In practice, it is common for a private foundation to purchase a property, renovate it and then rent it to the founder or their family.
Due to the VAT-liable rental, the private foundation receives input tax deduction in return for the purchase and renovation of the property. This is a significant tax advantage.
No input tax deduction
Now, input tax deduction is to be excluded for luxury properties.
In future, input tax deduction will no longer be possible if the property is a ‘particularly prestigious property’.
What is a ‘particularly prestigious property’?
For the legislator, a property is considered particularly prestigious for residential purposes if the acquisition and/or construction costs exceed EUR 2,000,000 within a period of 5 years.
In such cases, letting will in future be subject to 0% VAT and excluded from input tax deduction (false VAT exemption).
The private foundation thus loses the input tax deduction and there is no longer any tax advantage on the purchase, renovation and ongoing operating costs, but financing from the private foundation can bring liquidity advantages.
The new provisions are to apply in principle to properties purchased or constructed on or after 1 January 2026.
Donations from foreign foundations
Donations from foreign foundations or other asset pools comparable to Austrian private foundations are generally treated in the same way as donations from Austrian private foundations as income from capital assets and taxed at 27.5% income tax.
In future, donations from foundation-like entities, such as foreign trusts, which are not comparable to Austrian private foundations, will also be covered and taxed at 27.5% income tax.
The new measures are part of the 2025 Anti-Fraud Act.
It remains to be seen whether the bill will become law.
