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TAXES

EXPLAINED: The main Austrian ‘tax traps’ foreigners should be aware of

Moving to a new country results in a series of adaptations, and getting used to a different tax system is definitely one of them. Here's what you need to know.

A person completes their income tax return
Filing taxes in a new country can be a burdensome task. Photo: Firmbee / Pixabay

When you move into a new country, there are many things to learn and get used to.

But, unfortunately, there are also many “traps”, those differences in systems and cultures that can catch a foreigner entirely off guard while seeming normal to all native or long-time residents of a country.

In Austria, there are many particularities, not only when it comes to culture – how many times are immigrants surprised with Freikörperkultur, for example? – but also with bureaucratic and day-to-day issues.

For example, foreigners are often surprised to learn that the alpine country has a mandatory public health system with several insurers, and each person is legally required to be insured by one of them.

Which one? It depends mainly on your profession.

READ ALSO: Everything foreigners need to know about the Austrian healthcare system

When it comes to taxes, several specificities could be confusing to non-Austrians or people who have recently moved to the country. The Local spoke with Dr Rainer Kratochwill, a tax adviser, owner and CEO of steuerexperten.at, to help foreigners avoid the typical “tax traps” one may find when moving to Austria.

Documentation is key

In some countries, it may be common practice to call tax authorities directly or send letters to them trying to explain or rectify issues they might have had.

“We sometimes have to overcome the expats’ desire to explain something to the tax office over the phone or appeal to common sense. In Austria, this will probably not work.”, says Dr Kratochwill.

Austria is a very formal country in many ways. Titles and official papers (literal papers, mailed and stamped, not emails) matter.

In many circumstances, expats end up needing to draw up a cover letter with the help of a tax advisor to follow specific Austrian standards.

READ ALSO: Will inflation force tax changes in Austria from 2023?

Documentation is also absolutely essential to support the origin of funds, Kratochwill highlights.

One thing many immigrants are surprised to learn is that large gifted sums or properties need to be registered with the tax office – and it is mandatory to provide the documentation of the origin of the funds from the giver.

“This point has to be further explained to expats because they often do not understand why the donor has to be verified and what documents can be provided”, he says.

So, don’t fall into the trap of taking a laissez-faire approach to Austrian authorities and documentation.

Taxes are high – but so is the standard of living

Kratochwill noted how many of their immigrant clients are used to paying fewer taxes in their home countries. That is another trap incomers might set up for themselves: “be prepared to pay high taxes in Austria”, he says.

“But for this, you have a lot: security, good public transport, good schools and universities and much more”, he added.

READ ALSO: How to prepare for your Austrian tax return if you’re self-employed

Austria works with a bracket system for income tax. So the higher you earn, the higher the taxes – up to 55 per cent for those making a whopping €1 million after expenses.

Up to €11,000 annual income, there is no income tax. However, whatever surpasses that falls into the next bracket (from €11,000 to €18,000) and is taxed at 20 per cent.

This means that if you earn, for example, €12,000 a year netto (after expenses and deductions), € 11,000 would be tax-free, and the remaining €1,000 would be taxed at 20 per cent – you’d pay € 200 income tax for the year.

The income tax is after other social contributions that pay for compulsory health insurance, social payments, and pension funds.

Many Austrians have tax advisors

A tax advisor is not the same as an accountant. For many people, the thought of paying someone to assist with their tax return may be strange – it might seem like something only millionaires do.

READ ALSO: Everything you need to know about paying tax in Austria

But it is relatively common practice in Austria, as advisors support their clients to pay according to the law, but no more than what they need to.

“An important rule is to consult in advance so that there is time to make adjustments. It is often too late, but even in these situations, we help reduce the tax burden a bit through, for example, tax refunds.” Kratochwill says.

Taxes can be filed in three years

And audited even later than that.

In Austria, you have from one to five years to file your income tax (longer if you do it through a tax advisor or in exceptional cases like during the pandemic), depending on your case. However, Dr Kratochwill advises against taking advantage of the long filing periods.

“The main thing an expat should keep in mind is to do it the right way from the beginning on and not start thinking about it after three years”.

In a country with a complex tax system, knowing your earnings and expenses, having your finances documented, and storing those files is crucial. And because tax audits can happen up to seven years after the filing (tax advisors will tell you to keep your documents for at least that long), Austrians know to keep their files for a very long time.

READ ALSO: Five things you will find in (almost) every Austrian home

This is why you will often see shelves full of binders in your local friend’s house – they are storing that receipt for that English class they took five years ago.

Do as your Austrian friend and save yourself some trouble in future years by saving your papers now.

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COST OF LIVING

Cost of living: Why are restaurants getting more expensive in Austria?

Austria's June inflation is expected to be 8.7 percent, according to calculations by Statistics Austria - a record high in the country.

Cost of living: Why are restaurants getting more expensive in Austria?

The inflation rate for June 2022 is expected to be 8.7 percent, the Statistics Austria institute calculated as part of a flash estimate.

Compared with the previous month, consumer prices rose by 1.4 percent, Statistics Austria said. This is the highest level since 1975 or almost 50 years.

The wave of inflation has affected mostly energy and food prices in Austria but has now also arrived in the gastronomy sector, with increasing costs in bars and restaurants in the country.

“Inflation has picked up speed in almost all areas. In addition to recent increases in fuel and heating oil prices, we also see significant increases in restaurant and food prices”, according to Statistics Austria Director-General Tobias Thomas.

READ ALSO: EXPLAINED: How Austria’s new finance measures could benefit you

The main culprits of rising food prices in retail and restaurants are the more costly energy and fuel prices. As transport and production become more expensive, these increases cascade to gastronomy as well.

Additionally, packaging and logistics costs have also increased, directly affecting food prices, the Handelsverband (trade association) said.

“The war in Ukraine and China’s zero-covid strategy continue to put a massive strain on global supply chains,” said Rainer Will, Managing Director of the Trade Association, in a press release.

“We do not expect inflation to peak until the end of the year.”

READ ALSO: The essential products that are getting more expensive in Austria

The association added that the Ukraine war also increased prices for agricultural raw materials and fertilisers, making food production and distribution more expensive.

What is next?

Rising costs have already reached other sectors, including rental prices, as The Local reported.

Austrian Post has also said that there will be price adjustments in the parcel sector “in the foreseeable future”, though they have added that these will be “very moderate”.

Criticism from the opposition

The SPÖ, FPÖ and the Neos accuse the government of doing too little against inflation.

“There is not even a draft law for the abolition of the cold progression,” criticised Neos economic and social spokesman Gerald Loacker. “The government’s one-off payments help little to nothing,” said SPÖ social spokesperson Josef Muchitsch.

READ ALSO: EXPLAINED: The main Austrian ‘tax traps’ foreigners should be aware of

FPÖ leader Herbert Kickl spoke of “failure to help”. “The ’emergency measures’ decided in the special session the week before do not even deserve the name – the first money will not flow until August 2022 at the earliest.”, he said.

The federal government has announced a broad package to help ease rising cost of living with one-off payments and the end of the so-called “cold progression” when tax brackets do not take into account inflation changes.

READ ALSO: When will you get your cost of living ‘bonus’ payments in Austria?

Cost of living calculation

The quick estimates of Statistik Austria are based on the existing database at the time of publication, which includes about 80 to 90 percent of the prices necessary for the inflation calculation.

There may, therefore, still be deviations. For example, the quick estimate of inflation for May was initially 8.0 percent, but the value was later revised downwards to 7.7 percent.

The index level of the consumer price index and further results for June 2022 will be announced on July 19th 2022.

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