18. March 2026 Foreign Employer Employing an Austrian Employee – Tax and Social Security Implications
When domestic employees enter into an employment contract with a foreign employer, or when a domestic employer hires foreign employees, a number of tax and social security consequences must be carefully assessed.
This article takes a closer look at these two practically relevant scenarios and their respective implications.
1. Employment of Employees Abroad
If an Austrian company staffs employees who live abroad together with their families (and are therefore tax resident in that country), the following tax considerations arise:
As a general rule, employees who do not perform any work in Austria do not create a tax liability in Austria. Under the place-of-work principle pursuant to Article 15(1) of the OECD Model Tax Convention, taxing rights in such cases lie with the employee’s state of residence.
However, if the activity is also carried out in Austria, Austria becomes relevant as the source state.
Example:
Ms. Meyer is employed in Germany. The employment contract stipulates that she works three days per week from her home office in Germany, while two days per week she physically works on site in Austria.
- For working days performed in Germany and third countries, Germany has the taxing right. Ms. Meyer is considered tax resident in Germany, as she lives there with her family and maintains her only place of residence there.
- For working days performed in Austria, Austria has the taxing right, based on the (economic) employer being resident in Austria.
To correctly allocate taxing rights, the income must be apportioned between Austria and Germany according to the ratio of Austrian working days to total working days (and correspondingly for Germany or third countries). This allocation can be carried out either through payroll accounting or via the annual tax return.
In practice, this involves issuing a domestic wage statement (L1) and a foreign wage statement (L8 or L24).
- Only the income reported on the domestic wage statement is subject to Austrian taxation.
- Income reported on the foreign wage statement is either tax-exempt in Austria (L8) or subject to a foreign tax credit (L24), depending on the applicable method for avoiding double taxation.
If the employee establishes a residence or habitual abode in Austria, Austria may, under the so-called progression clause, take the foreign income into account when determining the tax rate applicable to Austrian income—generally resulting in a higher effective tax rate.
Social Security
Within the EU/EEA and Switzerland, Article 13 of Regulation (EC) No. 883/2004 applies:
- An individual is subject to the social security legislation of the Member State of residence if they perform a substantial part of their activity there (at least 25%, i.e. approx. 10 hours per week in a 40-hour working week).
- If this threshold is not met, the social security legislation of the employer’s state applies, and contributions must be paid there.
- In both cases, an A1 certificate must be applied for in the relevant state. This certificate confirms social insurance coverage and prevents contributions from being levied in the other state.
- In relation to third countries, it must be examined whether a social security agreement exists that prevents double contributions.
2. Austrian Employees Working for a Foreign Employer
If, for example, an employee resident in Austria is employed by a Slovak employer and works four days per week in Slovakia and one day per week from a home office in Austria, the following tax consequences arise:
Assuming the individual has their residence and centre of vital interests in Austria, they are considered tax resident in Austria. As a rule, taxing rights lie with the state of residence—unless the work is performed in another contracting state.
Taxing rights do not remain exclusively with Austria if one of the following conditions is met:
- the employer is resident in the other contracting state (here: Slovakia),
- a permanent establishment in the other state bears the remuneration, or
- the stay in the other state exceeds 183 days per year.
As the employer is resident in Slovakia, the place-of-work principle applies here as well.
- Income attributable to working days performed in Austria or third countries is taxable in Austria as the state of residence.
- Income attributable to working days performed in Slovakia may be taxed in Slovakia.
To avoid double taxation, the Slovak income is exempt from tax in Austria but is taken into account under the progression clause when determining the applicable Austrian tax rate.
The income taxable in Austria must either be declared in the Austrian tax return or, alternatively, may be withheld and paid in Austria by the foreign employer on a voluntary payroll basis.
If the DTA (Double Tax Treaty) forsees the credit method to avoid double taxation (e.g. Italy, USA, United Kingdom), foreign income is not exempt from Austrian tax; however, the foreign taxes paid may be credited against Austrian tax to the extent they would also be payable in Austria.
Social Security
If the individual performs at least 25% of their activity in Austria, Austrian social security law applies.
As the employee in this example works only one day per week (20%) in Austria, Slovak social security legislation applies. An A1 certificate must also be carried for the home office activity in this case.
Conclusion
Cross-border employment relationships are complex from a tax and a social security perspective. To avoid subsequent corrections, refunds, or additional contribution payments, it is strongly recommended to seek comprehensive tax and social security advice before employing foreign employees—or Austrian employees in the case of a foreign employer—particularly since employers in Austria are liable for the correct withholding and payment of payroll taxes.
Your ARTUS advisors will be happy to support you (info@artus.at).
