USA | Relocating to Austria

Why a relocation can be challenging from a tax perspective…

Relocating from one country to another means leaving one tax system and becoming subject to another, which may result in significant administrative and tax implications. This holds particularly true for the US, as US citizens remain subject to the US tax system even though simultaneously becoming subject to another jurisdiction’s tax system, as the US taxes citizens irrespective of whether the reside in the US or not. In addition, the US and Austrian income tax systems differ substantially in their structure and underlying principles. Understanding the divergences is essential to avoid double taxation, mitigate compliance risks, and ensure a smooth and efficient transition into the Austrian tax system.

When should potential tax issues be addressed when planning a relocation to Austria?

Under Austrian domestic law, individuals are subject to income tax on their worldwide income once they have a permanent home available to them in Austria, or if they establish a habitual abode in Austria. In contrast to the US, under Austrian law, it is irrelevant whether a person obtains Austrian citizenship or a permanent residency permit. Rather, under Austrian law, a permanent home – defined as any dwelling indicating an intention of continued use – creates a taxable nexus and enables Austrian authorities to tax the worldwide income of the individual. A permanent home exists irrespective of whether it is owned or rented and generally there is no minimum time it must be used to establish a tax residency.

To avoid adverse tax consequences, it is therefore recommended that you consider the tax implications before relocating to Austria, and perhaps even before purchasing or renting a residential property. Austrian law requires that all circumstances giving rise to, changing, or terminating personal tax liability must be reported to the competent tax authorities within one month. In the case of a relocation that means within one month after establishing a permanent home in Austria.

What are the key tax risks for US expats moving to Austria?

Maintaining ties to two or more countries may result in a situation in which both jurisdictions claim the right to tax the respective income. While Austria and the United States have concluded a comprehensive double tax treaty, such treaty protection is neither automatic nor does it eliminate all instances of double taxation. Furthermore, a tax treaty is not unconditional and does not override all domestic tax provisions that may result in unfavorable outcomes.

Common tax challenges arising upon relocation from the United States to Austria include, in particular:

• Taxation of deemed returns of non-reporting CIVs or REITs under Austrian domestic law
• Divergent qualification and tax treatment of IRAs and 401(k) plans under US and Austrian law
• Divergent entity classification, as the tax treatment of an entity (eg US-LLC) in the United States does not necessarily correspond to its tax treatment in Austria
• Classification and taxation of US revocable and irrevocable trusts under Austrian tax law
• Valuation of assets for purposes of obtaining a step-up in basis for securities and crypto assets

Besides those substantive legal challenges there are also many procedural pitfalls to consider (e.g. PFIC, FBAR etc. and in Austria the mandatory disclosure of cross-border tax arrangements). You will find more information on specific topics relating to US and Austrian tax law in the next issues of our newsletter.