Relief from Austrian Withholding Taxes under Double Tax Treaties

(Ordinance on DTC-Relief, Federal Gazette III No. 92/2005 as amended in Federal Gazette II No. 44/2006)

 

1. Non-Residents Deriving Income from Austrian Sources

A non-resident receiving income from Austrian sources may be subject to an Austrian withholding tax levied at source. The most important types of income of non-residents which are subject to Austrian withholding tax are income derived by e.g. sportspersons, other persons participating in entertainment, authors, lecturers, artists, entertainers and architects. Moreover, certain types of remuneration, such as royalties, payments for know-how and the like, directors’ fees, consultancy fees for commercial and technical advice, fees for hiring out labour, employment income, dividends and assimilated income, distributions of private foundations and income derived as a "silent partner" fall under the withholding tax regime.

Non-residents may be liable to pay tax on these types of income in their state of residence as well. In order to avoid double taxation, Austria has concluded double tax treaties (DTCs) with more than 70 countries in the world. In many instances, depending on the rules of each double tax treaty, Austria may be obliged to grant relief from its source taxation either fully or partially.

Example 1: A non-resident gives a lecture at a conference in Austria. According to Austrian domestic Income Tax Law, the Austrian organiser has to withhold a 20% tax on the remuneration paid to the lecturer. However, under DTCs following the OECD-Model Tax Convention the taxing right is allocated to the state of residence of the taxpayer; as a result, the foreign taxpayer is entitled to claim full relief from the Austrian tax.

In order to obtain treaty relief two different procedures are available: the relief-at-source procedure and the refund procedure. In general, it is up to the paying agent to decide which procedure is the most appropriate one. The decision will be highly influenced by the fact of whether or not he is provided with all the necessary documentation which, in a potential subsequent tax audit, enables him to give sufficient evidence that the recipient of the payment was actually entitled to getting relief from withholding tax.

Example 2: The Austrian organiser of the conference has paid lecture fees free of tax to a non-resident participant whose residence status remains unclear. In a subsequent tax audit, the organiser will be made liable for the tax not withheld at source if he is unable to give evidence that tax relief had to be granted under a specific tax treaty.

 

2. Treaty Relief at Source

2.1. What is treaty relief at source?

The paying agent may directly apply the double tax treaty when disbursing the payments. As a consequence, withholding tax may – depending on the relevant treaty – be reduced directly at source according to the provisions of the respective DTC.

 

2.2. How to receive treaty relief at source?

The paying agent is obliged to keep the necessary documents to provide evidence that the legal preconditions under the tax treaty are fulfilled. In order to obtain relief at source form ZS – QU 1 (for individuals) or ZS – QU 2 (for legal persons) has to be filled in by the recipient of the respective payments. Form ZS – QU 1 and ZS – QU 2 are available at http://formulare.bmf.gv.at/service/formulare/inter-Steuern/pdfs/9999/ZS-QU1.pdf and http://formulare.bmf.gv.at/service/formulare/inter-Steuern/pdfs/9999/ZS-QU2.pdf.

The paying agent fulfills the documentation requirements if form ZS – QU 1 or ZS – QU 2 is

• duly filled in by the recipient of payments,
• certified by the foreign tax authority of the state of residence of the recipient,
• accompanied by additional documents if required according to a specific tax treaty
• and finally handed over to the paying agent.

Example 3: The lecturer fills in ZS - QU 1, has it certified by the tax authority of his state of residence and sends it to the organiser of the conference. In this case, the organiser may pay the remuneration without deducting income tax in Austria.

Recipients neither having a secondary residence in Austria nor receiving more than € 10,000 per calendar year from Austrian sources, do not need to submit a certificate of residence by the foreign tax authority in form ZS - QU 1 or ZS - QU 2.

 

2.3. No Relief at Source

Section 5 of the Ordinance on DTC-Relief specifies cases where no relief at source is available. Among these there are cases where the recipients are:

• pure holding companies
• letterbox companies
• foundations
• trusts
• investment funds
• legal entities whose place of effective management is not in the state where the legal entity was founded
• non-resident manpower leasing companies if no notice of exemption has been granted or
• the income consists of capital yields resulting from securities paid out by banks in their function of administering securities.

 

2.4. Partnerships

2.4.1. Fiscally transparent partnerships

If a partnership is treated as fiscally transparent under its domestic law, each partner has to claim relief at source. If the amount paid to a partner exceeds € 10,000, form ZS – QU 1 or 2 has to be certified by the tax authority of the state of residence. The paying agent is responsible for keeping the name and address of the partnership and the names and addresses of the partners in evidence.

 

2.4.2. Fiscally intransparent partnerships

If a partnership is treated as fiscally intransparent under its domestic law, the partnership itself is entitled to claim relief at source.

 

3. Refund of Austrian Tax

3.1. How to receive refund?

If the paying agent has deducted tax but the respective double tax treaty provides for a full or partial exemption, a refund of all or part of the Austrian tax can be claimed afterwards. Applications for tax refunds can be made by sending form ZS - RD 1 (German version) or ZS - RE 1 (English version) together with the relevant documents to Finanzamt (tax office) Bruck-Eisenstadt-Oberwart, A 7001, Eisenstadt, Neusiedlerstrasse 46, Tel. +43-2682-62831-0. Finanzamt Bruck-Eisenstadt-Oberwart is responsible for all cases where no relief is obtained in an ordinary assessment procedure. Appropriate documentation, from which the amount of tax actually withheld at source is apparent, is necessary in order to claim a refund of tax. Depending on the type of income, annex A is required for dividends, B for royalties or C for other income subject to a withholding tax. All forms are available at https://www.bmf.gv.at/Service/Anwend/FormDB/show_mast.asp

Example 4: If no relief at source has been granted, the foreign lecturer can claim a repayment of the 20 % withholding tax that has been deducted by the organiser of the conference. The claim for repayment is effected by filing form ZS - RE 1 and the relevant annex and having them certified by the foreign tax authority. These forms need to be sent to Finanzamt Bruck-Eisenstadt-Oberwart together with the corresponding documents and receipts.

Refund is granted if form ZS – RD 1 or ZS – RE 1 and the relevant annex A, B or C is

• duly filled in by the recipient of payments,
• certified by the foreign tax authority of the state of residence of the recipient,
• accompanied by additional documents proving the amount of withholding tax
• and finally sent to Finanzamt Bruck-Eisenstadt-Oberwart

 

3.2. Partnerships

3.2.1. Fiscally transparent partnerships

If a partnership is treated as fiscally transparent under its domestic law, each partner has to claim refund.

 

3.2.2. Fiscally intransparent partnerships

If a partnership is treated as fiscally intransparent under its domestic law, the partnership itself is entitled to claim refund.

 

3.3. Holding companies

If a holding company claims a refund of Austrian withholding tax it is important that the beneficial owners of the holding company are disclosed.

 

 

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