ARTUS Unternehmensanalysen

Doing Business in Austria: Internationally working managing director

date icon 04. October 2022

Tax law aspects

In addition to the first question of the extent to which the remuneration of the managing director is taxable under the respective national law, the respective double taxation agreement (DTA) must also be taken into account in a second step in the international context. In principle, the provisions of the article for non-self-employed persons, regulated in the respective DTA, apply to an international managing director eg where the resident state of the managing director deviates from the state where the company is a resident of. Accordingly, the place of taxation depends on the place where the activity of the managing director is performed. Therefore, in principle, the remuneration is to be divided according to the working day relationship and the proportional remuneration is to be taxed in the respective countries. Remuneration would be taxed in its entirety in the managing director’s country of residence (the country with which the managing director has his or her closer personal and economic relations) if

  • the managing director does not spend more than 183 days in the other state (= state of activity) and
  • the remuneration is not paid by an employer who is a resident of the other state (= state of activity) and
  • the remuneration is not borne by a permanent establishment which the employer has in the other state (=state in which the work is carried out)

Therefore, if an employee is assigned (leased) to another company within the group, the costs incurred for the employee must not be forgotten. The arm’s length remuneration is determined on the basis of an (internal or external) price comparison or the cost-plus method. All costs associated with the assignment and, if applicable, an arm’s length profit markup must be taken into account. If the state to which the employee is assigned follows the economic employer concept, the 183-day rule does not apply and the employee becomes liable for tax on his or her income from the first day in that state on a pro rata basis to the extent of the working days there.


A resident of Austria is the managing director of an Austrian company and is partially assigned to an affiliated company in Italy to perform managing director activities. The pro rata personnel costs incurred for this are passed on to the Italian company (this is also basically required by the arm’s length principle in the area of transfer pricing).


As a result of the oncharging of personnel costs, the Italian company becomes the de facto economic employer that pays for the remuneration. The above-mentioned conditions are not cumulatively fulfilled, especially since the remuneration is paid by an employer who is resident in the other country (in this case Italy). The remuneration is taxed at the place where the work is physically spent (pro rata in relation to the number of total working days).

In the case of a managing director working from the Austrian home office for a foreign company, the risk that the foreign company will establish a permanent establishment in Austria has to be taken into account.

Special regulations in DTA Germany

In the context of Germany, however, the article for non-self-employed activity does not apply. A separate article is provided for this in the double taxation agreement (Article 16). According to this article, remuneration received by a resident of a contracting state in his function as managing director of a company that is a resident of the other state may be taxed in the other state. Thus, it is the state in which the company is domiciled that matters, not the state in which the managing director is domiciled or operates.


A person resident in Austria is the managing director of an Austrian as well as a German company. The activity for the German company is performed 100% from Austria.


Even if the activity is performed 100% from Austria, the income attributable to the activity for the German company is taxed in Germany, even without physical presence in Germany. The income attributable to activities for the Austrian company is taxable in Austria.

Social security aspects

The basic rule is that the state in which the activity takes place is responsible for social security. An exception may occur if employment is performed for an employer in several states (=conflict rule). The social security responsibility within the EU can only be assigned to one state. If at least 25% of the employment is carried out in the employee’s member state of residence (= where the center of vital interests is located), the member state of residence continues to be responsible for social security. The social security responsibility does not shift to the country of activity. Therefore, no pension claims are generated in the other (activity) state. Pension contributions continue to be paid in the employee’s member state of residence. Furthermore, at least in other EU countries, health insurance coverage is maintained. In connection with third countries, it must be checked whether there is a social security agreement with this country, which regulates the health insurance.

If an employee works in several countries for several employers who have their headquarters in different countries, only the employee’s member state of residence is responsible for social security.

The A1 form is used to prove that only one state’s social security legislation applies and that no social security contributions are to be paid in the other (activity) state. This form has to be applied for at the responsible social security institution.

If there are two parallel employment relationships, e.g. one with an Austrian employer and one with a German employer, the regulations on multiple insurance would apply. For both employment relationships, therefore, social security contributions would first have to be paid each up to the maximum contribution basis in the country responsible for social security. Hence, there is the danger to pay the maximum social security contributions twice. However, in the following year, the contributions paid above one single maximum contribution would be refunded in Austria without the need for an application.

In summary, it can be stated that caution is always advisable in the case of cross-border activities of managing directors. A possible right of taxation of the country of activity on the income of the managing director or the shifting of social security responsibility in a country other than the one in which the employer is domiciled would have to be examined in this case. In addition, there is the risk of the employer establishing a permanent establishment in the state in which the managing director spends the working days.

In connection with Germany, the DTA provides for an exception. In this case, the right to tax the income of the managing director is determined exclusively by the state in which the employer is domiciled.

We would be pleased to provide further advice in this context and are available to answer any questions you may have.

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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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