Taxation on interest income:
Limited tax liability
The EU Tax Amendment Act 2016 provides for limited tax liability (withholding tax for non-residents) on domestic interest income. As of 1 January 2017, domestic interest payments will be subject to limited tax liability in the amount of 25% and interest payments from securities issued by Austrian issuers will be subject to a withholding tax rate of 27.5%.
Subject to limited tax liability (withholding tax for non-residents) are:
- natural persons with limited tax liability
- natural persons with limited tax liability with interests in foreign entities that are transparent from a tax perspective (particularly partnerships)
- ambassadors, diplomats
- Exemption may be granted on presentation of a certificate of residence issued in a country participating in an automatic exchange of information.
- employees of international organisations
- Generally, exemption is not granted due to residency in Austria.
Not subject to withholding tax for non-residents are:
- partnerships in which only entities hold interest
If domestic natural persons hold interest in a partnership, they are subject to unlimited tax liability and thus to general domestic withholding tax deduction.
Payments subject to taxation:
- interest income from deposits with domestic credit institutions (savings accounts, current accounts, fixed-term deposits...)
- interest payments from securities issued by domestic issuers, regardless of the actual country of issue
- interest included in dividends or in dividend equivalent income, provided the fund has over 15% of its assets invested directly or indirectly in securities with returns that qualify as domestic interest;
- if domestic interest and the resulting withholding tax (KESt) is not reported to the financial intelligence unit (OeKB), withholding tax will be deducted:
- from the total dividend distributed and
- as of December 31st from an amount totalling 6% of the redemption price,
- in the event of disposal or transfer of the securities account (exception: transfer within the same credit institution) from an interest share of 0.5% of the redemption price as last determined for each calendar month started in the current calendar year.
- interest not generated by natural persons;
- interest whose debtor is neither resident nor has its registered office in the country and interest whose debtor is not the domestic branch office of a foreign credit institution.
- Private loans and private placements are not subject to the obligation to deduct since they are basically not subject to any withholding tax deduction either.
- Subject to the same requirements as those applicable for resident taxpayers, up to 4% of returns on mortgage bonds are exempt from taxation.
Relief from withholding tax deduction for non-residents:
- The interest income earned by natural persons who are resident in a country participating in an automatic information exchange is exempt from limited tax liability; proof of the residency status in such a country must be provided to the credit institution subject to the withholding obligation in the form of a certificate of residence (sec. 98 [e] Income Tax Act 1988 [EStG 1988]).
- The "IS-QU1" form duly signed by the tax administration in the country of residence qualifies as such a certificate of residence.
- The certificate of residence thus presented is valid for a period that expires five calendar years after its presentation. After this point in time, the account/securities account and all capital gains subject to limited taxation will be settled, provided no new certificate of residence is presented in the meantime.The interest income earned by natural persons who are resident in a country participating in an automatic information exchange is exempt from limited tax liability; proof of the residency status in such a country must be provided to the credit institution subject to the withholding obligation in the form of a certificate of residence (sec. 98 [e] Income Tax Act 1988 [EStG 1988]).
The interest income subject to limited tax liability in Austria are generally subject to taxation in the recipient's country of residence as well. Taxpayers can have any withholding tax refunded in Austria (if applicable) that exceeds the withholding tax rate applicable under the pertinent double taxation agreements. Any deducted withholding tax can generally be offset in the country of residence to the extent provided for in the double taxation agreement.
Your account manager is happy to advise you.
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