Draft Tax Reform Act on the “Ecological-Social Tax Reform”
On 8 November 2021, the Austrian federal government presented the draft of the “eco-social tax reform”, which is due to enter into force gradually from 1 January 2022. The tax reform brings both a noticeable tax relief for companies and their employees and a “greening” of the tax system through the introduction of CO2 pricing. In the following, we present the most important points of this tax reform.
Reduction of the corporate income tax rate
The reduction in the corporate income tax rate is intended to send a strong message in the direction of securing and increasing the attractiveness of Austria as a business location. The corporate income tax rate shall be reduced (from currently 25%) to 24% from 2023 and to 23% from 2024.
Increase of the profit allowance
Since sole proprietorships and partnerships, and therefore many small and mid-sized enterprises, which were severely affected by the COVID-19 crisis, do not benefit from the reduction of the corporate income tax rate, the profit allowance shall also be increased. For the first EUR 30,000, the profit allowance rate is increased from 13% to 15% (from the currently EUR 3,900 to a maximum of EUR 4,500) and the other levels remain unchanged, i.e. the maximum possible profit allowance increases from EUR 45,350 to EUR 45,950. The application of the regulation is intended for financial years beginning after 31 December 2021 already.
Introduction of an investment allowance
The introduction of an investment allowance is intended to promote climate-friendly investments. 10% of the acquisition or production costs for depreciable fixed assets shall be deductible as a business expense additionally to the depreciation. In the case of depreciable assets in the area of ecologisation, the percentage increases by a further 5% and thus amounts to a total of 15% of the acquisition or production costs.
The investment sum eligible for the investment allowance shall be capped at a maximum of EUR 1,000,000 of the acquisition or production costs in a business year. The maximum amount applies regardless of the applicable percentage. The investment allowance is only to be claimed for those assets that have a useful life of at least four years and are attributable to a domestic business or a domestic permanent establishment. If assets are removed from the business or transferred abroad before the expiry of the four-year period, the investment allowance is to be recognised as an increase in profit in the year of removal or transfer. Some assets, such as buildings, are excluded from the investment allowance. The investment allowance can be claimed for the first time for assets acquired or produced after 31 December 2022.
New tax exemption for employee profit participation schemes
As of 1 January 2022, employee profit participation schemes shall become more attractive from a tax perspective. Profit-sharing payments to active employees of up to EUR 3,000 per calendar year are to become tax-free. The prerequisite is that the scheme is granted to all or at least certain groups of employees and may not replace payments to which the employer is obliged. Furthermore, the tax-free profit sharing is only possible up to the amount of the previous year's taxable profit and may not be paid instead of the previously paid salary or a customary wage increase.
Taxation of cryptocurrencies
The tax reform act also introduces a legal framework for the taxation of cryptocurrencies and income derived therefrom. So far, gains from the sale of cryptocurrencies are only taxed within the one-year speculation period. From 1 March 2022, income from capital assets is to be extended to include income from cryptocurrencies. In future, both the current income from cryptocurrency (e.g. lending and pool-staking income) and realized capital gains will be included in the income from capital assets. Therefore the special tax rate of 27.5% will generally apply to such income.
Stand-alone staking, airdrops and bounties will be tax exempt but the acquisition cost of cryptocurrencies derived therefrom will be deemed to be zero and consequently any subsequent capital gains derived from such units will be taxable at 27.5% upon realization.
Exchanges between cryptocurrencies (including exchanges against stable coins) shall not be taxable from 1 March 2022 onwards.
According to the current draft, the changes will apply retroactively to all crypto assets acquired since 28 February 2021. For cryptocurrencies that were purchased before 28 February 2021, the one-year speculation period will have already expired when the new regulations come into force and such cryptocurrencies can still be sold tax free after the one year period has elapsed.
Domestic debtors of cryptocurrency income, domestic service providers or domestic permanent establishments of foreign service providers will be obliged to withhold a withholding tax as from 2023. In contrast to the withholding tax on other investment income, the withholding tax on cryptocurrencies is to be remitted to the tax office only once a year on 15 February of the following year.
Introduction of a CO2 pricing mechanism
One of the essential goals of this so-called “eco-social” tax reform is the introduction of an effective pricing of CO2 by oil, gas or coal in those sectors that are not subject to the European Emissions Trading Scheme. For this purpose, energy suppliers must buy national emission certificates for a certain price and, depending on the actual emission output, hand them over again in the following year in the corresponding number to the authority set up specifically for this purpose. Unused CO2 certificates must be returned in exchange for a refund of the purchase price. The resulting additional costs for energy suppliers can be passed on directly to their customers (including consumers).
The exact pricing will be determined by a fixed price until the end of 2025. At the time of introduction in 2022 a price of EUR 30 per ton of CO2 is envisaged. This price shall increase to EUR 35 in 2023, EUR 45 in 2024 and EUR 55 in 2025. Following the fixed price phase (until 2025), this national emissions trading system of the sectors concerned should move to a market phase with free pricing, taking into account developments at the European level. These changes will enter into force on 1 July 2022.
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