Austrian Tax System Uncovered: Everything Expats Need to Know

People moving to Austria probably do so for all the good and beneficial reasons the country could offer. However, understanding the tax system can be far from an exciting experience. Yet, taxation is a crucial topic and knowing the basics is definitely advantageous. This article systemizes and outlines key domains of Austria’s tax systems for any foreigners considering moving into the country.

Austria's tax system reflects a socially oriented model. While the country isn’t considered a tax haven, Austria effectively channels tax revenue into essential public services like healthcare, infrastructure, and public transport, benefiting its residents' quality of life, as for this parameter the country constantly scores highly. Currently, corporate income tax is set at 23%, and the income tax follows a progressive structure. Advantageously, Austria maintains a broad network of double-tax agreements, helping prevent double taxation on foreign income for expats​ and businesses.

Understanding Income Tax

Income tax  in Austria applies to all types of earnings: employment, self-employment, and foreign income. For expats, this means earnings from other countries may also fall under Austrian taxation, particularly if Austria does not have a Double Taxation Agreement (DTA) with the home country. Expats are classified as residents once they’ve spent over 183 days in Austria​. Down below is a table with the thresholds for taxable income and the corresponding tax rate:

Other sources of income like rental income, royalties, patents or other miscellaneous income are also included in the total individual progressive taxable income. For capital gains and investments income like interest, dividends, and capital gains the tax rate is 27.5%. Real estate sales are subject to 30% tax if the property is sold within a 10-year holding period. However, properties held beyond that are subject to tax deductions.

Tax registration: when and how expats need to register for tax

Expats in Austria must register for tax purposes if they reside in the country for more than six months (183 days) or earn income from Austrian sources. This registration is necessary whether the income comes from employment, freelance work, or investments. Expats typically register by applying for a tax identification number (TIN) at their local tax office (Finanzamt), which is essential for all tax-related processes. For those who work as employees, income tax is usually withheld directly by the employer. However, individuals with other income sources are responsible for registering and filing their own tax assessments.

Special considerations for expats: what are double taxation agreements (DTAs). How DTAs protect expats’ income

Austria’s Double Taxation Agreements (DTAs) are designed to help expats avoid being taxed twice on the same income, creating a clear framework for fair and efficient taxation. The country has made sure to sign DTAs with all its major trading partners. DTAs differ based on the specific partner country that it refers to. Additional guidance and comprehensive lists with partnering countries can be found through likes to the Austrian Ministry of Finance or migration support resources like migration.gv.at. The agreements establish clear rules for which country has the right to tax certain types of income, including employment earnings, business profits, dividends, interest, and pensions. The DTAs use two main methods to prevent double taxation:

• Credit Method: This method allows tax paid in the source country to be credited against taxes due in Austria. The Austrian tax burden is thus reduced to avoid double payments, while respecting the source country’s tax rights.
• Exemption Method: Income earned abroad may be exempt from Austrian tax, though it is considered for calculating progressive tax rates in Austria. This approach ensures that expats’ foreign earnings are taxed only once, typically in the country where the income originates​

To benefit from these DTAs, expats need to obtain an Austrian Certificate of Residence (Form ZS-AE) from their local tax office, proving their Austrian residency to the other tax authority. For example, if an expat resident in Austria earns business income from a foreign subsidiary, the DTA might allow the income to be taxed exclusively in the subsidiary’s country. Additionally, dividends or royalties may be taxed at a reduced rate abroad, with Austria either exempting this income from further tax or applying a tax credit​.

Social security contributions for employees and freelancers, healthcare and pensions. Public deductions.

Austria’s social security system provides comprehensive coverage for both employees and freelancers, encompassing healthcare, pensions, accident, and unemployment benefits. For employees, contributions are shared between the individual and their employer, with employees contributing 18.12% and employers covering 21.03% of the total social security contributions in 2024. The total rate for each category is as follows: healthcare contributions are set at 7.65%, unemployment insurance at 6%, and pension contributions at 22.8%. Those contributions are proportionally divided between the employee and the employer. Accident insurance, however, is solely covered by the employer at a rate of 1.2%.

For freelancers and self-employed individuals, social security is managed independently through the Austrian Social Insurance for the Self-Employed (SVS). They pay contributions directly, covering similar categories but at slightly different rates. In 2024, freelancers contribute 7.65% for sickness insurance, 1.2% for accident insurance, and 18.5% for pension insurance (under the General Social Insurance Act, or GSVG).

Both employees and freelancers have their contributions calculated up to the contribution assessment ceiling, which is set at €6,060 monthly in 2024. Any income beyond this threshold is exempt from further social security contributions, capping the total contribution burden for high-income earners while maintaining a fair system of support​.

Healthcare and Pension Benefits

Austria’s social security system ensures universal access to healthcare, with a range of public health services covered, including doctor visits, hospital stays, and specialist care. Pension benefits, also covered by social contributions, are accessible upon retirement, with the amount varying based on the duration and level of contributions over one’s working life.

Tax Deductions for Expats

Expats in Austria can benefit from various tax deductions, reducing their taxable income and overall tax burden. Common deductions include:

• Education Expenses: Costs related to training and further education directly related to a job are deductible, such as tuition fees for professional courses​
• Family-Related Deductions: Parents can claim deductions for childcare expenses (up to €2,300 per year per child under 10), along with a Family Bonus Plus of up to €2,000 per child annually​
• Commuting Deductions: Expats commuting long distances can claim commuting allowances ( Pendlerpauschale), which vary based on the distance and availability of public transportation options. For example, commuters traveling over 60 km can claim up to €2,016 per year, while alternative flat-rate options are available for those without reasonable public transit access​