The newly sworn in Austrian government recently introduced its 326-page government plan for 2020 – 2024, which also includes some intended changes with respect to taxation. The aim of these possible changes is to lower the overall tax burden and to make the tax system more ecological.
These are some of the main proposed tax changes:
Income tax: Austria has a progressive rate of income tax, beginning at 0 % and increasing to 25 %, 35 %, 42 %, 48 %, 50 % and 55 %.
The government plan proposes reducing the progressive income tax rate from 25 % to 20 %, from 35 % to 30 % and from 42 % to 40 %. Individuals with low and medium incomes should benefit from these reductions. At present there is no proposal to reduce the progressive income tax rate of 55 %, which is one of the highest in the OECD.
In addition, it could be proposed to introduce an exemption from capital gains tax (Kapitalertragsteuer) for ecological and ethical investments and the plan also foresees a possible reintroduction of the tax exemption for capital gains from investments held by individuals on a mid- to long-term basis.
The government proposes to increase the base for the standard deduction on profits. Currently, a 13 % standard deduction on profits of up to EUR 30,000 can be claimed, allowing for a maximum deduction of EUR 3,900 per year. This base could be increased to EUR 100,000, which should result in an increase of the maximum deduction of up to EUR 13,000 per year.
Further intentions refer to possible tax changes with respect to the tax treatment of depreciation rules and retained earnings as well as an evaluation of possible reduction of ancillary wage costs.
Corporate income tax: The Austrian corporate income tax rate was last reduced from 34 % to the current 25 % in 2005.
As the average corporate income tax rate among EU countries was 21.8 % in 2019, the government has acknowledged that a reduction of the Austrian corporate income tax rate needs to be considered to attract investment and discourage profit shifting to lower-tax jurisdictions. Therefore, the new government plan foresees a possible reduction of the Austrian corporate income tax rate from 25 % to 21 %.
As Austria levies an annual minimum corporate income tax, the government plans to evaluate if it could be abolished to reduce the tax burden for small and medium-sized enterprises.
The new government also proposes to create a new incentive for businesses to enter into profit-sharing agreements with their employees.
Digital services tax: The digital services tax has been in force in Austria since 1 January 2020. According to the government programme, this digital services tax should remain in effect until an agreement is reached at the EU and OECD levels.
Environmental taxes: Several tax measures may be introduced, such as the establishment of a flight ticket levy of EUR 12 per ticket and the increase of taxes on gasoline, in order to address climate change issues. The plan also foresees encouraging climate and energy policies in Europe and support for an EU carbon border tax adjustment. With these changes driven by the Green Party the intention is to make Austria carbon neutral by 2040.
Simplification and modernisation of the current tax system: Criticism that the current tax system is too complicated and difficult to navigate has become louder. Therefore, the government could propose to rephrase the Income Tax Act to simplify and modernise the tax system. The proposed changes could be as follows:
- Income from self-employment (selbständige Einkünfte) and income from business operations (Einkünfte aus Gewerbebetrieb) should be merged into one type of income.
- The types of expenses that are available for an individual for deduction purposes could be simplified to achieve a better overview.
- The taxation of partnerships could be simplified and modernised.
As can be seen from the above proposals, the government has some ambitious goals with respect to taxation for the upcoming years. Nevertheless, the government plan for the 2020 – 2024 period is currently in the preliminary phase, and if any of the disclosed changes are to be realised in the future they will be subject to the Austrian legislative process. We will keep you informed about further developments.
By Maja Petrovic, Attorney at Law, Schoenherr