On 22 and 23 June 2020, the Austrian Ministry of Finance and Ministry for Economic Affairs presented an extensive package of draft tax legislation. The package includes measures that had been announced during a retreat of the federal government a week earlier.
Highlights include a temporary loss carry-back, a temporary cash premium for certain fixed-asset investments, and a declining-balance depreciation of up to 30%. The draft legislation may undergo changes in the parliamentary process prior to eventual enactment.
A summary of selected measures is presented below.
1. Loss carry-back
Upon application, taxpayers can apply a one-time loss carry back capped at EUR 5 million from 2020 to 2019 and, to the extent an offset against 2019 profits is not possible, to 2018 subject to additional requirements. The Minster of Finance is authorized to allow for carrying back the loss even before the tax returns for 2020 have been assessed and to provide more detailed requirements for a carry-back to 2018 by way of an ordinance.
Specific rules apply for tax consolidations which will be supplemented by an ordinance of the Minister of Finance.
2. COVID-19 investment premium
A cash investment premium will be available for investments into tangible and intangible fixed assets, in case they need to be capitalized and relate to operations located in Austria, and to the extent the business has initiated these investments and applied for the premium in the period 1 September 2020 through 28 February 2021. Climate-unfriendly, land without buildings, financial assets, capitalized expenditure for internal costs and certain other types of investments are excluded from the premium.
The investment premium will be granted at a rate of 7% of eligible investments. Certain investments in the context of preventing climate change, digitization, health, and life sciences are eligible for an increased premium rate of 14%.
Additional administrative guidance will provide details. The Austrian government agency aws will be charged with handling the applications and payments.
3. Declining-balance depreciation
For investments in fixed assets that are currently eligible for straight-line depreciation, taxpayers will be able to opt for a declining-balance depreciation. When applying this alternative method, taxpayers can freely determine a depreciation rate of up to 30% and apply that rate to the remaining asset basis at the end of each fiscal year.
The half-year rule will apply so that only half of the annual depreciation amount will be allowed for assets in use for six months or less during a fiscal year.
Certain assets will be excluded from the declining-balance depreciation, e.g., intangible and used assets, buildings (however, an accelerated depreciation will be introduced for buildings, see below), tenant fixtures, passenger cars (except for driving school and commercial passenger transport use), facilities used for the production, transport or storage of fossile fuels, and facilities directly using fossile fuels.
4. Accelerated straight-line depreciation
Buildings acquired or constructed after 30 June 2020 will be eligible for accelerated straight-line depreciation. For the first year of use, the depreciation rate will be three times the statutory rate applicable to buildings so far, thus 7.5% or 4.5%. In the subsequent year, the depreciation rate will be two times the current statutory rate, thus 5% or 3%. For the second year following the initial year of use, the depreciation rate will be based on the statutory rates applicable so far.
The half-year rule for assets in use for six months or less will not apply in this context so that the full-year depreciation will be allowed even in these cases.
5. Rate reduction of the lowest income and wage tax bracket and related measures
For income increments exceeding EUR 11,000 but not exceeding EUR 18,000 per year, the wage and income tax rate will be reduced from the current rate of 25% to 20%. The reduction will become effective for the entire year 2020. Employers will need to consider the rate reduction for the months prior to the new rate’s entry into force by means of a revised payroll accounting procedure until the end of September 2020.
Employees with a taxable income of EUR 11,000 or less will benefit from an increased commuter deduction of up to EUR 400 (so far: EUR 300). The maximum bonus in the refund procedure of social security contributions for low incomes will be increased accordingly. These changes will apply from 2020 onwards.
The top income tax bracket rate of 55% for income increments of EUR 1 million and more will be extended beyond the year 2020 until 2025.
6. Other measures
Further measures not discussed in detail include: Rate changes for the airline passenger duty (particularly: rate increase for short-haul flights), tax relief for certain types of extraordinary forestry income, changes to profit determination for agriculture and forestry, changes to the family bonus procedures, procedural changes addressing COVID-19 prevention during personal interactions and hearings, ex-lege automatic extension for certain payment facilities until 15 January 2021.
7. Conclusions and required actions
The announced legislative package includes tax incentives and relief for various types of taxpayers.
In terms of planning investments for 2020 and early 2021, and in terms of basic principles of business taxation in Austria, the loss carry-back, the temporary investment premium, the declining-balance depreciation and the accelerated builiding depreciation are particularly notable. While the legislative process and the preparation of administrative guidance for the investment premium will need to be monitored, taxpayers should take first steps in terms of planning right now, e.g. related to intended investments in fixed assets.
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