Cross‑Border Tax Forecast 2026 in Austria

The Austrian tax authorities have clarified application of the OECD 2025 commentary. (Until the end of 2025, the previous, stricter Austrian approach continued to apply, under which a permanent establishment (PE) through home office could be triggered more easily.)

From 2026 onwards, an employee’s home office will trigger a PE in Austria only if both of the following conditions are met:

• more than 50% of the employee’s working hours within a 12-month period are performed from home
• working from home provides the foreign employer with a “significant economic advantage”. This is assumed where the employee’s physical presence in Austria supports business activities, such as regular interactions with customers or suppliers. Mere occasional contact is not sufficient.

The new guidance increases legal certainty and introduces a higher threshold for creating a PE through home office.

However, individual assessments remain essential. Misclassification may still result in Austrian corporate tax and payroll tax obligations for the foreign company.

• Review all existing home office arrangements involving employees working from Austria for a foreign employer
• Given the risk of financial criminal proceedings (retroactive for up to 10 years and penalties of up to 200% of the evaded tax), companies should critically assess the tax treatment of employees in Austria

A cap of EUR 2 million is being introduced in 2026.

Until the end of 2025, landlords were generally able to deduct input VAT on construction or acquisition costs for residential properties, provided the property was rented out (subject to 10% VAT).

From 2026 onwards, input VAT deduction will be denied for “luxury residential properties” if the acquisition or construction costs (including outbuildings and other structures) exceed EUR 2 million within a 5-year period.

This change puts an end to a model that has been used frequently up to now: the construction of high-quality residential properties with full input VAT deduction and subsequent rental to shareholders or family members. In future, even an arm’s length rental will no longer lead to input VAT deduction. There is a risk that project costs that are not correctly allocated or documented will result in high additional tax liabilities.

• High-quality residential development projects will require much stricter cost management and reliable documentation over the relevant 5-year period
• Calculate investment early, including possible input VAT corrections
• Implement ongoing monitoring to check if the EUR 2 million limit is likely to be exceeded
• Include VAT implications in overall project planning and budgeting