Tax also has to be paid when submitting an extension request

The special tax relief implemented in the third wave of the coronavirus will affect the deadline for certain tax returns and annual reports at companies which, through no fault of their own, cannot comply with their obligations by the original deadline, i.e. 31 May, due to the pandemic.

Companies and organisations missing the deadline of 31 May can only be exempt from the default penalty if they submit their extension requests containing pandemic-related reasons to the National Tax and Customs Administration by 30 June. The extension request can exempt you in Hungary from the legal consequences for failing to submit four types of tax return and financial statements as well as to prepare transfer price documentation on time.

Parallel to submitting the extension request, it is important that the missed tax returns must also be submitted and the corporate tax as well as the small business tax, the innovation contribution and the income tax on energy providers must be paid simultaneously, or any payment difficulties must be reported.

Circumstances to be considered

Submitting an extension request does not necessarily mean it will also be accepted, but the National Tax and Customs Administration has promised to assess these requests quickly and fairly, qualifying reasons derived from the coronavirus pandemic as particularly justifiable circumstances. It is worth knowing that since members’ meetings or general meetings can even be convened online in an emergency, without personal attendance, not holding them does not necessarily represent a circumstance that can be taken into consideration.

The relief does not apply to public-interest entities such as listed companies, banks, insurance companies and investment firms.

WTS Klient Hungary is continually trying to keep its clients updated regarding the economic measures taken due to the coronavirus pandemic. If you have any questions on how these measures will impact your business, feel free to contact us.

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In February 2021, a draft of the legal act introducing the “advertising contribution” was published. Despite its name, its construction is based on the rules specific to the Digital Service Tax. Below we summarise our general assumptions. 

Traditional ads

The tax liability is imposed on revenues in the tax year in the amount of:

• PLN 1,000,000 (roughly EUR 220,000) for broadcasting adverts on television, radio, displaying adverts at the cinema, and posting adverts on external storage,

• PLN 15,000,000 (roughly EUR 3,300,000) for press advertising.

The tax rate assumed in the project varies between 2% to 15% of the tax base depending on the advertised goods and sources of income.

Online ads

The online advertisements are defined as digital services that enable the reproduction of audio or audio-visual material on recipient devices. According to the definition, advertising may take any form, e.g. sponsored article, audio advertisement, sponsored podcast, product suggestion on a website, tweet or post.

An entity becomes a Digital Service Tax payer if it provides online advertising services in Poland, and additionally meets the following conditions:

• the service provider’s revenues (or consolidated revenues of the group to which the service provider belongs) exceed EUR 750,000,000 in the tax year, regardless of where the revenue is obtained,

• the service provider’s revenues (or consolidated revenues of the group to which the service provider belongs) from online advertising services in Poland exceed EUR 5,000,000 in the tax year.

The tax rate for all online advertising is to be 5% of the tax base.

Purpose of the Digital Service Tax revenue

Poland plans to use the additional revenues derived from the Digital Service Tax to support those affected by the coronavirus pandemic (national health care system, culture and free media).

The introduction of the Digital Service Tax is planned for 1 July 2021. However, work on the project is still ongoing in Poland. On 12 March 2021 a meeting of the Committee on Culture and Media was held in this regard. There were many comments and questions regarding the solutions contained in the Digital Service Tax draft, including that the project does not cover all kinds of advertisement, such as telemarketing, the tax collection mechanism is not described clearly enough, and there is a lack of awareness of the long-term effects of the act. It was also argued that the increase in the price of the advertising will affect the final price of products, and therefore consumers.

If you would like to know more about the Digital Service Tax draft in Poland, please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland.

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Tax and social security implications of permanent remote work in Austria

In the first scenario Mr A and the company agree that, from now on, Mr A can work 100% remotely from his home office in Austria, independently of the COVID-19 pandemic.

The Austrian tax administration takes a “facts and circumstances-approach” to assess whether remote work in Austria creates a permanent establishment (PE) for the foreign employer. The main criteria are the extent of home office work, the nature of work carried out in the home office and whether it was initiated by the employer or by the employee. In the case in question, it is very likely that the tax administration assumes that a PE is created. In addition, home office work would trigger municipality tax (3% from employee’s gross wage).

Mr A is subject to Austrian income taxation. The foreign employer will not have to deduct and pay monthly Austrian wage tax, but will have to file a so-called wage-statement by March of the following year. The employee will have to file an income tax declaration by June of the following year.

As Mr A spends 100% of his working time in Austria, he is also subject to Austrian social security regulations. The foreign company will have to register with the competent Austrian social security authorities and deduct and pay monthly Austrian social security contributions (employee and employer part). If the company is located in another EU country, Mr A and his employer could agree that these compliance duties are fulfilled by Mr A. However, in practice, this is rarely carried out, as all non-compliance risks would remain with the foreign employer. In addition, the foreign employer will have to pay a contribution to the Austrian family support fund (3.9%).

Tax and social security implications of remote work in Austria only during the COVID-19 pandemic

In the second scenario Mr A and the company agree that, only during the COVID-19 pandemic, Mr A can work 100% remotely from his home office in Austria. The Austrian tax administration takes the position that, if home office work is performed only temporarily during the COVID-19 pandemic, the home office will not create a PE for the foreign employer.

As regards Austrian income taxation, there is no difference to the first scenario. Only in case the company is a German resident company, Austrian income tax could be avoided.

This is due to the fact that, according to a mutual agreement on the tax-implications of COVID-19 concluded between the German and Austrian tax administration, the employee could opt (no obligation) to remain subject to German income taxation.

As regards social security, the competent Austrian ministry takes the view that temporary restrictions on cross-border employment imposed by COVID-19 do not constitute relevant changes as regards the applicable social security legislation. This means that, in the case of COVID-19 related temporary remote work in Austria, the employee will remain within the applicable foreign social security legislation of its country.

If you would like to know more about the tax and social security consequences of remote work in Austria, please visit the homepage of ICON Wirtschaftstreuhand GmbH, partner firm of WTS Global in Austria!

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Under such circumstances it is extremely important to monitor customer risk regularly, since non-payment not only jeopardises the company’s liquidity, it is also a threat to its successful operation in many cases.

There are two tried-and-tested methods for managing customer risk: credit insurance and factoring.

Credit insurance

Credit insurance is a complex service. It can cover all clients, thereby ensuring the creation of a balanced portfolio, including clients performing both better and worse, and those more likely to perform or not perform. It can also be taken out for certain partners only, if the company deems this necessary based on the information available.

Credit insurers carry out their own risk analysis procedures for all companies in their credit insurance portfolio, and only enters into a contract with the given partner when the likelihood of an insurance event happening is sufficiently low at the time of the rating, or when the risk premium associated with non-payment can be rolled into the insurance premium. The rating also determines what security the given partner must provide to take out the credit insurance.

If an insured partner does not meet its payment obligation on time, this in itself does not create a loss claim since it must be preceded by attempts to collect the receivable. The credit insurance service may include collecting receivables as well.

An insurance event occurs if the reasonable attempts set forth in the credit insurance contract to collect the receivables are unsuccessful; the company then receives the compensation due based on the credit insurance besides the security for the given partner.

Since non-payment is the insurance event, it is easy to see that the company cannot gain access to the value of the invoices before they fall due, so credit insurance is not able to improve the company’s liquidity position.

Factoring

Alongside credit insurance there is another effective method for managing customer risk: factoring. In contrast to credit insurance, factoring can also improve a company’s liquidity position, it is essentially a transfer of receivables. However, it is important to proceed carefully and choose a factoring contract that meets your needs. If you do not want to continue bearing the non-payment risk of a customer after factoring, it is important to opt for non-recourse factoring. In this case, the factor takes on the risk of non-payment, while with full-recourse factoring, if the partner ultimately does not pay, the factor collects its receivable from you.

It is also important whether the factor settles the value of the receivable at the start of the factoring or when the receivable is paid. In the first instance the factoring can substantially improve your liquidity position, while in the latter case it only manages the risk of non-payment.

Other procedures

With partners where there are clearly problems with non-payment, there is a good chance that neither factoring nor credit insurance will help.

Going down other paths is justified in this context. First of all, it is worth reviewing the size of credit facility of the given partner, or introducing one if they do not have such an option. In more serious cases it may be justified to suspend sales on deferred payment terms.

Do not forget that a company is exposed not only to the non-payment of customers, but also that of suppliers. In this case, if a company’s activity largely depends on one supplier, it is worthwhile looking into alternative procurement sources, and possibly diversifying purchases.

Since many different factors have to be weighed up when regularly monitoring and managing client risk, it is advisable to consider involving an expert. Feel free to contact the professionals at WTS Klient Hungary, who, as consultants, will be happy to support you with issues surrounding credit insurance, factoring, or other methods of managing customer risk.

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When planning for next year, in addition to the most important elements of the 2021 tax amendments, we should not forget about the tax amendments voted for in the summer, which even affect year-end tasks. It suffices to think about the cancellation of the top-up obligation for local business tax, which was requested from the legislators several times, also by WTS Klient Hungary. Decision makers should note that in the turbulent environment both the scope of the individual rules (date of entry into force and date when rules are discontinued) and the temporary tax-amending effects of decree rules should be taken into consideration. These rules are described from time to time in the “coronavirus section” of our website.

Material changes

From the most important 2021 tax amendments listed in our earlier article, we would like to draw the attention of decision makers to the following material amendments:

• The corporate tax base deductible based on the development reserve may be claimed up to the amount of the pre-tax profit of the given fiscal year. The HUF 10 billion (roughly EUR 28 million) limit will no longer apply.

• The definition of permanent establishment is also changing in terms of corporate tax. The structure of foreign companies employing Hungarian employees in Hungary must be reviewed again.

• DAC6: The reporting deadline for transactions realised between 25 June 2018 and 30 June 2020 is to move from 31 August 2020 to 28 February 2021; while for arrangements made available as of 1 July and for transactions where the first steps are taken after 1 July 2020, the (first) data reporting deadline has changed from 31 July 2020 to 31 January 2021.

• Vaccinations provided by the payer are already tax exempt, and this tax-exemption will be extended to pandemic screening examinations too. (In our opinion, the screening examination provided during the state of emergency is also tax exempt based on the Stability Act.)

• The top-up obligation for local business tax has been cancelled.

• A standard local business tax return including data for the registered office and all permanent establishments only has to be submitted to the state tax authority, not to the local tax authorities.

• For local business tax, the obligation to apply arm’s length prices and this impact on either net sales revenue or costs and expenses reducing net sales revenue should both be noted.

• Temporary business (construction) activities will not be subject to taxation anymore.

• From 2021, the range of online invoice data reporting will expand to include invoices issued to private individuals. This obligation will start from 4 January and we can count on a sanction-free period until the end of March. From this date, taxpayers essentially have to report each invoice.

• System 3.0 is expected to replace the current version 2.0 of online invoice data reporting from 4 January. It is worth paying attention to ensure the change is implemented through your systems, and you can decide on perhaps introducing electronic invoicing that you have put off until now.

• eVAT tax returns are on their way. The National Tax and Customs Authority (NAV) will make the draft tax returns accessible for taxpayers from the 12^th day after the end of the tax assessment period. The NAV will first prepare the drafts based on July 2021 data. Use of these drafts is optional for companies.

• Change to EKAER The system will only be mandatory in the case of risky products and the rules on penalties will also be amended.

• The general reverse charge will be discontinued for temporary labour, but the reverse charge can still be applied for temporary construction labour in the case of all construction/assembly work (not just work subject to a construction permit). Scope: if the derogation authorisation given in Council Implementing Decision (EU) 2018/486 is not prolonged, despite Hungary’s request, the minister responsible for taxation policy will publish the relevant resolution in the Hungarian Gazette. The restriction will enter into force on the 30^th day following its publication.

• The rules on the preferential 5% VAT on homes will be reintroduced together with the related duty exemption rules. (These rules were incorporated in a separate bill, not as part of the 2021 tax amendments.)

• It is possible to give higher amounts through the SZÉP card until 30 June 2021 (and all this is exempt from the social contribution tax).

• The reporting rule on the ownership acquisitions by foreigners in Hungarian companies was prolonged until the end of June 2021.

• During the state of emergency in Hungary, special rules shall apply to free supplies and services.

• Industries affected most by COVID-19 will receive tax allowances (e.g. in terms of social contribution tax, vocational training and rehabilitation contribution), or even direct support.

• In line with EU legislation, companies involved in or mediating distance selling as well as those providing services for foreign private individuals should expect significant changes.

• The KIVA rate will drop to 11%, and its sales revenue limit and total assets threshold will increase to HUF 3 billion (roughly EUR 8 million) from 2021. In line with this, the sales revenue threshold for the termination of small business taxpayer status will rise to HUF 6 billion (roughly EUR 17 million). So it is worth considering a switch to KIVA again.

• KATA: The Hungarian 2021 tax amendments introduce an equaliser for revenues from foreign legal entities which are related companies of a low tax bracket entity and revenues from foreign payers in excess of HUF 3 million (roughly EUR 8,300), given that in this case the 40% tax rate will not be charged to the payer but to the low tax bracket entity: the basis of the tax is not all of the revenue exceeding HUF 3 million (roughly EUR 8,300), but only 71.42% thereof.

Additionally, based on the summary amendment proposal submitted in connection with Bill No. T/13258 and containing the details of the 2021 tax amendments, among other things the Corporate and Dividend Tax Act (CDT) was supplemented with some important changes. The most significant ones are that corporate tax funding can be used for protection measures against the pandemic with respect to sports and CDT allocations as well as the tax calculation of foreign permanent establishments.

Corporate tax funding used for protection against the pandemic

In connection with the Hungarian tax allowance on spectator team sports, taxpayers may now provide support directly from their corporate tax to facilitate protection against the coronavirus as well as for the 100% reimbursement of costs arising in respect of the safety measures required by national sports associations. Accordingly, all the corporate tax funding may be used to purchase thermometers, masks, rubber gloves, coronavirus tests, hand sanitisers, disinfecting wipes or liquids, protective healthcare attire, or to pay for health examinations.

Changes to the tax calculation of foreign permanent establishments

The approved Hungarian 2021 tax amendments clarify the provisions of the CDT Act regarding the simultaneous application of double taxation and transfer pricing modification rules. Accordingly, if a domestic resident taxpayer is not entitled to apply tax base deductibles under transfer pricing rules for a transaction between itself and its foreign permanent establishment because it does not have the statutory tax base increasing statement, then, in line with the rules currently in place, it has to modify its tax base so it does not contain the income taxable abroad, if so provided for by an international agreement. Then, the domestic resident taxpayer may decrease its tax base with the amount of costs and expenses that can be allocated to the foreign permanent establishment. The decrease may not exceed 90% of the disallowed item calculated based on the transfer pricing rules applied when the income of the foreign permanent establishment is determined, or the amount of the costs or expenses allocatable to the foreign permanent establishment that exceeds the revenue of the foreign permanent establishment, whichever is lower.

5% VAT on the delivery or take-away of restaurant food

In addition to the 2021 tax amendments, Hungarian restaurants closed in the state of emergency due to the coronavirus are significantly affected by a tax law amendment promulgated in a decree. Based on Hungarian Government Decree No. 498/2020 (XI.13) on the economic rules applicable during the state of emergency, food and beverages sold for take-away or home delivery, which would be subject to 5% VAT if sold with on-site catering anyway, will also be subject to VAT equalling 5% of their tax base. This tax rate is not applicable to the delivery fee for the transaction.

The 2021 tax amendments bring about significant tax changes which will affect most taxpayers. We draw your attention in particular to the changes affecting online invoice data reporting and e-commerce. If you have any questions regarding the 2021 tax amendments, or their impact, then our tax specialists will gladly help you.

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Tax relief for fringe benefits paid to SZÉP cards

According to the amendment, the social contribution tax exemption on fringe benefits paid to SZÉP cards, the Széchenyi Rest Cards, introduced as part of the spring tax relief package, will be extended for another six months. This means that until 30 June 2021 employers do not have to pay social contribution tax on fringe benefits paid to SZÉP cards if the benefit does not exceed the recreational allowance threshold specified by law.

Furthermore, the amendment upholds the annual allowance increased in the spring with regard to fringe benefits paid to SZÉP cards. For employers not qualifying as budgetary organisations, this means a limit of HUF 800,000 (roughly EUR 2,200) from which HUF 400,000 (roughly EUR 1,100) can be transferred to the accommodation sub-account, HUF 265,000 (roughly EUR 740) to the catering sub-account, and HUF 135,000 (roughly EUR 380) to the leisure sub-account.

New rules regarding share acquisition of foreign investors

Besides the social contribution tax exemption and the extension of the raised allowance for fringe benefits paid to SZÉP cards, another important element of the amendments is the extension of the reporting obligation until 30 June 2021 in legal transactions as specified by law concerning the acquisition of shares in strategic companies by foreign investors.

Legal transactions concluded between a foreign-registered legal entity and its related company appear as a new element among exemptions from the reporting obligation, meaning no reporting obligation applies in these cases.

Change in insolvency proceedings

With insolvency proceedings it is important to highlight that until 31 December 2020, a creditor may file a request to open liquidation proceedings against a debtor on grounds of an overdue and uncontested contractual debt if the final deadline permitted in the payment reminder sent to the debtor and the following 75 days have elapsed without repayment. This way the amendment provides for a substantial extension of the enforceability of a payment request through liquidation proceedings.

If you have any questions regarding fringe benefits paid to SZÉP cards or any other element of the amendment, our tax experts are here to help.

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No interest and penalties / non-enforcement of unpaid taxes

One of the main reliefs of the recent additional fiscal measures in Romania is the non-computation of interest and penalties for late payment. More precisely, interest and penalties on taxes due from 21 March 2020 and not paid until 25 December 2020 will not be computed (the previous deadline was 25 October 2020).

The above due and unpaid taxes will not be considered outstanding and their enforcement will be suspended / will not start until 25 December 2020 (with certain exceptions, such as in criminal cases).

No interest and penalties will be computed for the late payment of instalments from the rescheduling of taxes until 25 December 2020, the validity of this rescheduling is also maintained until 25 December 2020.

The prescription terms of the Romanian tax authorities to compute additional taxes and prescribe enforcement are suspended until 25 December 2020.

Extension of VAT refunds without a VAT audit

Another important element of the additional fiscal measures in Romania is that VAT can be refunded until 25 January 2021, with VAT inspections carried out afterwards (with certain exceptions, such as the submission of the first VAT refund request after registering for VAT purposes, or the reimbursable VAT is older than one year). Subsequent fiscal inspections are ordered based on a risk analysis by the fiscal authorities.

Payment rescheduling of taxes

A payment rescheduling of taxes may be approved for a maximum period of 12 months for the main and ancillary fiscal obligations whose maturity / payment term expired after the declaration date for the state of emergency (16 March 2020) and they are not paid before the issue date of the fiscal attestation certificate.

Payment rescheduling is not permitted for fiscal obligations totalling less than RON 500 (roughly EUR 100) for individuals and RON 5,000 (roughly EUR 1,000) for legal entities. To benefit from the payment rescheduling, the debtor must cumulatively meet the following conditions:

• submit an application to the tax authorities by 15 December 2020;
• not be subject to bankruptcy / dissolution proceedings;
• not have outstanding fiscal obligations on the date the state of emergency was declared, which are not paid before the issue date of the fiscal attestation certificate;
• not be liable according to the legislation regarding insolvency and / or joint liability;
• has submitted all tax returns, according to fiscal evidence, by the issue date of the fiscal attestation certificate.

After receiving the request, the fiscal body issues the fiscal attestation certificate ex officio, and communicates it to the debtor. Apart from this, there are several conditions for maintaining the validity of the payment rescheduling.

During the payment rescheduling period, from 26 December 2020 interest is due and calculated (0.01% for each day of delay) for the tax obligations scheduled for payment, namely, for each rate of the payment schedule, computed between the issue date of the payment rescheduling decision, and payment date of the instalment. The delay penalty of 0.01% will also be due for each day of delay.

Additionally, a penalty of 5% will be due for any late payment rescheduling rate until the next payment term in the rescheduling schedule, as well as for the differences of any unpaid fiscal obligations after settling VAT returns with a reimbursement option. The penalty of 5% is calculated based on:

• the amount remaining unpaid from the rescheduling rate, representing the main fiscal obligations and / or ancillary fiscal obligations rescheduled for payment;
• the differences of fiscal obligations remaining unpaid after the settlement of the returns with the negative amount of VAT with a reimbursement option.

Reduction of specific tax for HoReCa

According to the additional fiscal measures in Romania, HoReCa entities (hotels, restaurants, cafés) liable for the specific tax due for HoReCA activities in 2020, do not owe specific tax for the period between 26 October 2020 (the date these provisions enter into force) and 31 December 2020.

Thus, the specific tax established for 2020 will be recalculated accordingly.

Reduction of local taxes

Local authorities may reduce building tax for 2020 until 2 December 2020, the main measure being the reduction of the annual building tax by 50% for non-residential buildings, if, during the period for which the state of emergency / alert was established, the owners or users of the buildings were obliged, by law, to completely suspend their economic activity, or they hold a certificate for emergency situations issued by the Romanian Ministry of Economy certifying the partial interruption of the economic activity.

If such measures are adopted, the owners of the buildings are obliged to submit to the local fiscal authority a request for granting the reduction until 21 December 2020, together with a declaration on their own responsibility, which must contain specific information.

Extended restructuring of unpaid taxes

The additional fiscal measures in Romania also extend the possibility to restructure taxes (GO 6/2019). The obligation to notify the fiscal authorities of this restructuring intention can be submitted between 1 November 2020 and 31 March 2021. The restructuring request can be submitted until 30 June 2021.

No tax on employees for COVID-19 tests supported by the employer

No salary tax and social contributions are computed for the value of medical tests to diagnose COVID-19 infection, as supported by employers on their own initiative, for their employees, during the state of emergency or alert.

If you would like to know more about the additional fiscal measures in Romania in force from 26 October 2020, please visit the homepage of Ensight, the exclusive representative of WTS Global in Romania.

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The main element of the anti-crisis tax package: loss carry-back 

A significant part of the Czech anti-crisis tax package deals with the long-discussed introduction of “loss carry-backs” in the field of income tax. The concept of a tax loss carry-back was brought about Liberating Package II in March 2020, and enables both natural and legal persons to retroactively apply their 2020 tax losses to their 2018 and 2019 tax returns. In other words, both individuals and legal entities are free to amortise their losses incurred in the two previous tax years.

Taxable persons and entities can apply loss carry-backs in their additional tax returns by setting off the 2020 loss against the positive tax bases of 2018 and 2019. The tax authority will refund the excess income tax.

This measure can be applied after the 2020 tax return with a tax loss is filed, i.e. not before the beginning of 2021.

Please note that the deadline for tax assessment for the tax years in which the tax base was reduced by the tax loss shall be extended in the case of a loss carry-back.

Application of reduced VAT rate to selected services 

According to the anti-crisis tax package, selected services subject to the first reduced VAT rate (15%) shall be shifted to the second reduced VAT rate (10%). These include:

• provision of accommodation services;
• admissions to sports and cultural events, museums, botanical gardens and zoos, natural reserves and national parks;
• use of sports facilities for sporting purposes;
• hammam and sauna services and similar selected facilities;
• passenger transport by ski lifts.

The second reduced VAT rate has been applicable in the cases listed above since 1 July 2020.

Road tax

 Another important element of the Czech anti-crisis tax package is the reduction of road tax on trucks. The road tax for trucks with a maximum permissible weight exceeding 3.5 tonnes shall be reduced by 25% with retroactive effect from the beginning of 2020. This measure will manifest itself in a retroactive reduction of advance tax payments to be paid in 2020.

If taxpayers did not take advantage of the “general pardon” to defer the obligation to pay road tax advances, and paid the advance in the original amount, the difference between the old and new amount shall be used to pay the remaining advances in 2020.

Extension of exemption from real estate tax 

Until now, municipalities in the Czech Republic were only able to exempt real estate from real estate tax that was affected by natural disasters (such as flooding, storms, extreme droughts). Henceforth, this exemption is also allowed in the event of a pandemic, an emergency measure under the Crisis Act, or industrial accidents.

This exemption can also be applied with retroactive effect. In fact, municipalities have to define the exempt real estate in generally binding ordinances effective until 31 March of the year following the tax year in which the emergency occurred. The exemption shall be applied in the form of an ordinary or additional tax return.

Should you have any questions or require any further assistance regarding the application of the Czech anti-crisis tax package, please feel free to contact WTS Alfery, the exclusive representative of WTS Global for the Czech Republic.

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Employees working in a different country to the one where the registered office of their employer is located raises several taxation issues. Both the OECD and the European Commission have published guidance for managing these unprecedented situations. In our article, we will take a look at the most important questions raised by expat employees working from home.

Personal income tax: general rules

It often happens that an employee of a company is sent abroad for varying lengths of time to work there. If a given posting is long-term, employees often terminate their permanent address in the posting country and take their family to the host country too. This way they transfer their tax residence to the host country.

According to the OECD convention for the avoidance of double taxation, a person is considered resident if they have a permanent home in the given country. If a person qualifies as resident in more than one country according to the domestic laws of the given countries, then the following aspects must be considered when defining residency:

• permanent home;
• if the person has a permanent home in both states, then the centre of vital interests;
• if it cannot be established where the centre of vital interests is, then the habitual abode.

If the person has a habitual abode in both states, or does not have one in either state, then citizenship is the defining aspect.

Personal income tax of expats during the pandemic

The taxation of income derived from non-independent activity would change significantly as a result of the above rules in the event of expat employees working from home. However, on 3 April 2020 the OECD published guidance on the impact of the COVID-19 crisis. According to this guidance it is unlikely that residency can be defined based on permanent home in line with the criteria above in the unprecedented situation created by the virus, assuming that the private individual has a permanent home in the host country. If they have a permanent address both in the host and the posting country, an employee’s residency should be defined based on the centre of vital interests. If the centre of vital interests does not give a straightforward solution because the centre of vital interests is in one country based on the individual’s personal and social relationships but in another country based on their economic (work) background, the residency of the employee must be defined based on habitual abode.

In accordance with the OECD guidance issued in April, “despite the complexity of the rules, and their application to a wide range of potentially affected individuals, it is unlikely that the COVID-19 situation will affect the treaty residence position”. This means that when establishing residency for the transition period caused by the coronavirus, the authorities should consider the employee’s normal living conditions. So as expat employees working from home their residency would not change during the given period, i.e. the time spent in a country other than their country of work.

Social security

Employees living in border towns and villages often commute and work in neighbouring countries.

If the working hours of a (Hungarian) employee working abroad did not reach 25% in Hungary before the pandemic, their social security obligation arose in the Member State of work, so they were insured in that country. As a result of the quarantine measures implemented due to the global pandemic, the increase in working hours spent involuntarily at their place of residence in Hungary often resulted in cases where the 25% limit was exceeded.

The guidance issued by the European Commission on 30 March 2020 formulates a recommendation for such cases. According to this recommendation, in cases which could lead to changes in the employee’s Member State of insurance, the Member States should apply the exception defined in the coordination regulation so the social security entitlement of the affected employee remains unchanged. To apply such an exception, the employer has to submit a request to the Member State whose social security system it wants to be subject to.

Do expat employees working from home create permanent establishments?

The third important question is whether the commuters or expat employees working from home create permanent establishments, and consequently tax payment liabilities for the employer, in another state.

Based on the OECD Model Convention for the avoidance of double taxation, a permanent establishment is a fixed place  of business at which the company conducts its business in part or in full. If the employees of a company work for lengthy periods in another country, based on the above article it is possible that a permanent establishment and therefore a tax payment liability is created in the other country.

Based on the OECD guidance issued in April, a permanent establishment must have a certain degree of permanence and must be available for the company to be named a place of permanent business where the company’s activities are conducted in part or in full.

For an employee’s home to be regarded as a permanent establishment, business activities should be conducted there continuously, and the company should require business activities to be conducted from there.

During the coronavirus pandemic, commuters and expat employees working from home were forced to do so in order to comply with government guidelines and due to force majeure, not to comply with the requirements of the employer. Taking into account the unprecedented nature of the coronavirus pandemic – and assuming this does not become regular practice later on – expat employees working from home do not create permanent establishments for the employer since “home offices” are not permanent offices.

WTS Klient Hungary has substantial expertise with regard to the taxation of expat workers. If you have a question regarding this topic, you can count on a full analysis and professional answers from our colleagues. Please feel free to contact us.

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COVID-19 investment subsidy

 One of the most important recent measures in Austria is the new COVID-19 investment subsidy, which should encourage companies to invest. Companies that commit to investing in specified assets can get up to 14% of the investment sum back as a subsidy. The basic subsidy is 7% of the invested sum. If the investment is in specific areas like digitalisation, life science/health or sustainability, the percentage of the subsidy is increased by a further 7%. The subsidy may be requested from 1 September 2020 until 28 February 2021 for new investments (first steps taken between 1 August 2020 and 28 February 2021). Climate-unfriendly investments and further specific investments such as undeveloped property, financial assets and others are excluded from the investment subsidy.

Degressive depreciation

 Another important element is the implementation of a new accelerated depreciation regime for investments in new fixed assets. The new degressive depreciation is optional and allows companies to depreciate fixed assets by up to 30% of the residual book value per year. However, the new regime is only applicable for fixed assets purchased or constructed after 30 June 2020. Certain assets are excluded from the new depreciation: e.g. used and intangible assets, buildings (see below), passenger cars (except for e-cars, driving schools and commercial transport use), facilities used for the production, transport or storage of fossil fuels and facilities directly using fossil fuels and airplanes.

Accelerated depreciation for buildings

Buildings acquired or constructed after 30 June 2020 can be depreciated with an accelerated depreciation rate. For the first year, the rate is three times the statutory rate applicable for buildings (7.5% or 4.5%). In the second year the rate can be up to two times the statutory rate (5% or 3%), before falling to the statutory rate in the third year (2.5% or 1.5%).

The statutory half-year rule for assets in use for six months or less will not be applicable in the context of the depreciation regime for buildings. Therefore, the full-year depreciation can be charged in this case.

Loss carry-back

In contrast to other tax regimes Austria has not had a loss carry-back regime so far. To support companies in smoothening the losses due to effects of the COVID-19-crisis, Austria is implementing a temporary loss carry-back system. According to the new regime, it is possible to offset losses of the year 2020 with gains from the past two years. Companies which have a financial year that differs from the calendar year can choose between the year 2020 or the year 2021 as the base year for the loss carry-back.

The loss carry-back is capped at EUR 5 million. It will also be possible to carry back the loss even before the tax return for 2020 has been assessed. The Minister of Finance will be providing more details on the carry-back requirements in a specific regulation.

Other tax measures in Austria

 The Austrian government has reduced the starting tax rate from 25% to 20% applicable for income exceeding EUR 11,000 but not exceeding EUR 18,000. The reduction will become effective for the entire year 2020. Employees with taxable income of EUR 11,000 or less will benefit from an increased commuter deduction of up to EUR 400.

At the other end, the top income rate of 55% for income of EUR 1 million or more will be extended until the year 2025.

Conclusion

 With the tax measures in Austria detailed above the aim of the country’s government is clearly to support the economy during the COVID-19 crisis. The new depreciation regimes and the loss carry-back can help you counter the COVID-19 crisis. However, keep in mind that the new depreciation regimes ultimately only bring the depreciation potential forward. If you are planning investments you should consider the new COVID-19 subsidy, which can lead to subsidies of up to 14%.

If you would like to know more about the latest tax measures in Austria related to the pandemic, please visit the homepage of ICON Wirtschaftstreuhand GmbH, partner firm of WTS Global in Austria!

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