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New deduction obligation for foreign entrepreneurs

From 2020, employers who do not have a permanent establishment (PE) for taxes on salary in Austria will also be obliged to pay wage tax on their employees if their employees are subject to unlimited taxation. In particular, employees with domestic residence or habitual abode are affected.

The current legal situation: A foreign employer agrees with its employee to work from home occasionally. If this "home office" is located in Austria, the employer should already consider if there is an obligation to deduct wage tax. From 1 January 2020 on, it will be clear in which case a foreign employer has to deduct wage tax. The deciding factor will no longer be on the existence of a PE for taxes on salary but on the tax status of the employees. According to the tax amendment act (Abgabenänderungsgesetz 2020), the employer is obliged to deduct wage tax in Austria from next year at least for the working days spent in Austria, if the employee is subject to unlimited tax liability in Austria, for example due to his residence in Austria.

 

Employers have to determine the tax status of their employees

Foreign employers must therefore scrutinise whether their employees working in Austria are subject to unlimited tax liability in Austria (e.g. due to a residence or a habitual abode, also a holiday flat can be a residence from a tax perspective.). For these employees - irrespective of a PE for taxes on salary - a mandatory wage tax withholding by the employer will be necessary in future.

In contrast, employees with limited tax liability - in the absence of a PE for taxes on salary - do not necessarily have to be subject to withholding wage tax in Austria. However, the employer must proof the employee's information and check their tax status. Alternatively, Austrian income tax could be withheld voluntarily and paid to the relevant tax office for the days worked in Austria.

 

Which employments are affected?

The new regulation will primarily concern companies close to the border, such as those employing commercial agents or home office staff in Austria. The following forms of cross border employee assignment or posting will be affected:

  • Recruiting employees locally to carry out activities in Austria and no wage tax PE exists in Austria
  • Sending employees on assignment to Austria for more than six months

In addition, the changes mean that more foreign companies in Austria will have to register for wage tax in the future (keyword “Lohnsteuersignal”). These companies must also introduce a corresponding payroll accounting system. It remains to be seen, if there will be any restrictions on this regulation (e.g. for cross-border- works).

It is important to note, that the income tax of an employee with unlimited tax liability is to be levied by a foreign employer by deduction from the salary (wage tax) only if the activity is carried out in Austria and Austria has the right of taxation under international tax law.

 

If you would like to discuss any of the areas raised in this article, please contact our GMS experts Christoph Schmidl and Julia Saric-Bischof.