How Corporate Taxes in Austria Will Impact Your New Business

Austria offers a stable and attractive environment for starting a new business, with a highly developed economy, robust infrastructure, and access to the European Union’s single market. However, before diving into company formation in Austria, entrepreneurs must understand how corporate taxes will impact their operations, profitability, and overall business strategy. The tax regime in Austria is straightforward but requires careful planning to ensure that businesses comply with all legal obligations while optimizing their tax burden.

In this article, we will break down the key aspects of corporate taxation in Austria, including corporate income tax rates, VAT, other business-related taxes, and available deductions or incentives. By understanding how corporate taxes work in Austria, you can better prepare your new business for success and compliance in the Austrian market.

1. Corporate Income Tax Rate in Austria

The corporate income tax (CIT) rate in Austria is one of the most critical considerations when starting a business. This tax is levied on the profits of companies and is applicable to both local and foreign businesses operating in the country.

• Flat Corporate Income Tax Rate: Austria applies a 25% corporate income tax rate on the taxable profits of a company. This rate is relatively competitive when compared to other EU countries and provides an attractive option for international entrepreneurs looking to base their operations in Austria. For instance, other European countries may have higher corporate income tax rates or more complex tax regimes, making Austria a favorable choice for business formation.

• Taxable Profits: Corporate income tax is charged on the taxable profits of the business, which is calculated after deducting all allowable expenses, such as operating costs, salaries, and depreciation of assets. This means that a well-structured business can potentially reduce its taxable income and thus its overall tax burden.

• Lower Rates for Smaller Businesses: Austria is also considering a lower tax rate of 21% for small and medium-sized enterprises (SMEs) with profits below a certain threshold. As of 2024, businesses with annual profits under €50,000 may be eligible for this reduced rate. This could be a significant advantage for entrepreneurs starting small businesses, offering an immediate tax break as they establish their operations.

2. Value Added Tax (VAT) in Austria

VAT, or Umsatzsteuer (USt), is another key tax consideration for businesses in Austria. It applies to the sale of goods and services and must be taken into account when planning your business’s pricing and cash flow.

• Standard VAT Rate: The standard VAT rate in Austria is 20%, which applies to most goods and services. If your business sells taxable products or services, you will need to register for VAT and charge this rate to your customers. However, certain products and services may be eligible for reduced VAT rates.

• Reduced VAT Rates: Austria applies a 10% VAT rate for specific items, such as food, books, and certain cultural and social services. Additionally, some products may be subject to a 13% VAT rate (e.g., hotel accommodations).

• VAT Registration: If your business’s annual turnover exceeds €35,000, you are required to register for VAT with the Austrian tax authorities. Once registered, you must submit regular VAT returns and remit the VAT you collect from your customers to the tax office.

• VAT Deductions: Businesses can also deduct VAT paid on business-related expenses from the VAT they collect on sales. This is particularly beneficial for businesses with high input costs, as it reduces the overall VAT liability. For example, if your business purchases goods or services from other companies and pays VAT on those purchases, you can offset this against the VAT you collect from your customers, effectively lowering your tax burden.

3. Social Security Contributions and Other Payroll Taxes

When starting a business in Austria, it’s important to factor in the additional costs related to employee payroll. If you hire employees, the company must contribute to the Austrian social security system on behalf of its workers. Social security contributions cover health insurance, pension insurance, unemployment insurance, and other welfare-related expenses.

• Employer Contributions: As an employer, you are required to pay a portion of your employees' social security contributions, which can be quite significant. The total employer contribution is approximately 21% to 25% of each employee’s gross salary, depending on the sector, with contributions for health and pension insurance making up the majority of the cost.

• Employee Contributions: Employees also contribute to social security, with their contributions being deducted directly from their gross salary. The total employee contribution ranges from 18% to 20% of their income, which covers health insurance, pension benefits, and unemployment insurance.

• Additional Payroll Taxes: Employers must also be aware of potential payroll taxes, such as wage tax (Lohnsteuer), which is deducted at source from employee salaries. This tax is progressive and is calculated based on the employee’s income level, ranging from 0% to 55%.

As you consider company formation in Austria, it’s important to plan for these additional costs, as they will impact your overall business expenses and profitability. If you are considering hiring employees, these contributions must be factored into your budget and pricing strategies.

4. Corporate Tax Deductions and Incentives

Austria offers a range of tax deductions and incentives designed to support businesses, especially in the areas of innovation, investment, and sustainability. These opportunities can help reduce your tax burden and foster business growth.

• Business Expense Deductions: Austrian businesses can deduct a wide range of operating expenses from their taxable income, such as:

  • Salaries and wages

  • Rent for business premises

  • Equipment and machinery depreciation

  • Marketing and advertising expenses

  • Professional services (e.g., legal and accounting fees)

• Deductions reduce your overall taxable profit, thereby lowering your corporate income tax liability.

• Investment Allowances: Austria also provides businesses with investment allowances, allowing them to depreciate capital assets over time. This includes machinery, office furniture, and other long-term assets necessary for the operation of the business. The depreciation of these assets can significantly reduce your taxable profits in the first years of operation.

• Research and Development (R&D) Tax Incentives: Austria encourages businesses to invest in innovation and technological development by offering generous R&D tax credits. If your business conducts research and development, you may qualify for a tax credit of up to 14% of qualifying R&D expenses. This can be a valuable opportunity for tech startups or businesses in industries like pharmaceuticals, biotechnology, or engineering.

• Tax Exemptions for International Trade: If your business exports goods or services, you may be eligible for tax exemptions or reductions under Austria’s system. International trade is subject to special rules, and VAT on exports is generally exempt from Austrian VAT, meaning you do not charge VAT to foreign customers. Additionally, foreign income may be exempt from corporate tax in some circumstances, depending on double tax treaties.

5. Double Taxation Treaties (DTTs) and International Taxation

If you are establishing an international business or considering cross-border operations, Austria’s Double Taxation Treaties (DTTs) can help prevent the risk of being taxed twice on the same income. Austria has signed DTTs with more than 90 countries, including major trading partners like the United States, Germany, and the United Kingdom.

These treaties typically allocate taxing rights between the countries involved and offer mechanisms for businesses to claim credits for taxes paid in other jurisdictions. For example, if your company pays taxes in another country where it operates, you may be able to reduce your Austrian tax liability by claiming a foreign tax credit, thus avoiding double taxation.

It’s important to consult with tax professionals to ensure compliance with DTTs and to determine the most tax-efficient structure for your business operations, especially if your company is involved in international trade.

6. How B2B Hub Can Assist with Company Formation and Tax Strategy

Navigating Austria’s corporate tax landscape can be complex, but expert guidance is available. B2B Hub offers comprehensive services for company formation in Austria, including assistance with tax registration, compliance, and business structure optimization. With B2B Hub’s support, you can ensure that your business is fully compliant with Austrian tax laws while also minimizing your tax liabilities.

B2B Hub also provides ongoing corporate services, including accounting, tax filing, and legal advice, to help you manage your tax obligations efficiently and avoid potential legal pitfalls. Their team of experts can assist with R&D tax credits, VAT registration, international tax issues, and more, allowing you to focus on growing your business while ensuring you meet all local tax requirements.

For inquiries, please contact us at tel:+447700183107, visit our website at b2bhub.ltd, or send us an email at reg@b2bhub.ltd.

Starting a business in Austria comes with numerous benefits, from access to the European market to competitive corporate tax rates. By understanding the corporate tax structure, including income tax, VAT, and deductions, entrepreneurs can make informed decisions and set up their business for success. With expert advice and careful planning, your Austrian business can thrive in the dynamic European economy.