Example: Mr A (residing in Austria) is an employee of company X established in country X. So far, Mr A. commutes to company X in country X to carry out his work.
Scenario 1: Mr A and X agree that, from now on, Mr A can work 100% remotely from his home office in Austria (independent of the COVID-19 pandemic).
Scenario 2: Mr A and X agree that, (only) during the COVID-19 pandemic, Mr A can work 100% remotely from his home office in Austria.
Tax and social security implications of scenario 1 (permanent home office work in Austria)
The Austrian tax administration takes a “facts and circumstances-approach” to assess whether home office work creates a permanent establishment (PE) for the foreign employer. The main criteria are the extent of home office work, the nature of work carried out in the home office and whether it was initiated by the employer or by the employee. In the case in question (100% remote work from an Austrian home office), it is very likely that the tax administration assumes that a PE is created. In addition, home office work would trigger municipality tax (3% from employee’s gross wage).
Mr A is subject to Austrian income taxation. Contrary to other countries, the foreign employ-er will have to deduct and pay monthly Austrian wage tax, irrespective of whether or not the home office work creates a PE (new wage tax withholding regulation applicable as per 01/01/2020).
As Mr A spends 100% of his working time in Austria, he is also subject to Austrian social security regulations. Company X will have to register with the competent Austrian social security authorities and deduct and pay monthly Austrian social security contributions (employee and employer part). If company X is located in another EU country, Mr A and X could agree that these compliance duties are fulfilled by Mr A. However, in practice, this is rarely carried out, as all non-compliance risks would remain with the foreign employer. In addition, the foreign employer will have to pay a contribution to the Austrian family support fund (3.9%).
Tax and social security implications of scenario 2 (home office work in Austria only during the COVID-19 pandemic)
The Austrian tax administration takes the position that, if home office work is performed only temporarily during the COVID-19 pandemic, the home office will not create a PE for the foreign employer.
As regards Austrian income taxation, there is no difference to scenario 1. Also, in the event that home office work is only performed temporarily in Austria, the foreign employer will still have to deduct and pay monthly Austrian wage tax. Only in the event that company X is a German resident company, Austrian income tax (and by that, wage tax withholding) could be avoided. This is due to the fact that, according to a mutual agreement on the tax-implica-tions of COVID-19 concluded between the German and Austrian tax administration, the employee could opt (no obligation) to remain subject to German income taxation.
As regards social security, the competent Austrian ministry takes the view that temporary restrictions on cross-border employment imposed by COVID-19 do not constitute relevant changes as regards the applicable social security legislation. This means that, in the case of COVID-19-related temporary home office work, the employee will remain within the applicable foreign social security legislation of country X.
