According to the legal situation in force since 1 January 2020 (§ 47 EStG as amended by AbgÄG 2020), foreign employers had to withhold wage tax in the following cases:
In all other cases, the foreign employer could choose to carry out a voluntary wage tax withholding.
According to the wording of the law, foreign employers would thus have been obliged to withhold wage tax in Austria even if an employee with unlimited tax liability does not physically work in Austria. The Federal Ministry of Finance (BMF) therefore clarified, via an update of the income tax guidelines, to limit the obligation to withhold income tax to those constellations in which the employee physically worked in Austria, and the country also had the right to tax the employee’s income under treaty law.
Even this restriction of the legal scope could not prevent many foreign employers from slipping into a mandatory payroll tax registration and withholding the procedure due to the outbreak of the COVID-19 pandemic. This was because in many cases Austrian employees could no longer commute to their foreign place of work; but rather had to carry out their work in the Austrian “home office”.
The legislator has decided – somewhat surprisingly – to restrict the mandatory wage tax withholding procedure to those constellations in which the foreign employer has a wage tax permanent establishment in Austria.
If, on the other hand, the foreign employer does not have a permanent establishment for wage tax purposes, the following now applies:
The new provisions of the COVID-19 Tax Measures Act will become effective retroactively as of 1 January 2020. This means that the former legal obligation to withhold income tax from foreign employers when hiring employees with unlimited tax liability (pursuant to Section 47 EStG as amended by AbgÄG 2020) will be retroactively abolished. If the employer has already fulfilled this obligation in the meantime, this is deemed to be a “voluntary deduction of wage tax”.
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