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 All preferential provisions that can be claimed only in relation to EU/EEA countries are therefore no longer applicable to transactions that take place after the entry into force of Brexit.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.
Value Added Tax (VAT)
In the case of a disorderly Brexit, there will be a change in the legal assessment – in particular in the case of cross-border service relationships – of the following subject areas, as a rule resulting directly from the Austrian Value Added Tax Act 1994 and affecting entrepreneurs:
1. Intra-Community deliveries of goods/export delivery
After Brexit, for deliveries to the UK, export deliveries (VAT-exempt with input tax relief; § 6 I 1 in conjunction with § 7 I of the Austrian Value Added Tax Act 1994) take the place of intra-Community deliveries (VAT-exempt with input tax relief; Art. 6 I in conjunction with § 7 I of the Austrian Value Added Tax Act 1994). With regard to the special case that the movement of goods in the context of a delivery began before Brexit and the object of the delivery is already located in the United Kingdom at the time of Brexit (for temporal and material aspect of deliveries please see point 3982 of the Austrian VAT Guidelines (UStR)), the proof of tax exemption – because proof of exportation is de facto no longer possible – can be furnished in the same way as proof of tax-free intra-Community delivery (see Ordinance BGBl. № 401/1996 as most recently amended).
2. Intra-Community acquisition of goods/importation
After Brexit, for deliveries from the UK, the fact of importation under VAT law (§ 1 I 3 of the Austrian Value Added Tax Act 1994) will again have legal effects. The same applies to the relocation of the place of supply of goods pursuant to § 3 IX of the Austrian Value Added Tax Act 1994 or the obligation (liability) to pay VAT pursuant to § 27 IV of the Austrian Value Added Tax Act 1994. In the B2B sector, this virtually replaces intra-Community acquisition (Art. 1 of the Austrian Value Added Tax Act 1994). Input tax deduction is possible here under the general principles according to § 12 I 2 of the Austrian Value Added Tax Act 1994.
With regard to the special case that the movement of goods in the context of a delivery began before Brexit and the object of the delivery is already in Austria at the time of Brexit (for the temporal and material aspect of deliveries please see point 3982 of the Austrian VAT Guidelines (USRT)), this is an intra-Community acquisition of goods (Art. 1 I of the Austrian Value Added Tax Act 1994) and no import, because it is decisive that the object of the delivery is already in Austria and cannot (can no longer) be released for free circulation.
For private travel, concerning the UK, the rules applicable to third countries shall apply.
3. Recapitulative Statement
After Brexit, submission of Recapitulative Statement is no longer required in cross-border delivery relationships with the United Kingdom.
4. Triangular transactions
After Brexit, the simplification rule for triangular transactions is only possible to a limited extent.
5. Distance selling/export delivery or import
With regard to the mail-order business (Art. 3 III et seq. of the Austrian Value Added Tax Act 1994), the statements under Items 2 and 3 apply mutatis mutandis.
6. MOSS/third-country scheme or no simplification
After Brexit, MOSS (Austria as MSI) can no longer be applied to sales to the UK. Transactions taxable in the UK will have to be treated in accordance with the rules applicable in the (future) third country.
In the case of turnover supplies from the UK to Austria according to § 3a XIII of the Austrian Value Added Tax Act 1994, it is expedient for the withdrawal to be regarded as a relocation of the permanent establishment to a third country (“third-country scheme” pursuant to § 25a Austrian Value Added Tax Act 1994 instead of “EU scheme” pursuant to Art. 25a Austrian Value Added Tax Act 1994).
7. Catalogue services B2C
After Brexit, services pursuant to § 3a XIV of the Austrian Value Added Tax Act 1994 (”catalogue services”) to non-entrepreneurs as defined by § 3a V 3 of the Austrian Value Added Tax Act 1994 who are resident in the UK (and not in the EU) are taxable not at the place of business (Austria, § 3a VII of the Austrian Value Added Tax Act 1994) but in the UK. In the case of continuous services, the differentiation must be made in accordance with point 2619 et seq. of the Austrian VAT Guidelines.
8. Relocation of place of supply
After Brexit, there may be relocations of the place of performance pursuant to § 3a XV and XVI of the Austrian Value Added Tax Act 1994.
9. Intra-Community transport of goods and intra-Community on-board deliveries/restaurant services
After Brexit, intra-Community freight transport services to non-entrepreneurs as defined in § 3a V 3 of the Austrian Value Added Tax Act 1994 are no longer taxable at the place of departure (Art. 3a I of the Austrian Value Added Tax Act 1994) but taxable according to the transport route (§ 3a X of the Austrian Value Added Tax Act 1994). Furthermore, the place of departure is no longer the place of supply of goods on board a ship/aircraft/railway. Here, the general regulations for the place of supplies of goods(§ 3 VII et seq. of the Austrian Value Added Tax Act 1994) must be applied. Intra-Community restaurant and catering services shall be governed by the place of performance pursuant to § 3a XI lit. d of the Austrian Value Added Tax Act 1994 (place of activity) in lieu of the place of departure.
10. Billing for B2B services taxable in the United Kingdom
After Brexit, in the case of B2B services taxable in the UK, invoicing is no longer governed solely by the Austrian Value Added Tax Act 1994 but also by the (future) third-country regulations.
11. Fiscal representative
After Brexit, it may be necessary for UK entrepreneurs to appoint a fiscal representative pursuant to § 27 VII of the Austrian Value Added Tax Act 1994. It is not possible to assess whether the UK would provide for a comparable regulation.
12. § 48 BAO
After Brexit, cases under § 48 of the Austrian Federal Tax Code (BAO) may occur more frequently, because it is not certain whether the UK will provide comparable rules with regard to the tax liability of transactions that are exempt from domestic (or EU) tax.
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).