Austria to pass tax reforms amid protests

Austria’s new tax package is due to be passed in Tuesday's cabinet meeting, in a move which will slash personal income taxes by €5 billion, as part of what the coalition government described as the biggest post-war fiscal reforms in the country.

Austria to pass tax reforms amid protests
Not everyone is happy about the VAT increase. Photo: APA/Hans Klaus Techt

The reforms aim to boost sluggish economic growth by lowering tax rates on low and middle incomes.

Around 40 laws will need to be altered and the reforms will only come into force in 2016.

People in the lowest income bracket will only have to deduct 25 percent in taxes, down from the current 36.5 percent.

The government plans to finance the reform by fighting tax evasion, closing tax loopholes and raising the tax rate to 55 percent for the top income bracket.

Each taxpayer is expected to be levied an average of €1,000 less a year. Tax rates on capital gains and non-wage income will however remain unchanged.

Consumers and retailers will have to finance the reforms, with the lowest rate imposed on goods and services to be raised from 10 to 13 percent.

The Farmer’s Union is appealing against the proposed tax increase on feed, seeds, flowers and live animals, and the tourism industry has announced plans to protest against the proposed VAT increase on hotel rates. 

Around 500 publicans and bed and breakfast owners gathered in front of the Chancellery on Tuesday morning and marched in protest against increased taxes on their businesses – calling the government the "gravedigger of the tourism industry". 

The real estate industry expects prices for apartments and houses to increase, mainly because of the increase in property tax from the current 25 percent to 30 percent.

The government also expects to claw back some €1.9 billion in lost taxes through tighter checks on cash transactions.

In addition, some tax perks including those on company cars would be scrapped – a move expected to lead to €900 million in levies.

The government is not only under pressure to deliver economic results, but also to gain voter confidence, as the far-right Freedom Party is leading in some of the latest opinion polls.

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EXPLAINED: What can I deduct from my tax bill in Austria? 

It's tax time in Austria. Here's your guide to some common deductions.

A home office is one of the ways you can claim tax back as a freelancer (Photo by Ina FASSBENDER / AFP)
A home office is one of the ways you can claim tax back as a freelancer (Photo by Ina FASSBENDER / AFP)

Austria may be a great place to live and start a business but the more you earn, the more taxes you will have to pay.

So how can you get back some of your hard-earned money when completing a tax declaration as a freelancer in Austria?

The Local spoke to SEA – Services for self-employed and Tax Advisor Alexandra Kaspar to find out. 

What can you deduct?

First of all, there are many items you can deduct from your tax bill. If you are self-employed, you can deduct all expenses related to your business from your revenue.

For example :

  • office costs including costs for working from home
  • training costs
  • car and transportation, travel expenses
  • communication expenses
  • office supplies
  • liability insurance and other insurances, which are related to your business
  • social security contributions (SVS) (but only what you paid so far for the relevant year).

READ MORE: Everything you need to know about paying tax in Austria

For some of the items mentioned above especially working from home, training and car/transportation costs, there are special circumstances and regulations.

What about a flat tax deduction rate?

Many people decide rather than claiming back the tax for every individual item, they would rather apply a flat tax deduction rate. 

In this case, as long as your annual revenue does not exceed €220,000, you can apply a tax deduction rate (Betriebsausgabenpauschalierung) of 6 percent or 12 percent depending on your business or activity.

This saves you having to collect bills for all your expenses. 

After deducting the flat tax deduction rate, you can still subtract your social security (SVA) contributions.

READ MORE: Being self-employed in Austria: What you need to know

The Raiffeisen Bank in Austria  (Photo by ALEXANDER KLEIN / AFP)

New flat rate for small businesses

From 2020 onwards, another flat rate has been introduced for small businesses: up to an annual revenue of €35,000, the flat rate for expenses will be 20 percent for service providers and 45 percent for other businesses, for example trading businesses. 

Social security contributions can also be deducted in addition to the flat rate. 

From 2021 onwards, this rule is connected to VAT exemption for small businesses (this is also applicable even if the small business “opts to apply VAT”), and can therefore be applied up to a revenue of €42,000.  

There is an upper limit of €8,400 for expenses which can be deducted for businesses which provide services and an upper limit of €18,900 for other businesses. 

After the deduction of actual expenses or the flat rate and social security contributions, you come up with the amount of your actual profit. 

Additional tax free profit allowance

An additional 13 percent tax-free profit allowance (Grundfreibetrag) can then be deducted from the net amount for business with profit up to €30,000. 

If your profit before the 13 percent allowance amounts to more than €30,000, an additional 13 percent allowance may apply to the extra amount, if it is covered by certain investments into business assets (Gewinnfreibetrag). 

You can use this tax calculator to calculate your income tax

When does it make sense to claim individual expenses rather than the flat rate?

Tax Advisor Alexandra Kaspar says that sometimes it makes sense for service providers to claim for individual expenses instead of choosing a flat rate, especially when there are big costs related to materials, equipment and rent for an office. 

This could be the case for therapists or physiotherapists renting an office, artists with their own studio or film production companies for example.

Some companies have a big amount of expenses in the first year and this is when it’s more beneficial for them to collect bills rather than claim back the flat rate of tax.

What else can I deduct from tax?

If you are eligible to deduct expenses for an office in your private apartment (i.e. when working from home) you may deduct:

  • a part of the rent
  • a part of electricity and gas costs
  • a part of the costs of furnishing the room 
  • maintenance of the room and the furnishings
  • work equipment such as computers, fax machines, printers, etc (deductible even if they are set up in a room that doesn’t match the deduction requirements)

Further education

  • work equipment and work documents
  • transportation costs
  • accommodation costs
  • specialist literature (job-related literature or literature to improve job opportunities)
  • office and writing materials
  • part of the telephone and internet costs

Other deductibles:

  • consulting costs (e.g. from lawyers, tax consultants)
  • interest on debt (for liabilities related to your business)
  • contributions for compulsory memberships, for example the Chamber of Commerce (WKO)
  • advertising expenses

You can learn more about all the possibilities for deductibles at

SEA – Services for self-employed is designed to support self-employed individuals by delivering information in form of guidebooks and free articles in English. 

You can find out more in their guidebook on self-employment aimed at those who fall into the New self- employed (Neue Selbständige) working category.

Useful vocabulary

Tax – Steuer

Steuerberater/ Steuerberaterin – Male tax adviser/ Female tax adviser

Flat tax deduction rate – Betriebsausgabenpauschalierung

Tax-free profit allowance  – Grundfreibetrag

Business assets – Gewinnfreibetrag 

New self-employed – Neue Selbständige