Austria – New Law Alters Tax Treatment of Certain | KPMG | GLOBAL

Austria – New Law Alters Tax Treatment of Certain Employee Share Awards

Austria – New Law Alters Tax Treatment of Certain

This report covers a new law in Austria that changes the treatment of employees receiving certain shares as incentive/deferred compensation.

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On 29 June 2017, Austria’s parliament adopted the new Worker Participation Foundation Act 2017, which, among other things, provides for:

  • the grant of company shares by an employer to its employees for the duration of their employment, and 
  • contributions to a newly-created Worker Participation Foundation (in German:“Mitarbeiterbeteiligungsstiftung“).

The new law enters into force from 1 January 2018.

WHY THIS MATTERS

Under certain conditions, employees receiving shares under the new rules will not be subject to income wage tax and social security contributions on the grant of those shares.  This should lighten their tax burdens and enhance their interest in this form of compensation. 

The new rules are expected to encourage employees to deepen their commitment to the companies they work for and incentivize performance by means of developing “anchor” shareholders (via the Worker Participation Foundation) who are given institutional voting interests.  This could prevent hostile take-overs, strengthen Austria’s future economic position, and safeguard Austrian jobs.

“Stock company” employers should take into account the new equity program opportunities.

New Rules in Brief

Starting from 1 January 2018, employees who are granted shares free-of-charge or at a reduced price up to an amount equal to EUR 4,500 per calendar year will not be subject to income wage tax and social security contributions on the grant of those shares, as long as the shares are held in trust by the Worker Participation Foundation until the end of their employment service.  Grants are to be made either to all employees who are eligible or to groups of employees defined according to general (non-discriminating) criteria – e.g., all employees with more than three years of employment with the company, all “field” employees, etc., while “all managers” or “only directors” would not be valid criteria.

Moreover, the coverage of administration costs by the Worker Participation Foundation does not generate a taxable benefit-in-kind.  Examples of the administration costs paid by the Foundation are the costs for running the trusteeship, stock deposit costs, etc. – these would not be taxable to the participating employees.

Shares issued from the Worker Participation Foundation to the employees after they complete their service – even if they were acquired over several years – shall be treated as “tax neutral” to the participating employee, that is, exempt from Austrian income and social taxes.

KPMG NOTE

The new regulations apply only to “stock companies” (that is, stock “corporation” companies and not limited liability companies), in German: “Aktiengesellschaft”. The company must not be publicly-traded.  As such, most employees are not affected.  It would be desirable that the new government rectify this imbalance by means of alternative tax saving models that would be accessible by all other employees otherwise excluded as a result of these new regulations.

Grant and Disbursement of Shares between Company, Worker Participation Foundation, and Employee

The new Worker Participation Foundation will be entitled to hold shares of the company itself.  However, the amount of shares is limited to 10 percent of the voting rights of the company.  Subsequently, those shares must be held in a trust – as noted above – and transferred to the employees according to a plan (over a period of several years).  The transfer of shares to employees over several years will be required – e.g., in order to cover RSU programs or stock option programs. These usually run over the course of three or five years.  The grant of shares and other property by the company to the Foundation are:

  • free of “foundation entrance” tax and exempt from corporate income tax at the Foundation (“Stiftungen“) level; and 
  • in general, tax deductible as an operating expense at the company level. 

The cost of the shares – either book value or current market value (if just acquired) – may be claimed as a corporate income tax deduction for Austrian income tax purposes.

FOOTNOTE

1  See (in German (PDF 120 KB))

The information contained in this newsletter was submitted by the KPMG International member firm in Austria.

© 2017 KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Austrian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative („KPMG International“), a Swiss entity. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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