Expat Tax In Austria – Ultimate Tips You Need To Know

Expat Tax In Austria – Expat Living In Austria

The Republic of Austria consistently ranks as one of the richest countries in terms of GDP per capita. This is due to its highly industrialized and well-developed social market economy. Its main economic and business activities take place in its capital city, Vienna. Neighboring countries are Germany, the Czech Republic, Hungary, Slovakia, Slovenia, Italy, Switzerland, and Liechtenstein. Austria is a largely mountainous country because of its location in the Alps. You will find some of the best skiing in the world in the southern and western parts of the country. Read on to discover important tips on US Expat Tax In Austria.

A quarter of Austria’s population lives in Vienna, and this is also where most expatriates live.

Here are the top 7 cities to live in Austria for ex-pats (in no particular order):

• Vienna
• Graz
• Linz
• Innsbruck
• Salzburg
• Bregenz
• Villach

About Austria

A great part of Austria’s prominence is due to its geographic position. It is at the center of European traffic between east and west along the great Danubian trade route and between north and south through the magnificent Alpine passes. Thus, embedding the country within a variety of political and economic systems. 

Ethnic Austrians constitute the vast majority of the population. Small but significant groups of German-speaking Swiss and ethnic Germans also reside in the country. Serbs, Bosniaks (Muslims from Bosnia and Herzegovina; living mainly in the larger cities), Turks (living primarily in Vienna), Hungarians, Croats (living mainly in Burgenland), and Slovenes (living mainly in Kärnten) constitute the major ethnic minorities.

Weather conditions vary only slightly across the country. The lowland regions in the north and east have more continental influenced conditions with colder winters and hotter summers with moderate precipitation throughout the year. The southeastern areas of Austria have longer and warmer, almost Mediterranean-like summers. The diversity of topographical and climatic conditions results in a very versatile flora and fauna.

Guide To U.S. Expat Tax In Austria

The Tax Samaritan country guide to U.S. ex-pat tax in Austria provides a general review of ex-pat tax in Austria. It also informs how that will impact your U.S. expatriate tax return as a U.S. Expat In Austria.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting. For most expatriates, you have a requirement to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from Austria and the U.S.

For example, certain benefits are tax-free in Austria. But, in the U.S. these benefits are likely to be benefits that are subject to inclusion as taxable income in the U.S. As such, there are a number of considerations related to US ex-pat tax in Austria. This brief article will address a few of those considerations.

Austria Expat Income Taxes

Who Is Liable For Income Taxes In Austria

Einkommensteuer is the Austrian term for income tax. The tax system is pay-as-you-earn and is subject to withholding throughout the year. Anyone who lives in Austria is liable to pay an unlimited tax liability. You are a tax resident if you have your residency in Austria. In addition, you also spend more than 180 days per year in the country.

Tax is paid directly from employer deductions made from your salary. However, those who are self-employed will need to file and pay either online or through the assistance of an accountant.

Tax submissions are due for all residents by the 30th of April, or by the 30th of June if filing electronically.

Those who have no residence but work in Austria pay a limited tax liability. They are subject to tax only from the income earned in Austria. Similar to the U.S., depending on the amount of your annual taxable income. Rates are subject to yearly change, but currently, vary from 25%-55%.

There is also a tax-free threshold (11,000 Euro for 2020), and those who earn under the limit do not have to pay if they meet the requirements.

Tax Year In Austria And Tax Filing And Payment Rules

In Austria, there is a progressive rate of income tax (0-550%). The level of income tax depends on the taxable income received in a calendar year. The calendar year is the same as the business year and comprises a period of twelve months.

It is possible to work under a contract in Austria with a host institution in which you are free to decide when and how you work – known as a “freelance contract service” (Freier Dienstvertrag). Though you work
as a freelancer, your employer has an obligation to pay your social insurance contribution, but you are responsible for filing an income tax declaration as this is a form of self-employment.

Corporate income tax is currently at a rate of 25%. This tax applies to both income and capital gains that businesses have earned over the past year. The main factor is whether the transfer is realized within a family or not. When the latter case occurs, the tax rate is 3.5%. Other relevant taxes that ex-pats should be aware of include capital gains tax, vehicle tax, and turnover tax.

Expat Tax Withholding in Austria

As an ex-pat living abroad, you get an automatic extension to file until June 15th of the following calendar year-end. You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension until October 15th if properly requested.

Researchers have three options for employment – stipend/grant/scholarship, independent personal services, and employment. This is the determining factor in whether money earned is tax-free or taxable.

On a stipend, you would be tax-free, while with regular employment you would not, and your employer has to pay tax for you. With independent personal services you are working on a “Werkvertrag” which means you are self-employed, so you must declare your taxes after every tax year.

There is only one expatriate concession, which allows a lump-sum deduction of income-related expenses. This deduction can either be claimed in the annual income tax return or already upfront in the payroll.

Dividends paid to another Austrian company are exempt. Dividends paid to non-resident companies are subject to a 25% withholding tax unless there is a rate reduction under an applicable tax treaty or exempt under the EC parent-subsidiary directive.

What You Need To Know About U.S. Income Taxes

When dealing with U.S. ex-pat tax in Austria, there are a number of preferential ex-pat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. ex-pats, the Foreign Earned Income Exclusion (IRS Form 2555) and other deductions will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for U.S. ex-pat tax in Austria include:

• If you are a U.S. citizen or green card holder and you live in Austria, your U.S. expat tax in Austria is based on your worldwide income. As such you must file a U.S. return for all the years that you are residing in Austria. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that has an annual adjustment for inflation ($107,600 for 2020). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to your U.S. expat tax in Austria, most U.S. expatriates worry about “double taxation”. Paying taxes to two different countries – the U.S. and Austria. A U.S. taxpayer working overseas in Austria may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

Don’t Make This Mistake

A common but dangerous mistake is the assumption that if there are zero taxes owing with these tax benefits is that a US tax filing requirement is not applicable.

That is not true.

If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until a claim is made on a filed tax return.

When faced with US U.S. ex-pat tax in Austria there are many tax items to consider.

But the above are by far the most common benefits individuals can take advantage of.

If you can qualify for both of these benefits (the foreign earned income exclusion & foreign tax credit), an analysis should be done to determine strategy with the goal of optimizing the outcome of the return as much as possible.

For example, those with young children may want to consider forgoing the foreign earned income exclusion and utilize the foreign tax credit.

With top-notch experience and knowledgeable ex-pat tax preparation from Tax Samaritan, there is assurance that you are paying the minimal amount of U.S. taxes that you have an obligation for.

The decision to utilize the foreign earned income exclusion or the foreign tax credit can be complex & depends on various factors so it is typically best to discuss with a tax professional if unsure which option is best or what you may qualify for.

Austria Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to U.S. ex-pat tax in Austria is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114).

The FBAR filing deadline is April 15th (or the preceding business day if April 15th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date. There is no extension available for the FBAR deadline. Any reports filed after this date are a delinquent FBAR. However, in recent years, an automatic extension till October 15th is applicable.

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Erste Group Bank, RZB Group, Unicredit Bank Austria AG, BAWAG P.S.K, Raiffeisen bank International AG or at another bank in Austria or any other foreign country, you may meet the filing requirement to disclose your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Austria Social Security Totalization Agreement

The US has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes.

These agreements must be taken into account when determining whether an individual is subject to U.S. Social Security/Medicare tax, or whether the individual is subject to the equivalent social security taxes of a foreign country.

Effective November 1, 1991, the totalization agreement between the United States and Austria improves Social Security protection for people who work or have worked in both countries. Under the agreement, if you work as an employee in the United States, you normally will be subject to coverage by the United States, and you and your employer will pay Social Security taxes only to the United States. If you work as an employee in Austria, you normally will be subject to coverage by Austria, and you and your employer pay Social Security taxes only to Austria.

Self-employed individuals living and working in Austria are covered by the Austrian system. A certificate of coverage to claim the benefits of the totalization agreement is necessary. A photocopy of this certificate must be attached to your U.S. individual tax return to properly exempt yourself. Tax Samaritan can help guide you through this process if unsure of how to proceed.

U.S.- Austria Tax Treaty And Tax Relief For U.S. Expat Tax In Austria

The United States and Austria do have an income tax treaty in place. Many of the articles apply to non-resident aliens for U.S. tax purposes. But can also extend certain benefits to U.S. citizens, residents, and green card holders (limited by the ‘Savings Clause’) so it is important to understand if you qualify for these benefits.

Tax Samaritan Takeaways For US Expats In Austria

Please click on the hyperlinks below for additional takeaways for your ex-pat tax in Austria:

Austria Tax Treaty documents

Agreement Between the United States and Austria

Top banks in Austria