TAX NEWS - 2010

Australia Tax: Austria's preferential tax treatment of certain skilled immigrants

Tax relief available under the Austrian Income Tax Act for certain individuals may offer benefits that exceed advantageous treatment under other tax regimes.

The Austrian Minister of Finance has authority to grant tax relief under article 103(1) of the Income Tax Act for individuals relocating to Austria, whose emigration serves to promote science, research, art or sports and, therefore, is for the benefit of the public. The relief eliminates any additional tax burden on the foreign (but not Austrian) income that arises from transferring residence to Austria. The tax burden before and after transferring residence is compared, and if the tax burden in Austria after the change of residence is greater than the tax burden before the transfer, the excess amount can be eliminated. As a result, tax paid in Austria on the foreign income will not exceed the tax burden in the country of origin. Only Austrian-source income would be taxed at the normal Austrian rate.

By comparison, the U.K. offers an attractive tax regime for individuals who are "resident but not domiciled" in the U.K., under which foreign income and gains are taxed on a remittance basis, i.e. only income and gains remitted to the U.K. are taxed. The beneficial tax treatment in Austria, however, can reduce the Austrian tax burden to the same (low) level as the remittance basis of taxation in the U.K. The added advantage in Austria is that, unlike under the U.K. rules, all income can be remitted to Austria without losing the benefit of the preferential treatment.

For example, a U.K. resident but not domiciled artist is taxed in the U.K. on the remittance basis. The individual has extensive worldwide income of around EUR 600,000, but does not remit any of this income to the U.K. The individual is therefore taxed only on performances in the U.K. (assume tax of GBP 1,300) and on rental income earned from renting out his apartment in the U.K. (assume tax of GBP 4,000). After moving to Austria, the individual is taxed on his worldwide income of EUR 600,000 (about EUR 300,000 in tax). Under the special Austrian regime, the tax burden on the non-Austrian income before the transfer of residence (GBP 5,300, which is about EUR 6,140) is compared with the burden after the transfer of residence (EUR 300,000) and the excess amount of EUR 293,860 can be eliminated for Austrian tax purposes. Tax in Austria is EUR 6,140 instead of EUR 300,000, irrespective of whether the income is actually remitted to Austria.

The taxpayer must apply to the Austrian Ministry of Finance (as the competent authority) to obtain this special tax treatment. In the application, the taxpayer must describe his/her activities to verify that emigration serves the promotion of science, research, art or sports and, therefore, is for the benefit of the public, and the taxpayer must also calculate the additional tax burden. The Minister of Finance determines whether the special regime applies, and, if granted, the regime will be available for a three-year period with the possibility of an extension.

The Austrian special tax regime could be very attractive, especially for U.K. scientists, researchers, artists or athletes who are subject to tax on a remittance basis in the U.K. They could pay an equal amount of tax (or no tax at all) on non-Austrian income as they did in the U.K. before moving to Austria. The main advantage is that Austria does not use a remittance basis of taxation, so the individual can transfer foreign income to Austria and still pay an equally low tax as in the U.K.