Austria is changing how small businesses and freelancers handle VAT (value-added tax), with new rules coming into effect on January 1st, 2025.
These changes, part of the Tax Amendment Act 2024, aim to make life easier for business owners by increasing turnover limits, simplifying rules, and extending benefits to EU-based companies.
Here’s what to expect.
Higher-income limits for VAT exemptions
Currently, small businesses in Austria don’t need to charge VAT if their annual earnings stay under €35,000 (net) per year, which corresponds to a gross limit of € 42,000 assuming a tax liability and tax rate of 20 percent, according to the Austrian Economic Chamber (WKO).
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This limit will rise to €55,000 (gross) starting in 2025. This higher threshold gives business owners more room to grow without immediately navigating VAT requirements.
The calculation of turnover thresholds with assumed VAT liability will no longer apply, WKO explained. The turnover of the current and previous year is taken into account.
This change is aimed at reducing confusion and makes the system easier to follow.
What happens if you go over the limit?
Under the current system, earning even slightly more than the threshold meant losing VAT exemption for the entire year. This was particularly tough for businesses working with private clients since VAT couldn’t be added retroactively to past invoices, leaving many to cover the tax out of their own pocket.
The new rules introduce a fairer approach:
- If your earnings go over €55,000 by up to 10 percent, you can keep your VAT exemption until the end of the year. You’ll only need to start charging VAT the following year.
- If you exceed the limit by more than 10 percent, you’ll immediately need to charge VAT—but only on the amount above the limit, not your entire income for the year, and not on previous sales and invoices.
This update aims to protect small businesses from sudden and steep tax bills when they earn slightly more than expected.
EU-based businesses now included
Another major change is that small businesses from other EU countries can also apply for VAT exemptions in Austria. To qualify, businesses must:
- Earn less than €100,000 across the EU in the previous year and stay under this limit in the current year.
- Keep their earnings within the small business threshold of their home country.
- Submit an application for the exemption in their home country.
Once approved, these businesses will get a special VAT ID with the suffix "-EX" to show they’re operating under the small business exemption. However, if their EU-wide earnings go over €100,000, the exemption ends for any amount above the limit.
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Why these changes matter
These reforms are designed to support small businesses and freelancers by simplifying VAT rules and allowing more flexibility for those close to the turnover limits. For EU-based businesses, the new rules open up opportunities to benefit from Austria’s small business exemptions.
Freelancers and small business owners should keep track of their earnings to make sure they stay within the new limits or plan ahead for VAT charges.
Consulting a tax professional can help you understand the changes and avoid surprises.
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