Due to amendments of the Austrian Income Tax Act effective from 1 January this year, the monthly wage withholding tax obligation has been extended in Austria. According to the changes, foreign employers with employees resident in Austria are obliged to administer wage withholding tax for those employees even if they do not have a permanent establishment in the country or if the employee works in an Austrian home office for his foreign employer.
Until the end of 2019 foreign companies employing staff in Austria or seconded employees to Austria were only obliged to monthly withhold Austrian wage tax if their business activities in Austria constituted a so-called “wage tax permanent establishment”. Wage tax permanent establishment means a business which is wholly or partly conducted in Austria from an office, factory or other physical presence, or construction activities lasting longer than six months and are carried out in Austria.
Who is affected by the new wage withholding tax obligation?
Starting from 1 January 2020, this monthly wage withholding tax obligation has been extended in Austria. According to the new rules, even a foreign company not constituting a wage permanent establishment in the country, is obliged to monthly wage withholding tax if following conditions are met:
- the employee is or becomes an Austrian tax resident (especially if he/she has a regular residence there) and
- the employee works in Austria and
- the Austrian taxation right is not restricted according to the double tax treaty between Austria and the foreign country.
Therefore, the new wage withholding tax regulation is applicable, for example, in the following cases:
- employees of foreign companies who are resident in Austria and performing a part of their work from a home office in Austria;
- sales representatives of foreign companies who are performing their work at least partly in Austria and have tax residency in Austria;
- personal leasing if the employee is or becomes an Austrian tax resident.
Five steps to avoid fines for non-compliance in Austria
1. Identify employees affected by the changes:
- employees with a regular residence or habitual abode in Austria
- employees working in Austria (i.e. in an Austrian home office)
2. Register the company at the competent tax office in Graz:
- For the application, please send the form Verf19E per fax or per post to Graz Tax Office.
- The following enclosures have to be attached: Copy of the Company Register excerpt, Copy of the CEO’s ID card.
- Please add on the form: “only an employee is located in Austria, no revenue and company activity are made in the country”.
3. Implement a monthly Austrian “shadow payroll” for the employees affected. The “shadow payroll” must be carried out according to Austrian tax regulations. Therefore, in practice you need to assign an Austrian tax advisor/payroll provider/group company with that task and submit to them the monthly payroll data.
4. Carry out a monthly deduction of wage tax from salary and pay wage tax to the tax office in Graz. Wage tax must be paid by 15th of the following month.
5. File an annual wage statement at the tax office. For each employee, a so-called annual wage statement (detailing wage components and tax withheld) must be filed by the end of February of the following year. This is carried out electronically and is usually triggered by the Austrian payroll provider.
If you would like to know more about the new wage withholding tax obligation in Austria, please visit the homepage of ICON Wirtschaftstreuhand GmbH, partner firm of WTS Global in Austria!