This edition of the CMS Tax Newsletter will provide insight into current developments in double taxation agreements (DTA) and their impact in practice.
1. DTA with Germany - amendments as of 1 January 2024
As of 1 January 2024, new, advantageous rules apply to cross-border workers who live in Austria and work in Germany.
Cross-border workers continue to be liable for income tax in Austria.
- What’s new is that cross-border workers can live in a frontier zone of up to 30km (linear distance) without having to cross the border every day. Work-from-home days are therefore no longer detrimental. However, a stay of more than 45 working days outside the frontier zone (e.g. on business travel) entails a proportional right to tax for Germany or the destination countries of such business trips.
- The provisions to prevent abuse have been strengthened: A principal purpose test has been introduced, which means that tax benefits can be denied if one of the principal purposes of the action undertaken by the taxpayer was to obtain a tax benefit.
2. DTA with China – expected to apply as of 1 January 2024
The amendments to the double taxation agreement with China are expected to enter into force as of 1 January 2024. Entry into force may yet be delayed due to the ratification process.
The following changes are planned:
- The time limit for setting up a permanent establishment will be extended from 6 to 12 months. In practice, this has an impact on construction contracts, for instance.
- Furthermore, withholding tax on dividends from shares will be lowered from 7 per cent to 5 per cent, which decreases costs for Austrian parent undertakings.
We will be happy to keep you informed of further changes.
3. DTA with Russia - unilateral suspension
Due to the economic sanctions related to the war in Ukraine, Russia has unilaterally suspended the DTA with immediate effect. This has a number of consequences:
- 15% withholding tax on dividends from Russia to Austria, with no reduction in withholding tax rates.
- 20% withholding tax on interest and licence fees paid to Austrian recipients: In such cases, there is double taxation, as such income is subject to corporation tax in Austria.
- The corporation tax exemption for shares below 5 per cent ceases to apply: The corporation tax exemption for portfolio dividends is contingent on extensive administrative cooperation, which is no longer given due to the DTA’s unilateral suspension.
- Double taxation of wages and salaries of persons residing in Austria and working in Russia.
- Automatic exclusion of Russian subsidiaries from the tax group with subsequent taxation of losses realised in Austria, as unitary taxation is also contingent on extensive administrative cooperation that is now lacking.
The DTA with Russia continues to apply to Russian nationals in Austria, and they can rely on benefits deriving from the agreement because there is no legal option of suspension. However, the fiscal authorities have yet to issue an official position.
We hope that this information is useful for you, and we are available if you have any further questions or need more detailed information.
