Taxing employees according to double tax conventions

Employees who work across borders are generally subject to taxation in more than one country. On the one hand, the country in which they are resident has the right to tax all their income, regardless of the country in which it is accrued. On the other hand, the state in which the individual is working has the right to tax income earned in that country. It is therefore relatively common for the same income to be subject to taxation both in the country where an employee is working, and in the country where they are ordinarily resident. As a rule, this means that the employee concerned is subject to a double tax liability. In order to avoid double taxation, Austria has concluded double tax conventions (DTCs). These agreements set out which state has the right to tax the relevant earnings and how any risk of double taxation will be avoided.

As a rule, the taxation of employees depends on where they work. The state in which the employee is resident must either exempt the income obtained outside the country from tax or deduct (wage) tax already paid overseas from the individual's tax bill (see also "Ways of avoiding double taxation (→ USP)"). However, in the case of short-term activities abroad, provided that the employee does not work for a permanent establishment of the Austrian company in the country of activity or works for a foreign company, the right of taxation remains with the employee's country of residence.

Since the rules in the individual DTCs vary, it is recommended in all cases to seek clarification of the legal position according to the DTC in advance, from a competent source. If the country where the work takes place has the right of taxation, then the precise details (does the employee herself/himself submit the tax return and make the payment?) will be determined solely by tax law in that country. Employees and employers must ensure for themselves that the taxation has been applied correctly in that country – the Austrian tax office can offer no assistance in this respect.

Entrepreneurs can find more information about double taxation (→ USP) on USP.gv.at.

Posting workers overseas

Difficult issues can arise with employee postings within the group and with staff leasing. In cases where staff are supplied (as a passive service), the person for whom the work is being performed is generally regarded as the employer. Hence the leased employees' income (wages/salaries) should be taxed in the country where the activity takes place, even in the case of short-term activities. You should always seek professional advice to help you determine whether a given employment qualifies as employee posting within the meaning of the relevant double tax conventions.

If it is determined that the income of the employee can be taxed in the country where the work takes place and is indeed taxed there, then under certain conditions it may not be necessary to deduct wage tax in Austria. It is recommended in all cases to seek clarification in advance, from a competent source, since the Austrian employer continues in principle to be liable for correct withholding and payment of wage tax.

If an employee of a foreign company is working in Austria, Austria has the right to tax the wages/salary associated with this employment. This right is generally exercised by assessing the individual concerned for tax or making a voluntary deduction from the employee's pay.

If employees are hired out to perform work in Austria, the Austrian employer is subject to special obligations (→ USP).

Further links

• Double tax conventions (→ BMF)^{German text}
• Changes in the tax treatment of cross-border posted workers (→ BMF)^{German text}
• Double tax conventions – tax relief agreements (→ WKO)^{German text}
• Important information on taxing labour hired across borders (→ WKO)^{German text}