Taxes & Brexit
General information on Brexit and double-taxation agreements
In relation to the United Kingdom and Northern Ireland, the Double-Taxation Agreement of 30 April 1969, Federal Law Gazette (BGBl.) № 390/1970 as amended per BGBl. III № 135/2010, for avoidance of international double taxation in the field of taxes on income is currently applied.
On 23 October 2018, a new double-taxation agreement was signed in Vienna, which entered into force on 1 March 2019 and applies to Austrian taxes from 1 January 2020 (Federal Law Gazette III No. 32/2019). This new agreement is applicable in the United Kingdom of Great Britain and Northern Ireland from 1 April 2019 for corporate income tax and from 6 April 2019 for income tax and capital gains.
Information for companies
In the area of taxes on income, after a disorderly Brexit the United Kingdom will have to be treated as a third country in the future. All preferential provisions that can be claimed only in relation to EU/EEA countries are therefore no longer applicable to transactions that take place after the entry into force of Brexit.
The following changes will result for companies with regard to exit taxation under both the provisions of the Austrian Income Tax Act (EStG) 1988 and the Austrian Reorganisation Tax Act (UmgrStG): In the event of a relocation after Brexit has entered into force, immediate taxation will take place in future. Accordingly, an application for payment in instalments can no longer be made in the operational area. This applies to all cases of company relocation pursuant to § 6 VI of the Austrian Income Tax Act 1988 that take place after the withdrawal of the United Kingdom, as well as to reorganisations within the meaning of the Austrian Reorganisation Tax Act that are decided upon or contractually signed after the departure of the United Kingdom.
However, for companies that relocated to the United Kingdom before Brexit and that have, based on the relocation, requested that the tax be not assessed before 2016, or that it be paid in instalments from 2016 on, the later Brexit will not result in immediate taxation or immediate payment of outstanding instalments, respectively. This shall also apply if the exit taxation for reorganisations within the meaning of the Austrian Reorganisation Tax Act that have been decided upon or contractually signed before the departure of the United Kingdom has not been fixed or can be paid in instalments.
For companies, the entry into force of Brexit also removes the provisions of the Parent-Subsidiary Directive, the Interest and Royalties Directive and the Merger Directive in relation to the United Kingdom: For Austrian companies with affiliated companies in the United Kingdom , and for British companies with affiliated companies in Austria, this relates to the assertion of withholding tax exemption for dividends pursuant to § 94 II of the Austrian Income Tax Act 1988, and the withholding tax exemption for interest and royalty payments pursuant to § 99a of the Austrian Income Tax Act 1988. Regarding dividends, interest and royalty payments similar provisions are included in the new double tax treaty between Austria and the United Kingdom, which – as for Austrian taxes – will be applied from 1 January 2020. It is currently not possible to assess when the United Kingdom is going to ratify the double tax treaty. In the transition period between the United Kingdom's exit from the EU and the application of the new double tax treaty between Austria and the United Kingdom the provisions of the currently still applicable double tax treaty between Austria and the United Kingdom, BGBl. Nr. 290/1970, are to be applied.
Pursuant to the Withdrawal agreement, the United Kingdom will generally be treated as third country for VAT purposes as from 1st January 2021. According to article 8 of the protocol on Ireland/Northern Ireland, Northern Ireland will be treated as an EU member state after the 31st December 2020 concerning the rules for goods. With regard to the rules on services, Northern Ireland will be treated as third country.
Furthermore, article 51 of the Withdrawal Agreement contains provisions governing the VAT treatment of transactions that took place before 1st January 2021. Please note that the negotiations with the United Kingdom have not been completed yet.
Several information on the VAT implications of the Brexit have been published by the European Commission. Based on this information, the following implications can be highlighted:
Intra-Union Supply of Goods and Exports
As from 1st January 2021, supplies of goods to the territory of the United Kingdom will not be treated any more as intra-Union supply of goods (Art. 6 Abs. 1 iVm Art. 7 Abs. 1 UStG 1994) but as exports (§ 6 Abs. 1 Z 1 iVm § 7 Abs. 1 UStG 1994). As an exception, the supply of goods to Northern Ireland after the 31st December 2020 will be treated as intra-Union supply of goods, if the conditions of Art. 7 UStG 1994 are met. E.g. particularly the communication of a valid VAT Identification number is required (Art. 7 Abs. 1 Z 4 UStG 1994).
Intra-Community acquisition of goods/importation
As of 1. January 2021, the supply of goods from the United Kingdom (excluding the territory of Northern Ireland) to Austria will be treated as importation (§ 1 Abs. 1 Z 3 UStG 1994). The rules on intra-Union acquisitions (Art. 1 UStG 1994) or intra-Union distance sales (Art. 3 Abs. 3 UStG 1994) will not apply anymore.
With regard to supplies of goods from Northern Ireland to Austria after the 31st December 2020, the rules on intra-Union acquisitions and intra-Union distance sales continue to apply.
As of 1st January 2021, VAT Identification numbers issued by the United Kingdom (prefix “GB”) will not be considered as a VAT Identification Number of an EU Member State. The validity of VAT Identification Numbers issued by the UK (excluding VAT numbers for Northern Ireland) cannot be verified after that date. Accordingly, it is recommended to validate VAT Identification Numbers with the prefix “GB” on 31.12.2020 at the latest.
Pursuant to the Directive (EU) 2020/1756 VAT Identification Numbers of Northern Ireland will contain the prefix “XI”.
After the 1st January 2021, supplies to the United Kingdom do not have to be included in a recapitulative statement any more. Supplies of goods to Northern Ireland have to be included in recapitulative statements.
VAT Identification Numbers with the prefix “GB” cannot be included in periods after 31st December 2020. The recapitulative statements of periods before the 31st December 2020 can be corrected also after that date (by changing the original recapitulative statement)
Refund of British VAT:
After the 31st December 2020, the refund of British VAT is governed by the rules of the United Kingdom.
Austrian entrepreneurs with a valid Austrian VAT Identification Number can apply (electronically) for a refund for VAT on supplies taxable in Northern Ireland in the EU refund procedure. Such refund procedure is only available for invoices which include only VAT on supply of goods.
Refund of Austrian VAT:
The refund application of taxpayers residing in the United Kingdom (not including Northern Irleand) concerning VAT paid after the 31st December 2020 is governed by the rules for VAT refund for taxpayers from third countries (see form U5 and U5a).
For taxpayers of Northern Ireland, the EU refund procedure applies only in respect of goods subject to the following conditions:
- The Entrepreneur is established in Northern Ireland and has a valid VAT Identification Number issued by Northern Ireland
- The invoice for which refund is required includes only VAT on supplies of goods.
If the above conditions are met, the EU refund procedure is available and refund applications can be submitted through the electronic portal of Northern Ireland. If the conditions are not met, e.g. because the invoice includes also VAT on the supply of services, the EU refund procedure is not available. The refund for VAT on such invoices are refunded through the refund procedure for taxpayers of third countries (see form U5 and U5a).
For details on the rules for VAT refund after Brexit, please refer to the document provided by the EU commission on the supply of services.
Transactions which are carried out before the 1st January 2021 and taxable in the United Kingdom cannot anymore be declared in the MOSS or the eVAT.
Taxpayers residing in the United Kingdom can register for the eVAT to declare services taxable in the EU, which are carried out after the 31st December 2020 (§ 25a UStG 1994).
Place of Supply of Services
Supplies of services in the sense of § 3a Abs. 14 UStG 1994 provided to consumers residing in the United Kingdom (§ 3a Abs. 5 Z 3 UStG 1994), which are carried out after the 31st December 2020, are not taxable at the place where the taxpayer has its business (§ 3a Abs. 7 UStG 1994), but in the United Kingdom.
Changes of the rules governing the place of supply may also result from § 3a Abs. 15 and 16 UStG 1994.
After the 31st December 2020, taxpayers of the United Kingdom may be required to appoint a fiscal representative pursuant to § 27 Abs. 7 UStG 1994.
With regard to transactions before the 1st of January 2021, the United Kingdom remains to be treated as a Member State.
If the transport or the dispatch of goods starts before the 1st of January 2021 (see UStR Rz 3982), the United Kingdom will be treated as a Member State. According to the Information of the Commission in the field of Value Added Tax for Goods (page 7) taxpayers may request the importer to prove, by means of a transport documents, that the dispatch or transport started before the end of the transition period.
Pursuant to article 51 of the withdrawal agreement, VAT refund applications of a resident of the United Kingdom, including residents of Northern Ireland, concerning VAT paid before 1st January 2021, have to be submitted at 31st March 2021 at the latest. Vice versa, VAT refund applications for VAT paid before the 1st January 2021 in the United Kingdom (including Northern Ireland) have to be submitted at the 31st March 2021 at the latest.
The MOSS and the eVAT can be used for transactions taxable in the United Kingdom that took place before the 1st January 2021. Correction of such VAT cannot be made after the 31st December 2021.
Information for citizens
For private individuals who move to the UK after the entry into force of Brexit, the increase in the value of assets for which Austria’s right to taxation is restricted as a result of the relocation must be taxed immediately. The previous possibility of deferring the tax until the actual sale of the asset in the event of physical relocation will therefore no longer exist in future. Similarly, the possibility of payment of the tax debt in instalments does not apply to other circumstances that, in relation to the United Kingdom, lead to a restriction of Austria’s right of taxation within the meaning of § 27 VI of the Austrian Income Tax Act 1988.
However, for private individuals who have moved to the United Kingdom before the entry into force of Brexit and who have, based on the relocation at that time, requested the deferral of tax, the later Brexit will not result in immediate taxation. In such cases, therefore, taxation of the increase in the value will generally take place only when the asset in question is actually sold at a later date. If, in the case of other circumstances, payment in instalments of the tax has been applied for, the later Brexit will not lead to the immediate payment of open instalments either (the contrary statement in point 6157b of the Austrian Income Tax Guidelines 2000 is not to be observed).
Furthermore, Brexit leads to exclusion of the UK, as a third country, from the legal provisions (Austrian Income Tax Act 1988) and regulations listed below:
Tax exemptions: § 3 I 3 lit. a, and § 3 X lit. a sub-clause 1
- Exempted from the tax exemption are remunerations and grants from public funds, if and insofar as they come from a domestic corporation under public law from the UK.
- If the secondment is made from an employer’s establishment located in an MS of the EU, an EEA country or Switzerland, the 2nd sub-clause of § 3 I 10 will apply to the UK.
Special expenses: § 18 I 3 lit. b, and § 18 III 5
For the UK, expenditure for the creation of housing is exempt from deductibility, in particular amounts spent on the construction of owner-occupied dwellings or condominiums, as these must be located in EU/EEA Member States with which extensive administrative assistance exists.
Compulsory contributions to churches and religious communities situated in the UK that correspond to a church or religious community legally recognised in Austria are not deductible as special expenses.
Pension fund contributions to foreign funds: § 26 VII lit. a
Contribution to the pension scheme paid by the employer to British pension funds become taxable after Brexit, as they are no longer to be examined and approved according to the criteria of EU Directive 2003/41/EC.
Employee with limited liability to pay taxes: § 70 II 2
In the case of remunerations as an employee from an activity within the meaning of § 99 I 1, the wage tax is calculated at 20% of the full amount of this remuneration. The option of deducting income-related expenses directly related to remuneration for employees with limited tax liability is not available if the employee is resident in the UK.
Assessment of taxpayers with limited liability to pay taxes: § 102 I 3
As income tax, the following are to be assessed: Income from which a wage tax is to be levied in accordance with § 70 II (…) upon application of the taxpayers with limited liability to pay taxes. Income-related expenses may not be deducted in the cases of § 70 II 2, since the requirement of residency in an EU/EEA Member State vis-à-vis the Republic of Austria is not met.
Establishment of pension plans: § 108 h I 3
One of the conditions to be fulfilled for establishment is that the investment must be made in shares that are initially approved on a regulated market of a stock exchange situated in a Member State of the EU or in a State of the EEA.
Family Bonus Plus Deductions EU Adjustment Directive and Tax Deductions § 33
For children who permanently reside in the UK, from Brexit on the following deductions are no longer available:
- Child deduction
- Family Bonus Plus
- Support money deduction
- Single-earner tax credit
- Single-parent tax credit
- Additional child allowance
If these tax deductions are already considered in the current payroll accounting by the employer, their cessation must be reported to the employer in good time by means of a Form E31 in order to avoid subsequent claims by the tax office.
In all cases in which tax deductions were unjustly received, a correction is made in the course of a compulsory assessment.
The insurance tax for the payment of the insurance premium for insurance relationships taxable in Austria is as a rule calculated by the respective insurer itself and paid to the tax office. This applies both to domestic insurers and to insurers established in an EU/EEA Member State. Accordingly, insurers established in the United Kingdom currently also calculate and pay the insurance tax themselves, which means that policyholders do not have any further obligations.
If there is a disorderly Brexit, and British insurance companies have not appointed an authorised representative to receive the insurance premium in Austria, the policyholder must calculate, declare and pay the insurance tax for the payment of the insurance premium in the case of insurance relationships that are taxable in Austria. This is done by means of a tax return (Form sheet Vers. 1) to the Tax Office for Fees, Transfer Taxes and Game of Chance. The tax return must be submitted by the 15th of the calendar month following the calendar month in which the insurance premium is paid (payment of the annually agreed insurance premium in April; notification by means of a tax return and payment of insurance tax by the 15th of May to the Tax Office for Fees, Transfer Taxes and Game of Chance).