended by application. Longer deadlines may apply if you are represented by a tax adviser or chartered accountant.
Calculation of income tax
How is income tax calculated?
The taxable income earned within a calendar year is the tax base. It consists of the sum total of seven forms of income defined in Austrian tax legislation as follows:
- Income from agriculture and forestry
- Income from self-employed work (this includes income from artistic activity)
- Income from a commercial operation
- Income from employed work (e.g. employment with a theatre as an actress)
- Income from capital
- Income from rents and leases
- Other income (e.g. income from private property sales or from speculative transactions).
Allowances, unemployment benefits or unemployment assistance, as well as child-care allowances do not qualify as taxable income! Grants paid out to artists by the Social Insurance Fund for Artists [link to chapter Social Insurance Social Insurance Fund for Artists] are equally not recognised as income and therefore untaxed. Conversely, the social insurance contributions covered by these grants are not deductible.
While unemployment benefits are not taxable, they are recognised in the assessment of taxes (so-called progression clause). The unemployment benefit may, due to the progression effect, increase the applicable tax rate for taxable income, receiving unemployment benefits may therefore lead to supplementary tax payments!
Special expenses, extraordinary expenses and allowances for children may be deducted from the sum total of income, which then results in the taxable income which is subject to the progressive income tax rate. Income up to EUR 11,000 is tax-free, any parts in excess thereof are taxed according to the applicable tax rate.
A new tax rate has entered into force in 2016. As of 1 January 2016 income tax is calculated as follows:
from EUR 90,000
A higher tax rate of 55% is applicable in the years 2016 to 2020 for income parts in excess of EUR 1,000,000 per year (“solidarity surcharge“).
Tax rate up to the year 2015
from EUR 60,000
Prize moneys and scholarships
Under which conditions are scholarships and prize moneys tax-free?
In order to assess whether prize moneys and scholarships are taxable, you must determine whether they qualify as operating income or not. There is no general tax-exemption for prize moneys and scholarships, every assessment must be made on a case-by-case basis.
In general once can presume that prize money which is disbursed for a specific individual performance is taxable for the recipient, whereas donations which are granted in recognition of the personality or oeuvre of a person are neither subject to income tax, nor to VAT, since there is no performance and consideration.
State, honorary and promotional awards for outstanding artistic achievements are therefore tax-free, whereas prizes which are granted to winners of contests by a panel of jurors for a specific individual achievement (e.g. prizes in a design contest) are subject to tax. If a supporting organisation, for instances, acquires claims to a work of art of a visual artist in the course of awarding a prize, this prize, from an economic perspective, constitutes the price of acquisition and is therefore taxable.
Scholarships which are disbursed on the basis of the Studies Support Act (Studienförderungsgesetz) and the Student Grant Act (Schülerbeihilfengesetz) are generally tax free. This also holds for grants awarded for master and diploma theses. Scholarships which are directly awarded by a university or a private research institution in the course of a training programme, are not taxable if the scientific work is not commercially exploited or published and if there is no contractual relation (contract for services or contract for work) with the grantor.
However, the fiscal authorities have held that the maintenance grant pursuant section 27 of the Studies Support Act (EUR 606 per month or EUR 7.272 annually) applies as a ceiling: if this amount is exceeded the employment aspect is deemed to prevail and therefore the entire scholarship is subject to taxation. Following the case law of the Supreme Administrative Court of 2014, it is not the amount which is relevant, but whether there is a business activity. In the opinion of the Supreme Administrative Court, this is not the case with scholarships granted for writing a doctoral thesis, while cooperation in a research project would qualify as a business activity.
Scholarships which are granted after graduation from a university or higher education institution (post-graduate scholarships, research and post-doctoral fellowships), are generally considered as a substitute for earnings, and therefore as earnings from gainful activity which are taxable. Grants awarded for artistic activity abroad are not subject to taxation, if the serve to cover the cost of living of the beneficiary at the foreign place of activity and the grant is awarded on condition that the activity is carried out abroad. However, you should check whether such grants are taxable in the country of activity pursuant to the double taxation agreement.
Spreading income over three years
When does it make sense to apply this rule?
Artists in particular experience heavy fluctuations of their income. In 2000, a new law provided made it possible to spread income from artistic activities on application over a period of three years, the advantage being that the higher income of one year (which is subject to higher taxation owing to the progressive income tax rate) is offset against the lower income of the two preceding years and that a lower average tax rate is applied to the overall income and/or that the income falls below the tax threshold, so that there is no income tax to pay. Specifically, the taxable income from artistic activity of the current year is allocated at one third each to the current year and to the two preceding years. Please note that this may have an impact on social insurance of previous years, so that such redistribution may subsequently lead to mandatory insurance with the social insurer for business and trade (SVA) [link to chapter Social Insurance] or supplementary payments.
In the years 2013 and 2014, an author works intensively on researching and finishing a book. In those two years, his income is low, but his expenses are high. The book is published in 2015, his income is high owing to high sales revenues.
His income was, in
2013: EUR 3,000
2014: EUR 4,000
2015: EUR 21,000
If he applies for spreading of income, the income of 2015 is divided by three, one third remains in the year 2015, the two other thirds are allocated to the previous years, so that the following figures results after having spreading the income:
2013: EUR 10,000
2014: EUR 11,000
2015: EUR 7,000
Without spreading this income, he would have to pay income tax for the year 2015. IF he spreads his income over the years 2013 and 2014, he would also exceed the social insurance threshold!