Austria: Tax legislative changes, effective January 2016

Austria: Tax legislative changes, effective Jan. 2016

Tax legislative changes in Austria were passed by the parliament, and the effective date for most changes is 1 January 2016. Among the provisions are the following items.

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Withholding tax on dividend distributions, capital gains

The withholding tax rate for dividends and capital gains will be increased to 27.5% (up from the current rate of 25%). If dividends are paid to corporations, a reduced withholding tax rate of 25% may still apply. It is expected the 25% rate would also apply for dividends paid to foreign corporations (but is subject to confirmation by the tax authorities). Interest payments on cash deposits and with respect to other loans involving banks (bank savings, transfer accounts) will continue to be subject to the 25% rate even if being paid to individuals.

New rules regarding equity repayments / profit distributions

New limitations on taxpayer ability to elect an equity repayment of capital versus a dividend distribution have been introduced. The effective date for these new rules is different—they are effective for business years starting after 30 June 2015. Under the new rules, a company having accumulated profits and "released equity" reserves can no longer elect to make a return of equity (that would not be subject to withholding tax) or to distribute profits (that would be subject to withholding tax). Instead, there will be a requirement for a profit distribution first (subject to withholding tax). Withholding tax-free equity repayments can only be made if the company does not have any accumulated profits.

Dividend distributions are subject to withholding tax (which may be reduced under an applicable treaty provision or the EU Parent-Subsidiary Directive. Dividends paid to an Austrian shareholder continue to be tax-exempt).

Equity repayments are not subject to withholding tax. They are treated like a sale of the shares at the shareholder level, and imply a reduction of the tax book value or potentially even in a capital gain (as under prior law).

Under these new rules, evidence of accumulated profits must be provided by an evidency account on internal financing, and evidence of released equity reserves must be provided by an evidency account on external financing. Both accounts must be attached to the tax return. As long as the evidency account on internal financing shows a positive amount, no equity repayments can be made.

  • The status of internal financing can be determined in a simplified manner—as of the last balance sheet date before 15 August 2015, as the difference between equity shown in the financial statements and the existing evidency account. In the future, it will be increased by profits and reduced by losses. Constructive dividends, hidden contributions, and equity repayments received will not have an impact on the evidency account on internal financing.
  • The amount of external financing will be increased by capital contributions and reduced by equity repayments.
  • Special rules apply to dividend payments made after a reorganization, at fair market value. As a general rule, such dividends must be treated as equity repayments (and details to be reviewed).

KPMG observation

The new rules are somewhat complex, and are still being discussed by tax professionals and others. It is, therefore, possible that the rules could be amended or eased (e.g., by ordinance). The effects of these rules will need to be carefully considered, depending on the taxpayer’s situation. In some instances, it may be appropriate to effect equity repayments before the effective date (i.e., before 31 December 2015, if the taxpayer’s fiscal year corresponds to the calendar year).

Tax incentives

The tax legislation includes the following changes relating to tax incentives:

  • The research and development (R&D) credit or premium, currently 10% of qualifying expenditures, will be increased to 12%.
  • The tax benefits of education and training bonuses are repealed.

Depreciation / sale of buildings

  • A uniform rate of depreciation of 2.5% per year will apply for company buildings. Currently, the rate of depreciation ranges from 2% to 3%, depending on the building’s function. The depreciation rate of 1.5% for residential building remains unchanged.
  • The “inflation discharge” of 2% per year currently applied to long-term capital gains from the sale of land (from the 11th year onwards) is repealed.

VAT changes

  • The current value added tax (VAT) rate of 10% will increase to 13% for accommodations; direct wine sales from vineyards; animals including feed; cultural-related services and admissions to museums, zoo, cinemas, circus, concerts, sporting events, and public baths; national air traffic; the works of artists; plants, crops, and wood; and youth care. The new rate is phased in, to be partly applicable from 1 January 2016 and then the second part from 1 May 2016 onwards.
  • In 2012, a VAT basis for goods and services provided to employees or for not commercial purposes (known as Normalwert) was introduced (and approximate to fair market value). This Normalwert-taxation is now expanded to the provision of rent for property.
  • Input VAT incurred in connection with the acquisition, rent, and the operation of electric vehicles will be tax deductible up to a net value of €40,000 per car.
  • There are changes made to simply the VAT rules.

Changes regarding real estate transfer tax (RETT)

  • The current Einheitswert (a tax value for real estate significantly below fair market value and used as a basis for the computation of real estate transfer tax for free transfers or transfers without compensation) will no longer apply. Instead a Grundstückswert (real estate value), that will be determined by decree and is expected to provide a valuation close to the fair market value, will be used in the future.
  • The applicable tax rate, currently 3.5%, will be reduced in the future as follows:
    • Real estate value less than €250,000—the rate is 0.5%
    • Real estate value between €250,000 and €400,000—the rate is 2.0%
    • Real estate value above €400,000—the rate is 3.5%
  • To determine the relevant tax rate, transactions between “similar persons” within five years will be “summed-up.” Also, certain benefits regarding the calculation of tax for gifts within the family will be repealed. (Partial) relief from RETT will be available for the transfer of businesses upon retirement, if the reason is disablement (up to €900,000) as well as for the transfer of agricultural real estate made without consideration.
  • The Grundstückswert will also be relevant for RETT taxation in the context of reorganisations (instead of two-times the Einheitswert). The relevant tax rate will be reduced to 0.5% (instead of 3.5%).
  • Under the Austrian RETT law, RETT is also triggered if 100% of the shares in a company owning real estate is acquired or held by a single shareholder. In the past, taxation could be avoided relatively easily, if a minimum share holding was transferred to another person or company, or to a trustee holding a minimum share on behalf of the majority owner. This will no longer be available under the new rules. From 2016 onwards, RETT will apply if at least 95% of a company owning real estate is acquired or held by a single shareholder or by companies being part of a tax group for VAT or corporate income purposes. Further, a 95% change in the partners of a partnership owning property within a period of five years will be subject to tax as well. Shares held by a trustee will be attributed to the economic owner. If applicable, RETT at a rate of 0.5% of the Grundstückswert will be levied in these situations.

Anti-fraud provisions

  • The tax authorities will be allowed access to bank accounts, if there are “substantiated doubts” generated by a tax audit regarding the information provided by the taxpayer, and if it can be reasonably expected that the information obtained from the bank accounts will be helpful to provide clarity and if the invasion of bank secrecy would not be considered to be disproportional in view of the purpose of the measure. In the past, such bank account access had only been possible if criminal proceedings had already been opened at a criminal court or because of willful fraud. In the future, only an order by a fiscal court will be required.
  • In order to allow bank account access from a practical perspective, a centralized bank account register, listing all Austrian accounts, will be introduced by the Ministry of Finance. It will show the person’s or entity’s ID information, account number, opening and closing date, bank and authorized persons. The account balance will not be included. Access may be granted to authorities in limited cases.
  • In order to avoid transfers of cash before the law becomes effective, banks will be temporarily required to report cash outflows from individuals' accounts (not company accounts) above €50,000. This applies retroactively for periods beginning 1 March 2015 and onwards.
  • Further, with respect to the implementation of the EU Mutual Assistance Directive, the legal basis for the exchange of bank account information from 2017 (or the fourth quarter of 2016) onwards is included in the legislation.
  • Fiscal criminal penalties may be reduced, so that “slight negligence” no longer triggers penalties under fiscal criminal law.
  • Beginning 2017, tamper-proof cash registers will become mandatory for businesses that mainly receive cash or credit / cash-card payments and have a turnover of more than €15,000 per year. The legislation includes provisions for the acquisition and deduction of compliant cash registers.
  • Similar to the rules in other EU countries, there is a requirement to provide customers with receipts, and the customer then must carry the receipt outside the store.
  • Cash payments regarding construction work will be limited to payments of €500. Further, wage payments made in cash for construction work are prohibited completely.

Employees and fringe benefits

  • Individual income tax rates will generally be reduced for all individuals receiving an income of less than €90,000 per year. The income tax rates for individuals earning more than €1 million per annum will be increased from 50% to 55%. This tax rate increase is effective for a period of time up to and including 2020. Also, regulations regarding several allowances for individuals will be amended, and payroll accounting will have to be amended accordingly from 2016 onwards.
  • Rules regarding taxable fringe benefits related to the usage of a vehicle provided by a company for private purposes are amended.
  • New tax benefits for researchers and scientists are introduced (lump-sum tax allowances).
  • There will be new measures regarding employee discounts, so that beginning in 2016, discounts granted to a broad range of employees for goods or services provided by the employer in the ordinary course of business will not be considered a benefit in kind (subject to certain limits).
  • Loans or prepayments of salary granted to an employee will not be considered a fringe benefit (and therefore subject to wage tax) if below €7,300.
  • The allowance for employee participations will be increased to €3,000.
  • Certain tax allowances and tax credits will be increased, and thus will need to be considered in payroll accounting.

 

For more information, contact a tax professional with KPMG in Austria:

Christoph Plott | +43 (1) 31332 - 697 | cplott@kpmg.at 

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