Informationen on tax liability for foreign customers
Extension of limited tax liability („BESt-CGT“) for foreign customers
Due to the Abgabenänderungsgesetz 2014 (law modifying taxes), the limited tax liability on domestic interest earnings, provided that they are subject to capital gains tax, were essentially extended for foreign customers as of 1.1.2015. As of 1.1.2017, a further change relating to the limited tax liability on domestic interest earnings has entered into effect.
Removal of EU withholding tax
Pursuant to the Austrian EU Withholding Tax Act [EU-QuStG], all natural persons domiciled within the EU member states or associated territories were, until 31.12.2016, subject to a deduction of 35% EU withholding tax against interest yields collected in Austria, unless they were in possession of a certificate exempting them from the withholding tax. As of 1.1.2017 the EU withholding tax was essentially no longer being levied. For this reason, for the last time, an accrual of interest for the purposes of deducting the EU withholding tax had to be undertaken on 31.12.2016. New accounts that were opened on or after 1.10.2016 were not subject to the EU withholding tax even before 1.1.2017.
Innovations related to the limited tax liability ("BeSt-KESt) for foreign customers from January 1, 2017
With effect from 1.1.2017 there were significant changes to the capital gains tax for persons/entities subject to limited tax liability in Austria. Essentially, future tax withholdings will only be deducted from the interest yields of natural persons if the customer is domiciled in a country where there is no automated exchange of information (non-AEI state). Accordingly, no capital gains tax deduction is required if the customer is domiciled in an AEI country. Residency there must be proven to the bank by means of form IS-QU1, which is valid for five years (see below for further details).
The tax rate corresponds to that of the “Inländer-KESt” (national capital gains tax) of 25% or 27.5%.
The “BESt-KESt” for interest on savings accounts and current accounts remains at 25%. The “BESt-KESt” also increased on interest from Austrian securities from 1.1.2016 to 27.5%.
Inception of the new regulations for foreign customers
The „BESt-KESt“ came into force on 1.1.2015 and applies to interest earned after 31.12.2014. Financial institutions must make the appropriate tax deduction from 1.1.2015. As of 1.1.2017, a further change relating to the limited tax liability on domestic interest earnings had entered into effect.
In the case of a capital gains tax deduction on or after 1.1.2017 for pro-rata interest accrued prior to that date which was not covered by the limited tax liability for interest under the regulations in effect prior to the EU Taxation Amendment Act (EU-AbgÄG 2016), that tax can be either applied to future tax liabilities or refunded in Austria (tax office Bruck/Eisenstadt/Oberwart).
The following foreign customers are affected by the limited tax liability from January 1, 2017:
- Natural persons who are resident for tax purposes in a non-AIA country.
- Natural persons from non-AIA countries, which are involved in foreign tax-transparent structures (in particular partnerships).
- Ambassadors and diplomats from non-EU countries as well as employees of international organisations from the non-AIA countries.
For new customers (contractual relationship established on 1.1.2017 or later, identification in accordance with §40 of the Austrian Banking Act [BWG]) who are domiciled in an AEI state, a certificate of domicile must be supplied from 1.1.2017 onwards for persons with limited tax liability to be exempt from the deduction of capital gains tax. Certificates of domicile must be resubmitted every five years. In order for the exemption from capital gains tax deduction to apply as from 1.1.2017, existing customers (contractual relationship established before 1.1.2017, identification in accordance with §40 BWG) will only require a certificate of domicile if they move to an AEI state for the first time after 1.1.2017. Accordingly, existing customers who are already domiciled in an AEI state or are domiciled in a state that later becomes an AEI state will, from 1.1.2017 onwards, still not require a certificate of domicile to be exempt from the deduction of capital gains tax.
Which payments fall within the scope of „BESt-KESt“:
- Interest on bank balances of all kinds such as savings accounts, giro or clearing accounts and time deposits at Austrian banks, or domestic branches of foreign banks.
- Interest from bonds of Austrian issuers, regardless of the effective country of issuance.
- Interest on other debt securities such as certain certificates that are issued by Austrian issuers and are paid by an Austrian bank.
- Investment funds that have these affected product groups in fund assets.
- Funds: Flat rate determination and taxation, in the event of foreign funds where no corresponding registration is sent to the office responsible (in accordance with § 98 (1) (5) b of the Austrian Income Tax Act (EStG).
- The EU Taxation Amendment Act (EU-AbgÄG) of 2016 made comprehensive changes to the limited tax liability on interest under § 98 (1) (5) b of the Austrian Income Tax Act (EStG). Limited tax liability now includes all interest pursuant to § 27 (2) (2) EStG, as well as accrued interest pursuant to § 27 (6) (5) EStG (including interest for zero-coupon bonds and other debt instruments), provided the interest originated in Austria (“domestic” interest) and is subject to capital gains tax withholding. The previous definition of interest under the EU Withholding Tax Act (EU-QuStG) has no relevance.
Not subject to „BESt-KESt“:
- Interest, which is obtained by natural persons who are tax resident in the EU and therefore fall within the scope of the EU Withholding Tax Act (incl. ambassadors and diplomats from the EU).
- Interest, which is not obtained by natural persons:
- bodies (including associations)
- partnerships, where only bodies are involved.
- Financial institutions.
- Pension funds.
- Care and support facilities and exempt benevolent funds of public bodies.
- Investment funds and real estate investment funds.
- Private foundations, establishments and trusts (exemption if intransparent or beneficial owners and investors declaration exists)
- Similarly, mortgage bonds remain up to 4% of the return tax exempt for tax residents.
- Private loans and private placements are excluded from the deduction obligation, since they are also not subject to capital gains tax (KESt).
Reduction of capital gains tax („BESt-KESt“) due to double taxation agreement concluded by Austria
Interest earnings subject to limited tax liability in Austria, are also periodically subject to tax in the country of residence of the recipient.
Many double taxation agreements completed by Austria nevertheless stipulate that interest income in Austria may not be taxed or only at a rate below 25% or below 27.5%.
Thus, future clashes regarding the respective taxation claims may arise. If the withholding tax rate according to applicable double taxation agreements/DBA exceeds the withholding tax, the tax payer can get a refund in Austria in the course of a procedure. The deducted withholding tax will be, in principal, creditable in the country of residence to the extent of the DBA.
Disclaimer: Disclaimer: Please note that the above information concerning restricted capital gains tax liability provides an overview of the points that have to be observed from the perspective of Austrian tax law, and offers basic information. The content has been drawn up with all due care, but only contains general information, and therefore cannot be regarded as a substitute for individual advice. Austrian Anadi Bank AG accepts no liability and provides no guarantee that the information contained herein is complete and correct. Austrian Anadi Bank AG therefore refuses to pay compensation for damage of any kind whatsoever that may result from the use of this information. The remaining withholding tax deducted in accordance with an applicable double taxation (DTA) agreement will be eligible for deduction in the country of residence in the amount specified in the relevant DTA.