Value-added tax (VAT) isn’t the only tax you may need to pay in Austria. This guide reviews different types of taxes in Austria and what they mean for you.
6 min read
Taxes are nothing new—they’ve existed for thousands of years. Ancient Egyptians had to pay harvest taxes and even used the height of the Nile river to help determine tax rates. The Common Penny was a tax in the Holy Roman Empire, and England imposed taxes on windows and paper from the 17th to the 19th century. The types of taxes in Austria today may not look quite like those, but they exist for the same general principle: the money is intended to pay for public expenses, like new roads, swimming pools, and social services. Some taxes also exist to keep the consumption of particular products, such as tobacco or alcohol, in check. In other words, taxes are funds that the state collects from taxpayers and uses to benefit society as a whole.
Taxes in Austria
It sounds simple in theory, but it’s a bit more complex in practice. There are lots of different types of taxes in Austria, and the country doesn’t have standardized tax legislation. But don’t worry—we’ll give you an overview.
The tax system in Austria
For historical reasons, Austrian tax law is very similar to German tax law. Like Germany, Austria works with a multi-tax system, with different types of taxes in various categories that can be collected on a federal, state, or municipal level. Of course, Austrian tax law does have idiosyncrasies of its own. Employers and self-employed workers formerly paid trade tax, for example, until it was replaced with municipal tax in 1994. Plus, there are different income tax brackets in Austria than in Germany. But before we get ahead of ourselves, first things first—what kinds of taxes are there in Austria?
Types of taxes in Austria
According to the Austrian Ministry of Finance, the most important taxes in Austria include:
Income tax
Wage tax
Value-added tax (VAT)
Real estate gains tax
Capital gains tax
Corporation tax
And there are lots of other specific kinds of taxes, like:
Alcohol tax, beer tax, tobacco tax, and tax on sparkling wine
Vehicle tax and air travel duties
Digital tax
Electricity duty, natural gas duty, mineral oil tax, and coal duty
Land transfer tax and property tax
Municipal tax
Car registration tax
Insurance tax
What’s the difference between direct and indirect taxes?
Taxes are classified as direct or indirect, and it’s an important distinction. It all comes down to who owes the tax and who pays the tax. With direct taxes, the person or organization who owes the tax is responsible for paying it directly to the tax authority. That’s why it’s also called being “taxed at source.” For example, employers and self-employed people need to pay municipal tax to their municipality. It’s based on employees’ gross salary, at a rate of 3%. Wage tax is another direct tax deducted from your wage or salary. The same goes for capital gains tax in Austria: if you generate income by trading securities, you’ll pay tax on this income directly.With indirect taxes, the person paying the tax isn’t the person who owes it. In other words, the taxes are passed on to the end user. The best-known example of indirect tax is probably value-added tax, also known as VAT. Companies pay the value-added tax to the tax office, but before they do, they increase the net price of their goods or services 20% (or to a reduced rate of 10% or 13%)—which means that the tax is ultimately paid by the person making the purchase. That’s why bills and receipts always show both the net and gross amounts, before and after VAT has been added.
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If you’ve got a car, you’ll pay vehicle tax. You won’t pay this tax if you have a bike. If you avoid flying, stop buying beer and wine, don’t smoke tobacco, and decide not to own your own home, you can avoid the related taxes. But some taxes simply can’t be avoided. These are taxes like value-added tax, insurance tax, electricity duty, and—depending on your supplier—natural gas duty or mineral oil tax. Generally, these levies are included in the price and you pay them automatically, regardless of your financial situation.In contrast, income tax is based on your personal circumstances. There are different brackets (also called “bands” or “classes”) for income in Austria. If your annual salary in 2022 was less than €11,000, you won’t pay any income tax at all. This will increase in 2023 to €11,693. For a yearly income up to €18,000, you’ll pay a 20% income tax rate in Austria — 700 euros more than in Germany. This will also increase to €19,234 for 2023. And the highest income tax rates are set for those with the largest incomes: 55% for people with an income of more than €1 million a year. You can find a full overview of all the tax brackets in Austria on the official webpage of the Austrian Finance Ministry (in German).
Who pays income tax?
Incidentally, your salary isn’t the only thing that counts as income. Pensioners pay tax on the money they receive, too. (Which reminds us: it’s a good idea to start saving for retirement now if you haven’t already!) Schoolchildren, unemployed people, and university students typically don’t pay any income tax because they’re not earning their own money. The only exception is if you’ve got a part-time job alongside your studies and you exceed the annual tax-free allowance.And, for the record, income tax liability doesn’t depend on whether you’re self-employed or an employee. The difference is that employees have income tax automatically deducted and paid by their employer to the tax authority every month, whereas self-employed people pay it themselves as part of their annual income tax return.
Do I need to do a tax return?
As an employee, you don’t need to do a tax return. That said, you might have certain expenses that would reduce your tax burden. You can offset them against the wage tax you’ve already paid in Austria. In other words, the tax office will give you money back! Our guide to tax returns in Austria tells you everything you need to know.Freelancers always need to submit an income tax return. Because they don’t have an employer who automatically deducts income tax on their behalf, freelancers are responsible for reporting their own income and paying taxes on it. Of course, they can also claim some of their expenses to offset their tax payment and, if they’re VAT-registered, they can claim value-added tax, too.
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