AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler and Mohamed Hemdan, Schindler Attorneys
instrument of ratification with the OECD. The MLI came into force in Austria on 1 July 2018.
this Regulation by not keeping records, in which case they are subject to unlimited tax liability. 2.3 Taxation of Resident Individuals Tax-resident individuals are subject to unlimited tax liability, meaning they are taxed on their worldwide income. Austria applies a progressive income tax rate to most categories of income, whereas certain types of income, such as capital income, may be subject to flat tax rates. The progressive tax rates for 2026 are as follows: • up to EUR13,539 – 0% tax rate; • EUR13,539 to EUR21,992 – 20% tax rate; • EUR21,992 to EUR36,458 – 30% tax rate; • EUR36,458 to EUR70,365 – 40% tax rate; • EUR70,365 to EUR104,859 – 48% tax rate; • EUR104,859 to EUR1 million – 50% tax rate; and • more than EUR1 million – 55% tax rate (until 2029). Although income of resident individuals is subject to worldwide taxation, relief mechanisms exist to avoid double taxation of foreign-source income (eg, income attributable to foreign permanent establishments). Such relief mechanisms can be broadly summarised into these categories. • Relief under bilateral agreements (DTTs), where, depending on the type of income concerned, the applicable DTT may provide for an exemption (with progression) or for a credit of the foreign tax against Austrian tax. • Relief under unilateral domestic measures, primar - ily through crediting of foreign taxes where no relief under a DTT is available. • Relief under EU law, where EU directives and fun - damental freedoms may require relief from double taxation or the deductibility of certain expenses. That said, EU directives would typically already be transposed into Austrian tax law (eg, the Parent- Subsidiary Directive, implemented under Section 10 of the Corporate Income Tax Act), in which case the respective domestic provisions would apply directly.
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation Austria has no territorial tax regime; instead, it applies a worldwide income taxation principle for residents (unlimited tax liability), while non-residents are only taxed on Austrian-source income (limited tax liability). 2.2 Tax Residence of Individuals Individuals are considered tax-resident in Austria if they have a dwelling available for personal use or a habitual abode in Austria, which is deemed to be the case after a six-month stay in Austria in a calendar year. Nationality generally does not play a role in determin - ing tax residence under Austrian law. However, it may serve as a (final) indicator under a DTT in cases of doubt. In practice, the “centre of vital interest” of an individual is a criterion that is often used to determine their tax residence when they are deemed a resident of both Austria and another state under a DTT. The centre of vital interest is generally understood to be where an individual has their closest personal and economic ties (ie, family, friends, work, etc), with the personal ties generally being of higher relevance. Under general rules, a secondary residence in Aus - tria would also suffice to establish tax residence and unlimited tax liability in Austria. However, the Regula - tion on Domestic Secondary Residences ( Zweitwohn - sitz-Verordnung ) sets out special rules for individuals whose centre of vital interest has been located out - side Austria for more than five years. In such cases, unlimited tax liability arises only in years in which the secondary residence is used for more than 70 days; otherwise, the individual is subject only to limited tax liability. A central prerequisite for these rules to apply is that the individual keeps records of the days the Austrian secondary residence is used. Correspond - ingly, the individual can choose not to make use of
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