Withholding tax for non-residents


What is withholding tax for non-residents and whom does it concern?
Tax liability

How is it determined whether a given income is subject to withholding tax for non-residents? 
Sequence of steps to determine tax liability

Who is responsible for calculating and paying the tax? 
➢ Calculation and payment of withholding tax for non-residents

What do artists need to be aware of concerning withholding tax for non-residents? 
Contract negotiation

When does it make sense to file a tax return in Austria? 
Voluntary tax return

➢ Tax for non-residents in case of salaried employment

Tax liability

What is withholding tax for non-residents and whom does it concern? 

The withholding tax for non-residents pursuant to sec 99 Income Tax Act (“non-resident tax”) is a specific form of collecting income tax from persons who generate income in Austria, but are subject to limited tax liability.

Limited tax liability applies to such persons who do not have a domicile or habitual place of residence (the place where you spend more than six months/183 days a year) in Austria, with nationality being of no relevance in this assessment. If a person subject to limited tax liability generates income in Austria, the state has access to those earnings at certain conditions and may tax them.

Conversely, the state of residence generally enjoys a comprehensive right of taxation over the entire worldwide income of a taxable person (= unlimited tax liability). It follows that, in purely legal terms, two states have a right of taxation of income from cross-border activities. In order to prevent double taxation of such income, there are intergovernmental rules, so called double taxation agreements (DTA). These agreements lay down which of the two states may apply its domestic tax law, ultimately has the right of taxation, and which state must partially or fully renounce its right to taxation. The aim is effective one-time taxation.

Austria has concluded double taxation agreements with the major countries:

List of Austrian double taxation agreements

Sequence of steps to determine tax liability

How is it determined whether a given income is subject to withholding tax for non-residents? 

In order to determine whether a given activity in Austria is subject to withholding tax for non-residents, the following checklist may be useful. Should it be the case that the answer to one of the first three questions is "No", there's no need to continue the checklist. The case is not subject to  withholding tax:

  1. Is the person in Austria subject to limited tax liability?
  2. Is the fee above the minimum threshold?
  3. Under national law, is the activity subject to withholding tax?
  4. Is there a double taxation agreement with the state in which the person resides, and which are the pertaining provisions?
  5. If the double taxation agreement provides for tax exemption: issuing of a residency certificate.
  6. If the double taxation agreement does not provide for tax exemption: assessment and payment of tax.

Concerning 1) Is the person in Austria subject to limited taxation?

See Tax liability: What is withholding tax for non-residents and whom does it concern?

Concerning 2) Is the fee above the minimum threshold?

To simplify matters, the law provides for a minimum threshold that is applicable to petty amounts, with no obligation to pay non-resident tax.

This threshold has been set at EUR 1,000 for each organiser per year and relates exclusively to the fee; travel cost refunds and other expense refunds are not included, they may be paid out in addition to the threshold amount.

In order to claim this exemption, the recipient of the fee must sign a statement confirming that he or she is not earning more than a total of EUR 2,000 in Austria in that calendar year, specify his or her place of residence (address), and prove his or her identity by submitting a passport copy.

Concerning 3) Activities subject to withholding tax according to domestic law

If the fee is above the minimum threshold, the first question to be solved is whether the activity at hand is one that is subject to withholding tax for fees to persons subject to limited tax liability under domestic law, i.e. Austrian tax legislation.

Pursuant to sec 99 (1) 1 Income Tax Act (Einkommenssteuergesetz) an activity exercised or exploited in Austria by

  • authors
  • speakers
  • artists
  • architects
  • athletes
  • performers
  • contributors to entertainment performances

is subject to domestic withholding tax. ‘Contributor’ is understood to mean not only performing artists, but also all auxiliaries such as directors, stage designers, costume designers, light engineers, sound engineers etc.

Concerning 4) Is there a double taxation agreement with the state in which the person has his or her place of residence and which rules apply?

Once it has been established that there is an activity which is subject to withholding tax pursuant to domestic law, the next step would be to determine, where the recipient of the fee is resident for tax purposes, in order to check Austria’s double taxation agreement with that state.

In most double taxation agreements the scope of application of withholding tax is narrower as compared to national law, this means that they may provide for an exemption from withholding tax for some activities for which Austria would have a right of taxation under national law. As treaty law takes precedence over national law, Austria may not collect withholding tax if the double taxation agreement provides for an exemption.

Please note

Almost all double taxation agreements limit the liability to pay withholding tax to performing artists. Contributing artists who do not act on the stage (director, stage designer, costume designer, light designer, composer, choreographer, ...) must generally tax their income solely in the state of residence, not in the country in which the income was generated. According to most double taxation agreements, the latter – exclusive taxation in the state of residence – applies also to visual artists when selling their works abroad, speakers or workshop leaders working abroad, and also to income from the realisation of copyrights and intellectual property rights.

If the recipient of the fee resides in a country with which Austria has not concluded a double taxation agreement, national law applies. In this case, the fee of a director would be subject to withholding tax, if it exceeds the minimum threshold.

Concerning 5) If the double taxation agreement provides for an exemption: issuance of a certificate of residence

If the activity in question is not liable to taxation according to the double taxation agreement, the fee recipient must prove that he or she is a resident for tax purposes in that country whose double taxation agreement with Austria is to apply. For that purpose, you need a form that is available on the website of the Federal Ministry of Finance:

ZS-QU1

Unless the annual fee exceeds EUR 10,000, the recipient may confirm his residency status himself. If the annual fee exceeds that amount, the form must be certified by the local tax office.

Ad 6) If there is no tax exemption according to the double taxation agreement: assessment and payment of withholding tax for non-residents 

It is not the foreign artist, but the Austrian contract partner (i.e. generally the organiser) who is obligated to check whether withholding tax for non-residents is payable, and to retain and pay that tax. If the Austrian contract partners fail to retain and pay the withholding tax, they are liable for the amount of tax. The domestic organiser is obligated to pay the retained withholding tax by the 15th of the following month to the competent tax office along with submitting a separate tax return  (form E 19). 

The tax rate is 20% of the fee. In addition to the fee, expenses (travel expenses) borne by the organiser must be included in the assessment base for the withholding tax. For this purpose it is irrelevant whether these expenses are paid directly by the organiser or are refunded to the artist.

Ultimate tax liability of artists

Using a company (e.g. an Austrian agency) as an intermediary does not help avoiding withholding tax, since tax liability exists regardless of whom the fee is being paid to. Due to the ultimate tax liability of artists, the state in which the performance takes place can withhold the tax even if the artist receives the fee via a domestic agency or is not a contract partner of the Austrian organiser itself.

Contract negotiations

What should artists be aware of concerning the withholding tax for non-residents?

Depending on how the fee agreement is worded in the contract, the tax burden is borne either by the organiser or the artist:

If the contract provides for a gross fee, the tax is deducted from the agreed fee and the artist is paid the amount from which the tax has been deducted.

If, however, the artist has agreed a net fee, the organiser must pay out the full fee and, in addition, the taxes to the tax office. In this case, the tax payment assumed by the organiser is considered an additional financial contribution for the artists, this is why 25% withholding tax is payable on the pay-out amount, so that, mathematically, this results in a tax rate of 20% on the agreed gross fee.

In this context, the terms gross/net are not at all related to VAT but refer to the fact that the agreed fee is to be understood as before or after deduction of withholding tax for non-residents.

Example

Case 1:

An Italian musician agrees on a gross fee of EUR 1,500 for a concert, in addition the organiser refunds his travel costs in the amount of EUR 500. The assessment basis for the withholding tax for non-residents is therefore EUR 2000. Of this, the organiser must retain 20% - i.e. EUR 400. The musician receives a pay-out of EUR 1,600.

Case 2:

A German cabaret artist has agreed a net fee of EUR 1,500. The organiser must pay out this amount in full, in addition he must remit to the tax office the payable withholding tax for non-residents. In this case, the 25% withholding tax must be paid on the pay-out amount, i.e. EUR 375 (25% of EUR 1,500 Euro) are payable to the tax office. (Cross-check: in this case, the gross fee is EUR 1,875, 20% of which is EUR 375).  

Recognising expenses incurred by the artists into account 

The calculation of withholding tax described above does not recognise the expenses incurred by the artists in connection with the fee. Recipients of fees from an EU or EEA country may inform the organiser in writing of such directly related expenses before the fee is disbursed and deduct them from the assessment basis for the withholding tax for non-residents. In this case, the withholding tax rate will be 35% of the fee. This provision must not be applied to non-EU or non-EEA citizens.

Alternatively, you can file a voluntary tax return (handing in of a tax return with the Austrian tax office) in order to claim certain expenses and to obtain a partial or full tax refund.

Voluntary tax return

When does it make sense to file a tax return in Austria?

Recipients of foreign fees have met their tax liability in Austria as soon as the withholding tax has been retained. This may be a financial advantage, especially if that person would have to pay a higher tax rate than the 20% withholding tax on account of very high earnings at “standard assessment”. Sometimes, it may be advisable to file a voluntary income tax return for domestic earnings in Austria in order to be able to claim non-refunded travel costs or other expenses incurred in connection with the activity. If, applying the domestic tax rate, the resultant amount would be lower than the amount of retained tax, there will be a tax credit. In Austria, the tax-free income for persons subject to limited taxation is however a mere EUR 2,000 per year (as against EUR 11,000 for persons subject to unlimited taxation).

Taxes for non-residents in case of salaried employment

The remuneration of non self-employed (i.e. employed) artists may be taxed in that country in which the activity is exercised. This also applies if the fee is not paid directly to the artist but via e.g. an artists‘ agency.

If a foreign artist is employed by a national employer by way of a service agreement, the domestic employer must deduct wage tax in the amount of 20% of the gross amount. 

For employments also the tax-free income of persons subject to limited taxation is EUR 2,000 per year, in order to claim this deductible, it is necessary to file a tax return

Options with international co-productions

With international co-productions, you should weigh carefully as far as withholding tax on non-Austrians is concerned, via which co-production partner the fees are paid out to the contributing persons. It may sometimes be more favourable if the different co-production partners handle production funds separately and pay out the fees to their compatriots.

How to deal with foreign income in an Austrian tax return

If a person who is subject to unlimited tax liability has earned income abroad, this income must be reported in the Austrian tax return, indicating whether Austria has a right of taxation of these earnings (= crediting method: foreign income tax is credited to Austrian income tax) or not (= exemption method with progression clause). With double taxation agreements with exemption method (foreign income is exempt of Austrian income tax) the foreign income may be included for determining the income tax rate, but not taxed. Due to progression, this results in a higher tax rate for domestic income.