Real Estate

Income from the transfer of real estate for residential or commercial purposes must be declared to the financial administration. This also applies to short-term rentals via booking platforms such as Airbnb or booking.com. In the case of short-term rentals, in addition to the income tax and VAT aspects, there is also the deduction of a local tax.

Multiple tax questions arise when purchasing a residential property, a residential property for letting or commercial space, such as:

• Should the purchase be made with or without VAT?
• Does VAT have to apply to current rental income?
• Does the small business regulation apply?
• How much tax must be paid on rental income?
• Which form of financing should I choose?
• What is the current depreciation (distribution ratio between land and building)?
• How are investments taxed?

 

In connection with rental income, the "hobby" issue must always be considered. Activities which in the long term do not produce a positive overall economic result fall under the concept of being a "hobby" and are irrelevant for tax purposes. This means that rental-related expenses are non tax-deductible and losses are neither deductible nor compensable. With the classification as a hobby, an entitlement to deduct input tax is lost. This can be particularly unpleasant when acquiring an apartment as an investment, which was purchased by offsetting VAT.

In order to refute a suspected "hobby" by the financial administration, a prognosis calculation must be prepared. It must be clear from the forecast that letting the owned apartment or apartment bought as an investment within a certain period of time (20 or 23 years) is in any case objectively capable of giving rise to an overall tax surplus. According to the case law of the administrative court, the forecast calculation must meet certain minimum requirements.

What WTS can do for landlords:

• Register with the financial administration
• Clarify whether rental income should be subject to or exempt from VAT
• Ongoing accounting, submission of VAT returns
• Preparation of tax returns
• Business and financial consulting
• Tax optimisation - hobby evaluation incl. preparation of a forecast calculation, tax-optimised consideration of restructuring expenses, distribution of financing expenses, etc.
• Input tax adjustment on sale, donation or change of tenant
• Advice in connection with concluding lease contracts

 

WTS Austria assumes the overall tax compliance for foreign investors.

When transferring real estate there are several different legal titles possible under civil law. In practice, the most common ones are the transfer of payments on the basis of a purchase contract and a gratuitous transfer in the form of a donation or inheritance.

For both these forms of transfer, it can subsequently be differentiated whether the legal transaction is based on a direct transfer of ownership of the property ("asset deal") or whether the property is economically transferred by transfer of shares in a property-owning company or partnership ("share deal"). Depending on the form of transfer, there are different income, VAT and land acquisition tax consequences.

At WTS Austria we represent the fiscal interests of both the seller and the purchaser. Before purchasing an institutional real estate investment, we advise on choosing the best legal form. We are also happy to prepare the tax due diligence when purchasing real estate holding companies.

With the 1st Stability Law in 2012, the legislature completely overhauled the real estate taxation of natural persons in both private and business spheres. This is sometimes referred to as the biggest step in the reform process ("caesura") since implementation of the Income Tax Act in 1988.

Since 1 April 2012, all sales of real estate, regardless of the holding period (no speculative period), are taxed. As a guideline for both private and business purposes, the capital gain or surplus from real estate sales is taxed at a special tax rate (flat tax) of 30%. There are however many deviations from this principle. For properties where the ten- or fifteen-year speculative period expired on March 31, 2012 under the old legal system (old assets), a tax advantage applies. Finally, a flat-rate tax of the proceeds from the sale (sale price) of old assets is fixed at 4.2% or 18% (if the land was reclassified as building land after 31 December 1987). There are also other extensive special and exceptional provisions. In the private sector, it is important to declare the main domicile exemption and builder’s exemption.

In practice, difficulties arise with differentiating the seller from a commercial property trader. If several apartments have been sold, the financial administration could assume that this has been done on a commercial basis. Classification as a commercial property trader leads to the disadvantage that the 30% special tax rate no longer applies and taxation is at the progressive rate. Criteria for classifying a seller as a commercial property trader can only be derived from case law, literature and income tax guidelines, whereby the individual case must always be considered.

The possibility of using exemptions, reductions or optimisation considerations both in the operational and external sector is one of our core competences. At WTS we assess and create concepts for property acquisitions and sales. Furthermore, we help lawyers and notaries calculate real estate income tax and clarify any questions. Our real estate experts have published a wealth of relevant publications and commentaries on the subject of real estate income tax and have an excellent reputation among professional colleagues.

WTS Austria has many years of experience and specialist expertise in the real estate sector. We advise our clients on all tax issues relating to "concrete gold". These include usufruct agreements, building owner models, real estate financing and leasing as well as fee avoidance strategies under the Fees Act.

Our real estate experts are also members of the international Real Estate Service Line of WTS Global. This enables us to comprehensively manage cross-border real estate projects and real estate investments abroad. When it comes to cross-border sales of real estate companies, the applicable double taxation treaty (DTT) must be observed, because many such DTTs now contain a real estate clause. In principle, Austrian DTTs provide that income from the sale of shares in real estate companies is taxed only in the state in which the seller has its registered office. These profits from the sale of shares may, under certain conditions, be tax-free in Austria, especially if the shareholder is an Austrian body - an "international inter-company holding".

However, some Austrian DTTs assign a taxing right to the state in which the property is located. This DTT clause is called a "real estate clause". If the applicable DTT contains such a clause, the profits from the sale of the shares may be taxed in another state.