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Should self-employed people in Austria pay the minimum or full SVS contribution?

The Local Austria
The Local Austria - [email protected]
Should self-employed people in Austria pay the minimum or full SVS contribution?
The decision depends on your other business expenses, how regular your income is, and personal preference. Photo: Bench Accounting/Unsplash

As a self-employed worker in Austria, one of the biggest costs you need to plan for is your social insurance.

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Anyone who earns more than €5,830.20 (in 2022) from their self-employment needs to pay contributions to SVS (Sozialversicherung der Selbständigen), the social insurance agency for self-employed people.

The way these contributions work is that when you first set up as self-employed, you register with SVS and tell them how much you expect to make in your first year.

Based on this, SVS will tell you how much you need to pay, which is about 27 percent of your income over the threshold (you can choose whether to pay through direct debits or through invoices, and whether you want to pay monthly or quarterly). At the end of the tax year, they have access to your tax return and will tell you if you need to pay extra or get a refund based on any difference between your predicted income and how much you actually ended up making.

The contributions are calculated as a percentage of your income, but for the first three years, you can choose to pay only a minimum amount. This allows startup businesses to maintain more liquidity in the first stages.

Claudia Barton, a tax consultant specialising in expat clients, lists the main benefits of paying the minimum contribution as follows: "Lower payments at the beginning of your business, more money to invest at the start of your business."

This means it may be an attractive option for people whose businesses require other upfront costs, such as people who are making things and need to pay for materials, or those who are starting from scratch and don't yet have guaranteed clients and income.

READ ALSO: What you need to know about being self-employed in Austria

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On the other hand, Barton notes: "It is of greatest importance that freelancers in Austria bear in mind that SVS will charge them all contributions which they did not make in the first three years."

In other words, there's no getting away from paying the full amount you owe -- you'll end up paying it later even if you initially pay only the minimum, which can come as a shock when that invoice arrives. This even applies if you leave the country before the increased payments kick in during the fourth year of your business.

For that reason, some self-employed people may prefer to pay the full amount up front rather than needing to keep it to one side until the fourth year. That's especially likely to be the case if you can count on regular, recurring income from early on so you don't need to keep money aside.

Barton says the advantages of paying the full amount from day one are: "Keeping track of your expenses, no 'bad surprise' in the fourth year, and reduced income tax payment".

READ ALSO: How to prepare for your Austrian tax return if you’re self-employed

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So while some of the decision relates to personal preferences and what suits your business -- do you prefer to have easily accessible cash in the uncertain first years of self-employment, or would you rather feel 'up-to-date' with your payments rather than need to save them for the fourth year -- there is also a tax advantage to paying the full amount upfront.

Tax on self-employed income is calculated based on your profit, so SVS contributions (along with other business expenses) are deducted from your total income to create your taxable income, and the amount you need to pay in tax is calculated from that figure. That means that by paying less to SVS in the first years, you'll actually end up with a higher tax bill.

If you're not sure which option is right for your situation, it may make sense to get further professional advice, either from a tax advisor, a service such as Vienna's Business Agency which offers free consulting to self-employed people, or from a network such as Self-Employed in Austria where you can ask people in a similar situation.

 

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