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Innovations in connection with cross-border activity – Part II

Human Resources Management & Labor Law, International
date icon 23. January 2023

In the second part of the blog, we would like to discuss significant changes in the area of tax law. These changes mainly concern the withholding tax on inbound hiring-out of workers and the taxation of AHV pensions in relation to Switzerland.

Reduction of withholding tax to de facto 14 %

Withholding tax is incurred, among other things, when employees are seconded to Austria. In the case of temporary employment, the employer tolerates the employee working for another company for a certain period of time (e.g. due to a staff shortage), also known as passive performance.

In order to ensure taxation of the employee’s income in Austria, it was previously necessary for the receiving Austrian company to withhold 20% withholding tax from the remuneration invoiced by the hiring company (= remuneration for employment).

However, if the employees working in AT submit a tax return in Austria and the taxation of wages and salaries is thus ensured, the transferring foreign company is entitled to a refund of the full withholding tax upon request. To ensure that no withholding tax has to be withheld in the first place, a notice of exemption is required and at the same time Austrian payroll accounting must be carried out for the transferred personnel.

With the DBA Implementation Adjustment Regulation, the Federal Ministry of Finance is reacting to a VwGH ruling according to which only the wage portion may be subject to withholding tax. The reason for this is that, in the case of the hiring out of workers to Austria, the hiring company does not generally establish a permanent establishment in Austria. Consequently, it would not be appropriate to levy a withholding tax on the profit share included in the provision remuneration. Only the income of the leased employee (due to the economic employer) may be subject to Austrian taxation. From 2023, it will therefore generally be possible to withhold withholding tax of 20% only on 70% – assuming that the profit share is 30% – (=14% effective tax burden) of the secondment fee, unless payroll accounting is carried out in Austria anyway. However, an application for exemption is a prerequisite for the reduced withholding tax.

Since 1.9.2022, a flat rate of 6% withholding tax has been refunded on all open refund applications (corresponds to the reduction in withholding tax from 20% to de facto 14%).

Swiss AHV pensions

On April 7, 2022, the Swiss and Austrian authorities agreed that pension payments from the Swiss Old Age and Survivors’ Insurance (AHV) to a person resident for tax purposes in Austria fall under Article 21 (other income) of the double taxation agreement between Austria and Switzerland and not under Articles 18 or 19 DTA AT-CH, which concern pensions. This income may therefore only be taxed in the country of residence (Austria for taxpayers resident in Austria), regardless of whether the pension recipient worked in the private sector or in the public sector.

For further information please do not hesitate to contact us (info@artus.at).

PS: Please note, that we are no native speakers and that our blogposts were translated with the help of google translate. 

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