The COVID-19 pandemic has impacted our private and working lives in many significant ways. Working from home has become commonplace, raising numerous legal questions, both for employees and employers. The Austrian legislator had to adapt the legal framework accordingly by passing new regulations and issuing corresponding case law. Below, we discuss certain tax law matters to which special attention should be paid.
Tax benefits for employees
The Austrian legislator recently introduced the following tax benefits for employees working from home: (i) a lump sum of up to EUR 300 per calendar year, depending on the number of days worked from home, is deducted from the employee's taxable income; (ii) certain work-related expenses (including work equipment like desks or office chairs) are tax-deductible; and (iii) if certain requirements are met, work equipment necessary for the employee to fulfil their tasks from home, paid for by the employer, may be treated as non-taxable rather than as taxable salary in kind.
Potential tax consequences for (non-Austrian) employers
Non-Austrian employers with employees working from home in Austria must consider the potential tax consequences of being obliged to create an Austrian permanent establishment ("PE"). Such a PE can be created for wage tax and/or CIT purposes.
When it comes to Austrian wage tax, any fixed facility in Austria in which employees carry out their work tasks for at least one month is sufficient. Therefore, employees working from their homes in Austria regularly create a PE for wage tax purposes for their non-Austrian employer. As a result, the employer is required to withhold and pay Austrian wage tax. In case of employees residing or having their habitual abode in Austria, this requirement applies for the non-Austrian employer, irrespective of whether such a PE is created.
For Austrian CIT purposes, a two-step check is required to assess a potential Austrian PE. The first step is to determine whether an Austrian PE of the non-Austrian employer has been created under Austrian CIT law. This is generally the case if a fixed local installation or facility used to carry out business or economic activities exists in Austria. An Austrian home office may fulfil this requirement and thus qualify as a PE for CIT purposes. In such a case, the second step is to determine whether Austria has the right to tax profits generated through the Austrian CIT-PE under the applicable double tax treaty ("DTT") between Austria and the respective country of the non-Austrian employer. An Austrian home office typically constitutes a place of business under the applicable DTT resulting in Austria having a right to tax profits generated through the PE at the current CIT rate of 25 % (24 % in 2023 and 23 % as of 2024). However, if the employee carries out minor activities of a preparatory or auxiliary character, rather than performing core business activities and/or concluding contracts on behalf of the employer, this would not create a PE under the DTT, meaning Austria would have no right to tax these profits.
On the other hand, Austrian employers must consider the potential tax consequences of creating a foreign PE because they have employees working from home in another country. Such a PE can be created for foreign wage tax and/or CIT purposes according to the relevant tax jurisdiction.
Consequently, cross-border employment relationships where the employer is resident in another country than the employee who is working from home regularly create tax issues for employees as well as employers. Non-Austrian employers must be aware that employees working from Austrian homes may create a PE for wage tax and/or CIT purposes.
authors: Marco Thorbauer, Tobias Hayden, Clemens Grassinger, Benedikt Schachner-Gröhs, Philipp Statzinger, Stefan Egger