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TAXES

EXPLAINED: The main Austrian ‘tax traps’ foreigners should be aware of

Moving to a new country results in a series of adaptations, and getting used to a different tax system is definitely one of them. Here's what you need to know.

A person completes their income tax return
Filing taxes in a new country can be a burdensome task. Photo: Firmbee / Pixabay

When you move into a new country, there are many things to learn and get used to.

But, unfortunately, there are also many “traps”, those differences in systems and cultures that can catch a foreigner entirely off guard while seeming normal to all native or long-time residents of a country.

In Austria, there are many particularities, not only when it comes to culture – how many times are immigrants surprised with Freikörperkultur, for example? – but also with bureaucratic and day-to-day issues.

For example, foreigners are often surprised to learn that the alpine country has a mandatory public health system with several insurers, and each person is legally required to be insured by one of them.

Which one? It depends mainly on your profession.

READ ALSO: Everything foreigners need to know about the Austrian healthcare system

When it comes to taxes, several specificities could be confusing to non-Austrians or people who have recently moved to the country. The Local spoke with Dr Rainer Kratochwill, a tax adviser, owner and CEO of steuerexperten.at, to help foreigners avoid the typical “tax traps” one may find when moving to Austria.

Documentation is key

In some countries, it may be common practice to call tax authorities directly or send letters to them trying to explain or rectify issues they might have had.

“We sometimes have to overcome the expats’ desire to explain something to the tax office over the phone or appeal to common sense. In Austria, this will probably not work.”, says Dr Kratochwill.

Austria is a very formal country in many ways. Titles and official papers (literal papers, mailed and stamped, not emails) matter.

In many circumstances, expats end up needing to draw up a cover letter with the help of a tax advisor to follow specific Austrian standards.

READ ALSO: Will inflation force tax changes in Austria from 2023?

Documentation is also absolutely essential to support the origin of funds, Kratochwill highlights.

One thing many immigrants are surprised to learn is that large gifted sums or properties need to be registered with the tax office – and it is mandatory to provide the documentation of the origin of the funds from the giver.

“This point has to be further explained to expats because they often do not understand why the donor has to be verified and what documents can be provided”, he says.

So, don’t fall into the trap of taking a laissez-faire approach to Austrian authorities and documentation.

Taxes are high – but so is the standard of living

Kratochwill noted how many of their immigrant clients are used to paying fewer taxes in their home countries. That is another trap incomers might set up for themselves: “be prepared to pay high taxes in Austria”, he says.

“But for this, you have a lot: security, good public transport, good schools and universities and much more”, he added.

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

Austria works with a bracket system for income tax. So the higher you earn, the higher the taxes – up to 55 per cent for those making a whopping €1 million after expenses.

Up to €11,000 annual income, there is no income tax. However, whatever surpasses that falls into the next bracket (from €11,000 to €18,000) and is taxed at 20 per cent.

This means that if you earn, for example, €12,000 a year netto (after expenses and deductions), € 11,000 would be tax-free, and the remaining €1,000 would be taxed at 20 per cent – you’d pay € 200 income tax for the year.

The income tax is after other social contributions that pay for compulsory health insurance, social payments, and pension funds.

Many Austrians have tax advisors

A tax advisor is not the same as an accountant. For many people, the thought of paying someone to assist with their tax return may be strange – it might seem like something only millionaires do.

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

But it is relatively common practice in Austria, as advisors support their clients to pay according to the law, but no more than what they need to.

“An important rule is to consult in advance so that there is time to make adjustments. It is often too late, but even in these situations, we help reduce the tax burden a bit through, for example, tax refunds.” Kratochwill says.

Taxes can be filed in three years

And audited even later than that.

In Austria, you have from one to five years to file your income tax (longer if you do it through a tax advisor or in exceptional cases like during the pandemic), depending on your case. However, Dr Kratochwill advises against taking advantage of the long filing periods.

“The main thing an expat should keep in mind is to do it the right way from the beginning on and not start thinking about it after three years”.

In a country with a complex tax system, knowing your earnings and expenses, having your finances documented, and storing those files is crucial. And because tax audits can happen up to seven years after the filing (tax advisors will tell you to keep your documents for at least that long), Austrians know to keep their files for a very long time.

READ ALSO: Five things you will find in (almost) every Austrian home

This is why you will often see shelves full of binders in your local friend’s house – they are storing that receipt for that English class they took five years ago.

Do as your Austrian friend and save yourself some trouble in future years by saving your papers now.

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COST OF LIVING

When will you get your cost of living ‘bonus’ payments in Austria?

Austria's package to fight the rising cost of living includes several "bonus" payments for residents in Austria. Here is when you can expect them.

When will you get your cost of living 'bonus' payments in Austria?

Austria’s federal government has unveiled a series of measures worth billions of euros to fight the cost of living crisis. New steps include increasing family allowances, cutting taxes and sending out one-off welfare payouts, as The Local has reported.

However, the authorities were not specific on when payments are to be expected, though they mentioned most of the measures would be in place “by October”.

READ ALSO: EXPLAINED: How Austria’s new finance measures could benefit you

On Wednesday, party leaders Sigrid Mauer (Greens) and August Wöginger (ÖVP) presented a roadmap to lay out when each aid could be expected.

Aid payouts

Low-income and vulnerable people in Austria, such as pensioners receiving minimum payments and aid recipients will receive a one-off €300 payment (Teuerungsausgleich) as compensation for inflation. The date is not set yet but should be in August and September.

The most significant payment will be the €500 sum, which consists of €250 as a climate bonus (Klimabonus) and €250 for the “anti-price increase” bonus (Teuerungsbonus). Everyone in Austria will receive that assistance (children receive half of the total amount) in October.

READ ALSO: Austria unveils €6 billion package to fight rising cost of living

An additional one-off payment of the family allowance (Familienbeihilfe) of €180 will be sent for those already on the program in August.

The timeline, according to Mauer, makes it so that the most vulnerable, including low-income people and families, will receive assistance first. Then, in autumn, the payments will go out on a broader scale.

Changes in bonuses and CO2 tax

The anti-inflation package also contains increases in existing family bonuses and payments.

The family bonus (Familienbonus) deduction increases from €1,500 to €2,000, and the increase for additional children payments (Kindermehrbetrags) to €550 is already in force for the fiscal year of 2022, so it will be valid in 2023.

READ ALSO: EXPLAINED: The main Austrian ‘tax traps’ foreigners should be aware of

The CO2 tax was postponed from July to October in time for the climate bonus payments, which were meant to offset the costs of the tax.

Finally, the end of the cold progression, the term used to describe increases in tax burdens which are based on increases in income but do not account for inflation, is set for 2023.

All the changes still need to be officially approved by Parliament and signed into law. For the measures to take place as soon as possible, a special meeting of the National Council was called for this Thursday, June 23rd.

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