International Hiring

This section describes the application of Double Taxation Conventions in cases of international hiring out of labour by non-resident companies.

Hiring-out of labour before 12th June 2014

According to the Austrian Income Tax Act (sec 98 para 1 subpara 3 in connection with sec 99 para 1 subpara 5 EStG) payments made to foreign manpower leasing companies are subject to a withholding tax. This tax withheld settles the tax liability of the hired-out employees since their taxable income is in substance covered by the remuneration for the hiring-out of labour (sec 98 para 1 subpara 4 last sentence EStG). Under the provisions of the article of the applicable DTC which corresponds to Art. 7 OECD Model Tax Convention the foreign manpower leasing company is in principle entitled to ask for tax relief for the tax withheld at source from the remuneration for the hiring-out of labour. This may, however, only be granted if the registration for taxation of wages is ensured. Art. 7 OECD Model Tax Convention cannot be interpreted in such a way that Austria loses its right to taxing the wages comprised in the remuneration for the hiring out of labour. 

The tax treaty relief may be exercised by granting a tax refund or direct tax relief at source. 

Tax Refund

Applications for tax refunds can be made by sending the forms ZS-RD1 (German version) or ZS-RE1 (English version) attaching enclosure C to the tax office Finanzamt Bruck-Eisenstadt-Oberwart, Neusiedlerstraße 46, A-7001 Eisenstadt, Tel. +43 (0) 2682-62831-0. Please also take into consideration the decree on the repayment of Austrian withholding taxes according to Double Tax Conventions, AÖFV No. 63/2002.

For a repayment of the whole amount of taxes withheld proof of registration for the taxation of wages subject to tax in Austria has to be rendered. 

If applicants can assert that the registration for taxation in Austria cannot be effected due to the fact that, according to the 183-day-clause of the Double Tax Convention concluded between Austria and the State of residence of the worker in the case of employees hired-out to Austria for fewer than 183 days, the taxing right of wages has been shifted to the State of residence of the employees, sec 138 BAO (Federal Fiscal Code) requires the applicants to prove the correctness of their claim (the 183-day-clause is the provision of the respective DTC that corresponds to Art. 15 para 2 OECD Model Tax Convention). 

Evidence could be supported by listing information on the following:

a) Information on the tax withheld the refund of which is applied for

  • name, company name and address of the Austrian hirer (including VAT identification number);
  • amount of the tax withheld at source for each employee by the Austrian hirers (including records) for which a refund is claimed; 

b) Employees subject to wage tax in Austria

  • name and address of the employees who are subject to tax in Austria;
  • proof of their registration for taxation in Austria;

c) Employees for whom the application of the 183-day-clause is claimed

  • name and address of the employees;
  • certificates of residence of these employees issued by the tax authorities of the residence state for each employee;
  • amount of wages received by these employees and proof of their registration for taxation in their residence states.

If alternativ proof is offered which in a simplified way demonstrates the entitlement to a refund of taxes, the tax office Bruck-Eisenstadt-Oberwart is prepared to enter into negotiations. The entitlement to the refund of taxes has, in any case, to be made conditional on the requirement that the registration for taxation of the wages of the hired-out employees is ensured in Austria (or if the taxing right is assigned to the residence state, is ensured in that state).

Finally, the question of entitlement for a refund of tax can also be settled in a mutual agreement procedure as provided for in the respective double tax convention. A mutual agreement proceedure can only be opened in the State of residence of the claimant. 

Direct Treaty Relief at Source

According to sec 5 para 3 of the ordinance on DTC-relief, direct treaty relief at source (exemption from the obligation to withhold tax at source) may be granted by notice, if it is ensured that there is no tax avoidance and the foreign manpower leasing company takes care of the registration for taxation of the wages for the hired-out employees. If treaty relief is claimed for the wages (especially when applying the 183-day-clause of DTCs), it is necessary that evidence is given that the conditions for treaty entitlement and treaty relief are fulfilled. Applications for direct treaty relief may be filed without any specific formal requirements to the tax office Bruck-Eisenstadt-Oberwart by including the residence certificate of the manpower leasing company.

Suspicion of tax aviodance is given especially when a comparison between the amount of the remuneration for the hiring-out of labour and the amount of wages paid shows an unusual profit flow abroad, or if there are indications that in the other country only a letterbox company exists, or, if by applying the 183-day-clause of a DTC untaxed low-paid workers shall be infiltrated into the Austrian labour market. Furthermore, on the basis of Mn 924 LStR (Austrian wage tax regulations) it has to be investigated whether in an economic sense the functions of the employer are observed by the Austrian hirer and not by the foreign manpower leasing company and therefore the function of the foreign manpower leasing company is reduced to a mere intermediary. 

The permission of relief by a direct application of a DTC has in any case to be made dependent on the fact that the registration for the taxation of wages is ensured. Accordingly, the foreign manpower leasing company has to select a local tax office which is willing to take care of controlling the registration for wage taxation. If required, the division for International Tax Law (Aignerstraße 10, A-5026 Salzburg) of the Tax and Customs Coordination Department may be involved in the selection process and if necessary the competence is delegated. The issue of a tax number (“signal L”) by the local tax office to the foreign manpower leasing company is an indication that the registration for taxation of the hired-out employees is ensured. 

As soon as the applying foreign manpower leasing company has informed the tax office Bruck-Eisenstadt-Oberwart which local tax office will take care of the registration to taxation, the tax office Bruck-Eisenstadt-Oberwart in cooperation with the local tax office responsible for the registration for taxation may decide on the application of direct treaty relief. 

If for a part of the hired-out employees according to the provisions of a DTC an exemption from wage taxation in Austria is claimed (especially due to the 183-day-clause), the proof of entitlement to not withhold wage tax has to be made. This proof can be made by issuing a periodically updated list arranged according to the States of residence of the employees and containing the following:

  • Name and address of the employees
  • Period of assignment in Austria
  • The applicable provision of the respective DTC providing for an exemption
  • Name and address of the Austrian hirer (including VAT identification number)
  • Proof of registration for taxation of the employees in their States of residence for whom the exemption in Austria is claimed. 

The tax office in charge of controlling the registration for taxation may grant simplifications for the proof as long as it remains guaranteed that the foreign employees will be subject to taxation in their States of residence. 

Foreign manpower leasing companies who send employees exclusively only for such a short period to Austria that according to the respective 183-days-clause no domestic wage taxation is likely to take place will be controlled by the tax office Bruck-Eisenstadt-Oberwart. The tax office Bruck-Eisenstadt-Oberwart will take care of controlling whether the shift of the taxing right from Austria to the States of residence is justified according to the DTC. Thus, a selection of another local tax office for the control of the registration for taxation is not necessary. 

A positive assessment may only be granted in agreement with the applicant. In addition, this agreement has to be documented by issuing a disclaimer to appeal. 

In order to enable the hirer to refrain from withholding tax on hired labour the manpower leasing company needs to provide the hirer with copies of the exemption notice in time. 

Sample of an exemption notice

Notice

Regarding your application of …. it has been decided according to section 5 paragraph 3 of the ordinance on DTC-relief, Federal Law Gazette III, No. 92/2005 as amended in Federal Law Gazette III, No. 44/2006 that the wages of the hired-out labour received in the time period from … to ...fulfill the preconditions for a relief at source in accordance with the DTC.

Relief from withholding tax at source is granted under the condition that the responsibilities of an employer arising in connection with the wage taxation of the hired-out employees are administered vis à vis tax office….[1]. In addition, evidence has to be provided that the preconditions for tax exemption have been fulfilled.

Hirer having a copy of this notice are relieved from the obligation to withhold and pay over withholding tax under section 99 paragraph 1 subparagraph 5 Income Tax Act in accordance with this notice and the respective DTC applicable.

If no conflicting changes have occurred in the decisive preconditions the validity period of this notice can be extended.

Reasons:

According to section 5 paragraph 3 of the ordinance on DTC-relief direct treaty relief at source may be granted by notice if it is ensured that no tax avoidance is given and that the foreign manpower-leasing company takes care of the registration for taxation of the wages of the hired-out employees.

Accepting relief at source is connected with the precondition that the registration for taxation of the wages is secured. The tax office …. has undertaken the control of the registration for taxation. If relief from Austrian income tax is claimed for a hired-out employee in accordance with the respective double tax convention, evidence for entitlement to not withholding wage tax needs to be provided to the tax office[2].

Instructions on rights to appeal:

Due to a disclaimer to appeal, an appeal against this notice is inadmissible.

[1] The tax office Bruck-Eisenstadt-Oberwart is responsible if a DTC applies (especially with regard to the 183-days-rule) and as a consequence employees are exempted from wage tax in Austria.

[2] The tax office Bruck-Eisenstadt-Oberwart is responsible if a DTC applies (especially with regard to the 183-days-rule) and as a consequence employees are exempted from wage tax in Austria.

Hiring-out of labour after 12th June 2014

According to Austrian national law (sec 98 para 1 subpara 3 EStG), payments made to foreign manpower leasing companies for hiring-out of labour are subject to Austrian taxation. There are two options available on how to comply with the taxation in Austria (Decree of the Austrian Ministry of Finance, 12th June 2014, BMF-010221/0362-VI/8/2014):

  1. Either the Austrian hirer or the foreign manpower leasing company may voluntarily deduct the wage tax in Austria.
  2. If no wage tax is deducted, the payments made to foreign manpower leasing companies are subject to a 20% withholding tax. This tax withheld settles the tax liability of the hired-out employees since their taxable income is in substance covered by the remuneration for the hiring-out of labour (sec 98 para 1 subpara 4 last sentence EStG).

Under Article 15 of the Austrian double taxation conventions that follow the OECD Model Tax Convention the wages and salaries of the hired-out employees are taxable in the state of which the employer is a resident. In case of hiring-out of labour the hirer principally has to be regarded as the employer (comp. Austrian Administrative Supreme Court 22nd May 2013, 2009/13/0031). As a result, Austria generally has a taxing right with regard to the remuneration of the employees. Consequently, no relief at source or refund of tax can be claimed.   

The remuneration of the manpower leasing company is covered by Art 7 of the Austrian double taxation conventions that follow the OECD Model tax Convention. According to Art 7, Austria in most cases (as long as there is no permanent establishment in Austria) has no taxing right with regard to the manpower leasing remuneration for the hiring-out of labour. Therefore, the foreign manpower leasing company is in principle entitled to ask for tax relief for the tax withheld at source from the remuneration for the hiring-out of labour. Tax relief may, however, only be granted if the taxation of wages is ensured. Art 7 OECD Model Tax Convention cannot be interpreted in such a way that Austria loses its right to taxing the wages comprised in the remuneration for the hiring-out of labour.

The tax treaty relief may be exercised by granting a tax refund or direct tax relief at source. 

Tax Refund

Applications for tax refunds can be made by sending the forms ZS-RD1 (German version) or ZS-RE1 (English version) attaching enclosure C to the tax office Finanzamt Bruck-Eisenstadt-Oberwart, Neusiedlerstraße 46, A-7001 Eisenstadt, Tel. +43 (0) 2682-62831-0. 

For a repayment of the whole amount of taxes withheld proof of registration for the taxation of wages subject to tax in Austria has to be rendered. 

Evidence could be supported by listing information on the following:

a) Information on the tax withheld the refund of which is applied for

  • name, company name and address of the Austrian hirer (including VAT identification number); 
  • amount of the tax withheld at source for each employee by the Austrian hirers (including records) for which a refund is claimed; 

b) Employees subject to wage tax in Austria

  • name and address of the employees who are subject to tax in Austria; 
  • proof of their registration for taxation in Austria;

c) If alternative proof is offered which in a simplified way demonstrates the entitlement to a refund of taxes, the tax office Bruck-Eisenstadt-Oberwart is prepared to enter into negotiations. The entitlement to the refund of taxes has, in any case, to be made conditional on the requirement that the registration for taxation of the wages of the hired-out employees is ensured in in Austria.

Direct Treaty Relief at Source

According to sec 5 para 3 of the ordinance on DTC-relief, relief at source directly at the level of the Austrian hirer (exemption from the obligation to withhold tax at source) may only be granted to inter-company hiring-out of labour. In such cases, form ZS-QU 1 or ZS-QU 2 may be applied.

In case of commercial hiring-out of labour, direct treaty relief at source of the manpower leasing remuneration may only be granted by notice, if it is ensured that there is no tax avoidance and the foreign manpower leasing company takes care of the registration for taxation of the wages for the hired-out employees (sec 5 para 3 of the ordinance on DTC-relief).

Applications for direct treaty relief may be filed without any specific formal requirements to the tax office Bruck-Eisenstadt-Oberwart by including the residence certificate of the manpower leasing company.

Suspicion of tax avoidance is given especially when a comparison between the amount of the remuneration for the hiring-out of labour and the amount of wages paid shows an unusual profit flow abroad, or if there are indications that in the other country only a letterbox company exists. Furthermore, on the basis of Mn 924 LStR (Austrian wage tax regulations) it has to be investigated whether in an economic sense the functions of the employer are observed by the Austrian hirer and not by the foreign manpower leasing company and therefore the function of the foreign manpower leasing company is reduced to a mere intermediary. 

The permission of relief by a direct application of a DTC has in any case to be made dependent on the fact that the registration for the taxation of wages is ensured. Accordingly, the foreign manpower leasing company has to select a local tax office which is willing to take care of controlling the registration for wage taxation. The issue of a tax number (“signal L”) by the local tax office to the foreign manpower leasing company is an indication that the registration for taxation of the hired-out employees is ensured. 

As soon as the applying foreign manpower leasing company has informed the tax office Bruck-Eisenstadt-Oberwart which local tax office will take care of the registration to taxation, the tax office Bruck-Eisenstadt-Oberwart in cooperation with the local tax office responsible for the registration for taxation may decide on the application of direct treaty relief. 

A positive assessment may only be granted in agreement with the applicant. In addition, this agreement has to be documented by issuing a disclaimer to appeal.

In order to enable the hirer to refrain from withholding tax on hired labour the manpower leasing company needs to provide the hirer with copies of the exemption notice in time.

Sample of an exemption notice

Notice

Regarding your application of …………… it has been decided according to section 5 paragraph 3 of the ordinance on DTC-relief, Federal Law Gazette III, No 92/2005 as amended in Federal Law Gazette III, No 44/2006 that the remuneration for hiring-out labour received in the time period from ……. to …… fulfill the preconditions for a relief at source in accordance with the DTC.

Relief from withholding tax at source is granted under the condition that the responsibilities of an employer arising in connection with the wage taxation of the hired-out employees are administered vis à vis tax office………  . 
Hirer having a copy of this notice are relieved from the obligation to withhold and pay over withholding tax under section 99 paragraph 1 subparagraph 5 Income Tax Act in accordance with this notice and the respective DTC applicable.

If no conflicting changes have occurred in the decisive preconditions the validity period of this notice can be extended.

Reasons:

According to section 5 paragraph 3 of the ordinance on DTC-relief direct treaty relief at source may be granted by notice if it is ensured that no tax avoidance is given and that the foreign manpower-leasing company takes care of the registration for taxation of the wages of the hired-out employees.

Accepting relief at source is connected with the precondition that the registration for taxation of the wages is secured. The tax office ………… has undertaken the control of the registration for taxation

Instructions on rights to appeal:

Due to a disclaimer to appeal, an appeal against this notice is inadmissible.