On 10 December 2020 the Austrian National Council passed the “COVID-19 Tax Measures Act”. The name of this collective amendment hardly suggests that it will also change the current wage tax deduction procedure for foreign employers. The new provisions in this regard are to be applied retrospectively from 1 January 2020 and thus defuse the wage withholding tax requirements that have been in force since then, some of which have been heavily criticized, especially abroad. Find out in the following article what the new regulation looks like and what action is required from it.
According to the legal situation in force since 1 January 2020 (§ 47 EStG as amended by AbgÄG 2020), foreign employers had to withhold wage tax in the following cases:
- Existence of the permanent establishment of wage tax in Austria;
- No permanent establishment of wage tax in Austria, but employment of employees subject to unlimited tax liability in Austria.
In all other cases, the foreign employer could choose to carry out a voluntary wage tax withholding.
According to the wording of the law, foreign employers would thus have been obliged to withhold wage tax in Austria even if an employee with unlimited tax liability does not physically work in Austria. The Federal Ministry of Finance (BMF) therefore clarified, via an update of the income tax guidelines, to limit the obligation to withhold income tax to those constellations in which the employee physically worked in Austria, and the country also had the right to tax the employee’s income under treaty law.
Even this restriction of the legal scope could not prevent many foreign employers from slipping into a mandatory payroll tax registration and withholding the procedure due to the outbreak of the COVID-19 pandemic. This was because in many cases Austrian employees could no longer commute to their foreign place of work; but rather had to carry out their work in the Austrian “home office”.
New legal situation after the COVID-19 Tax Measures Act
The legislator has – somewhat surprisingly – decided to restrict the mandatory wage tax withholding procedure to those constellations in which the foreign employer has a wage tax permanent establishment in Austria. If, on the other hand, the foreign employer does not have a permanent establishment for wage tax purposes, the following now applies:
- If the foreign employer hires an employee who is subject to unlimited tax liability in Austria and whose centre of activity is in Austria for more than six months of the calendar year, the employer must submit a so-called “Lohnbescheinigung” (wage statement) to the tax office by January or, in the case of electronic transmission, by February of the following year. Thereafter, a different submission deadline of 31 March 2021 applies regarding the wage statement for the calendar year 2020. This wage statement must state the name, place of residence, date of birth and social security number as well as the amount of gross remuneration. The official form “L 17” should be used for this purpose.
- In all other cases, the foreign employer can make a voluntary wage tax deduction in Austria. The law also specifies, for the first time, which obligations a voluntary deduction will entail: maintenance of a wage account, withholding and payment of wage tax, transmission of annual wage slips and granting of access to wage records. However, if the foreign employer does not pay the correct amount of wage tax, this does NOT constitute a wage tax liability. Rather, in this case, the employee is subject to file an income tax return.
The new provisions of the COVID-19 Tax Measures Act will become effective retroactively as of 1 January 2020. This means that the former legal obligation to withhold income tax from foreign employers when hiring employees with unlimited Austrian tax liability (pursuant to Section 47 EStG as amended by AbgÄG 2020) will be retroactively abolished. If the employer has already fulfilled this obligation in the meantime, this is deemed to be a “voluntary deduction of wage tax”.
In case of any questions to this topic or if you are in need of assistance for an Austrian payroll our experts of the Service Line "Global Employment Services" will be at your service!
This article has also been published in the WTS Global Newsletter Global Mobility 1/2021