Mandatory wage tax deduction for employers without a PE for wage tax purposes in Austria about to be revoked?
From 01.01.2020 on, employers of individuals subject to unlimited taxation in Austria are required to withhold Austrian wage tax. However, due to a legislative motion for the planned COVID-19 Tax Measures Act, which was submitted on 20 November 2020, this provision now seems likely to be – retroactively – revoked:
Thus, foreign employers without a PE for wage tax purposes in Austria – contrary to the current legal situation and the statements made to date by the Austrian Ministry of Finance – will no longer be required to withhold income tax from the income of their employees with unlimited tax liability in Austria. The new legal provisions should apply retroactively from 1 January 2020, i.e. the former law will be reversed from the beginning.
If the foreign employer has already fulfilled the current obligation to deduct wage tax in 2020, this wage tax deduction will be considered a voluntary wage tax deduction under the new regulation.
In the future, foreign employers without a PE for wage tax purposes in Austria will therefore have the following options:
a) A voluntary payroll tax deduction is made:
In this case, this income will be treated as income subject to wage tax. In the event of an audit, the employer is also required to grant access to the payroll accounting and other documents relevant to the wage tax audit and to provide information. In contrast to the obligatory wage tax deduction, however, the employer is not liable for wage tax. If an employer without an Austrian PE has not correctly carried out the voluntary wage tax deduction, the employee will be held directly liable and a compulsory assessment would have to be made.
b) A voluntary wage tax deduction is not made:
In this case, the foreign employer must submit a wage certificate (official form L17) to the tax office under the following conditions:
- The employee is subject to unlimited tax liability in Austria
- The employee predominantly carries out his/her activity in Austria for more than six months in the respective calendar year
Generally, the wage statement must be submitted to the tax office by the end of January of the following year or, in the case of electronic transmission, by the end of February of the following year. For the calendar year 2020, it must be submitted by 31 March 2021 at the latest.
Based on the information currently available to us, it can be assumed that the new law will be passed in December 2020 and will enter into force immediately thereafter.
If you have employees with connections to Austria, we recommend that you wait until the new law enters into force before taking any further steps, regardless of whether or not wage tax is currently deducted. If the new regulations come into force as planned, there will no longer be a compulsory wage tax deduction and no payroll has to be carried out in cases where there is no PE for wage tax purposes in Austria. However, the implementation of a voluntary payroll in Austria can still make sense in many cases. PwC Austria will be glad to provide you with further advice.