The draft for legal appraisal of the Tax Reform Act 2015/16 was published by the Austrian Ministry of Finance on 19 May 2015 and contains substantial amendments regarding individual income tax as well as VAT (regarding the amendments specifically concerning taxation of real estate see our Breaking Tax News No. 3/2015 as well as the amendments to the Final Taxation Act and the “Banking Package” see our Breaking Tax News No. 2/2015).
The individual income tax rates will be reformed, so the lowest progressive tax rate will decrease from 36.5% to 25%. Moreover, there will no longer be three but six levels in the progressive rate. Income exceeding EUR 1 m will be taxed at 55%, whereas this highest tax rate will be limited to five years (i.e. until 2020). The employee tax credit will henceforth be part of the increased traveling tax credit of EUR 400. Employees not paying any income tax because their income is below the taxation threshold will get a so-called “negative tax” as a tax credit in the amount of 50% of their social security contributions or a maximum of EUR 400 (respectively EUR 500 if the taxpayer is granted the commuter allowance) from 2016 onwards. Furthermore, the current amount of negative tax will be doubled from EUR 110 to EUR 220 in 2015 already. Also self-employed persons and farmers will benefit from this negative tax. Minimum retirees will get a maximum of EUR 110 as negative tax. The child tax exemption will be increased from EUR 220 to EUR 440 and in case both parents apply for the exemption the deduction for each of them will be increased from EUR 132 to EUR 300. If discounts are granted to employees, they will be tax exempt up to a 10% discount. Discounts exceeding 10% will be tax exempt up to EUR 500 per year.
Private use of company cars.
If the CO2-emissions per kilometer exceed 120g, 2% of the acquisition costs will be taxed as a private use of the car; in case of lower emissions, only 1.5% will be taxed as private use. The relevant threshold value for emissions will decrease annually by 4 grams per kilometer (for newly acquired cars). The maximum taxable amount for private use will henceforth be EUR 960 instead of EUR 720. As an environmental incentive no private use will be taxed if the company car is an electric car. Input VAT will also be deductible for cars which to not have any CO2-emissions.
Contributions to certain insurance funds as well as expenses for construction and renovation of housing will no longer be deductible if the underlying contract was concluded after 1 January 2016. Payments due to contracts concluded before this date will remain deductible over the next five years. There will be an unlimited loss carry forward for taxpayers who determine their income via cash basis accounting. In order to be able to deduct donations and church taxes, taxpayers will have to disclose their date of birth to the relevant organization (preparation of automatic exchange of information with tax authorities). In the future, taxpayers will no longer have to include these special expenses in their tax returns. The new provision will be applicable to payments which are effected from the year 2017 onwards.
Limitation of loss deduction for partnerships.
The new Sec. 23a ITA will henceforth provide a limitation of loss deduction in the amount of the contributed capital. This measure is taken in order to avoid undesired exemplary structures regarding “capitalistic copartners” (limited liability vis-à-vis third parties, so primarily limited partners and atypical silent partnerships). Losses exceeding contributions may only be deduced from future gains derived from the same participation (“Wartetastenregelung”), as long as a negative fiscal capital account is neither generated nor increased. Business assets of a partnership owned by one of the partners do not have to be taken into account. If one of the partners is held liable this is considered a contribution. This provision will be applicable to financial years beginning after 31 December 2015.
Repayment of contributions.
The current option on whether a distribution of profits can be considered as a distribution of profits or as a repayment of contributions (based on the relevant amount of contributions paid in) will be abolished. Retained profits have to be distributed first to individuals triggering withholding tax (“Innenfinanzierungskonto”); this is also applicable to hidden profit distributions. Only afterwards, contributions can be repaid tax-free. The new provision shall apply to financial years starting after 31 July 2015.
Other fiscal amendments.
The external and internal education credit as well as the external education premium (“Bildungsfreibetrag/Bildungsprämie”) will be abolished in 2016. The research premium will, however, be increased from 10% to 12%. The beneficial treatment for shares granted to employees will also be increased from EUR 1,460 to EUR 3,000. The preferential treatment for scientists moving to Austria will be expanded by introducing an application-based, limited (5 years) tax deduction (“Zuzugsfreibetrag”) of 30% of the income which is subject to the progressive income tax rate.
Value added tax.
For reasons of simplification special provisions regarding the place of performance will be abolished. The reduced VAT rate of 10% will be increased to 13% for the sale of the following goods or services:
- Animals and animal feed,
- Plants and seeds, wood,
- Accommodation (from 1 April 2016 onwards for services if the contribution was not entirely collected before 1 September 2015 and the service is performed after 31 March 2016)
- Cultural services (cinema, museum etc; from 1 January 2016 for services if the contribution was not entirely collected before 1 September 2015)
- Youth services, swimming pools
- Sales of wine direct from the farm (from 12% to 13%)
- But: reduced tax rate of 13% (currently 20%) on tickets to sports events
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