1. Changes in the case of real estate: Real Estate Income Tax (Immo-ESt)
The current tax reform will bring the following changes to the Real Estate Income Tax in Austria:
Increase to 30 %
There is also an increase in the tax on income from property, which was introduced only in 2012. This is increased from 25% to 30% for disposals from 1.1.2016. This represents an increase in the effective tax burden from 3.5% to 4.2% in existing cases as well, and to 18% in the case of reclassifications. The inflation allowance (2% from the 11th year, but no more than 50% of the profit) is also being eliminated entirely.
No increase for corporations: 25 %
The increase in property income tax applies to all real estate for private persons, whether they are private assets or business assets; but it does not apply to corporations (where the 25% corporation tax (KöSt) is retained) or to private foundations (25% interim tax).
Loss relief increased to 60 %
But if a real estate sale results in a loss, 60% of it (instead of half previously) can be offset against progressively taxed income in the case of business from 2016.
Spreading the 60% loss relief over 15 years
In non-business cases, 60% of the loss can be spread over 15 years on application, in addition to the option of offsetting 60% of a loss on sale against (other) rental income. Such a “spreading option” can be applied for in the tax return up to the 7th year after (!) the loss event. In this case the “remaining 15th amounts” can be offset against rental income.
TPA Tip on the Real Estate Income Tax in Austria
Even if you do not (yet) have any rental income, you can make a provisional application in the tax return for spreading relief when a loss on sale arises from a property, in order to secure the relief for any subsequent loss.
2. Changes in the case of capital: investment income tax (KESt)
The current tax reform will bring the following changes to the Investment Income Tax in Austria:
Increased to 27.5% from 1.1.2016
As already reported in Newsletter No. 5/2015, investment income tax (KESt) and the associated special tax rate are in principle increased from 25% to 27.5% for all capital products – e.g. dividends, capital gains, limited company shares, bonds and derivatives, income from (real estate) investment funds, etc. The increase becomes effective as of 1.1.2016.
TPA Tip on retained earnings
It is therefore worth considering early distribution of retained earnings from limited companies. The current view is that this can be done by a second resolution, even if the initial resolution was to carry profit forward.
The increase does not apply to interest from cash deposits at banks, which means in particular interest on savings accounts or interest on current accounts or fixed-term deposit accounts, where the investment income tax (KESt) rate remains at 25%.
No increase for corporations
There are also exceptions from the 27.5% rate if the investment income accrues to a corporation, in which case the investment income tax (KESt) rate may still be 25% because income is fundamentally subject to the 25% corporation tax in the case of corporations.
No increase in interim tax for foundations
The “interim tax”, which applies for example to bank interest and interest from debt instruments, remains at 25% for private foundations as well. Payments by private foundations to their beneficiaries are however likewise subject to the increased investment income tax (KESt) rate of 27.5% from 1.1.2016.
Overall tax burden for limited companies is increasing – change of legal form?
The overall tax burden in the case of a limited company / corporation will in future effectively be 45.625 % (25% corporation tax and 75% x 27.5% investment income tax), which tends to shift the balance of advantage in favour of sole traders and partnerships, taken together with the reduction in income-tax rates.
TPA Tip for limited companies in Austria
You now still save 2.5 percentage points on payouts from corporations in 2015. In the case of limited companies with low profits, it can be advisable to transform the limited company into a sole trader or a partnership to switch to the more favourable income-tax rates.
If you have questions about the new tax changes in Austria, do not hesitate to contact our tax experts in Austria
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