Tax tips for entrepreneurs

1. What you should look out for when investing in 2023

This year, there are once again some special features that need to be considered for investments that are still planned: declining balance depreciation, accelerated depreciation for buildings and investment-related profit allowance.

1.1. Degressive depreciation

For assets acquired or manufactured after June 30, 2020, depreciation can be applied at a fixed percentage of up to 30% of the respective (residual) carrying amount (= declining balance depreciation). If put into operation in the second half of the year, half-year depreciation is permitted.

This does not apply to:

• Buildings and other assets that are subject to special depreciation rules,
• Motor vehicles with CO2 emission values of more than 0 g/km,
• Intangible assets that cannot be allocated to the areas of digitalization, ecologization and health/life science, used assets,
• Equipment for the extraction, transportation, storage or use of fossil fuels.

The higher depreciation at the beginning of the useful life leads to liquidity advantages for long-lived assets, as with the maximum rate of 30%, 51% is already depreciated after two years and around 66% after three years. A one-off change from declining-balance to straight-line depreciation is possible and will make sense if the straight-line depreciation is higher than the declining-balance depreciation after a few years.

Please note: For profit calculators in accordance with Section 5 (1) EStG, the authoritativeness of company law applies to assets acquired or manufactured from January 1, 2023 (Section 124b Z 356 EStG). This means that declining balance depreciation can only be selected for tax purposes if this is also selected in the company balance sheet (with the exception of energy generation companies until 31.12.2025).

1.2. Accelerated depreciation for the acquisition or construction of buildings

Accelerated depreciation is provided for buildings acquired or constructed after June 30, 2020. The depreciation rate for buildings without proof of useful life is 2.5% or 1.5% for buildings used for residential purposes. In the year in which depreciation is to be taken into account for the first time, a maximum of three times the previously permissible maximum rate (i.e. 7.5% or 4.5%) can be depreciated and in the following year a maximum of two times (i.e. 5% or 3%). From the second following year, depreciation is again calculated using the standard rates. The half-year depreciation rule does not apply, meaning that the full annual depreciation amount is expensed even if the asset is acquired or manufactured in the second half of the year.

Please note: For rental properties built before 1915, a maximum depreciation rate of 2% can be applied even without an expert opinion. This preferential depreciation rate cannot be used in combination with accelerated depreciation. If a long-term rental is intended, the entire depreciation period must be considered. Accelerated depreciation results in a taxable useful life of 63.67 years, while the special depreciation for old rental buildings results in a taxable useful life of 50 years. This difference of 13.67 years cannot be compensated for by the initially higher accelerated depreciation. A present value analysis shows that the preferential depreciation rate of 2% is preferable to accelerated depreciation after the 11th year.

1.3. Half-yearly depreciation, GWG and hidden reserves

• If investments are made this year and the acquired asset is put into operation by December 31, 2023, half-year depreciation is available.
• Investments with acquisition costs of up to € 1,000 (excluding VAT with input tax deduction) can be immediately deducted as low-value assets (GWG).
• Hidden reserves from the sale of fixed assets that have been held as business assets for at least seven years (15 years in the case of land) can be transferred to replacement purchases or allocated to a transfer reserve under certain conditions for natural persons.

2. Disposition of income / revenue or expenses / expenditure

Accountants have a certain amount of room for maneuver by bringing forward expenses and deferring income. Please also note that profits are not recognized for work in progress and products. 

Income-expenditure accountants can also control their income by bringing forward expenses (e.g. discounts on purchases of goods, rents in 2024 or back payments of GSVG contributions for 2023) and deferring income to the following year. However, it should be noted that regularly recurring income and expenses that are paid 15 days before or after the end of the year are to be allocated to the year to which they belong economically.

These dispositions are particularly interesting in 2023, as the following long-term tax relief will be implemented in 2024:

• Reduction of the 3rd rate bracket of income tax from 41% to 40%
• Valorization of the rate limits as part of the abolition of "cold progression"
• Reduction of corporation tax from 24% to 23%

TIP: As a rule, these tax cuts mean that expenditure (if offset against profits) should be incurred in 2023 and income should be generated in 2024 if possible.

3. Tax-optimized loss utilization

3.1. Offsetting losses carried forward

Losses that can be carried forward can only be offset against up to 75% of the total amount of income for corporation tax purposes. This 25% minimum taxation does not apply to liquidation and reorganization profits and profits from the sale of (partial) businesses and co-ownership shares. For income tax purposes, 100% of losses carried forward must be offset against the total amount of income. This rule leads to disadvantages in cases where the losses that can be carried forward are almost as high as the total amount of income, as the advantages of the lower income tax brackets cannot be utilized and special expenses and extraordinary burdens are not taxed.

TIP: The loss of an income and expenditure accountant can also be carried forward without restriction.

3.2. Loss utilization for corporations through group taxation 

Losses incurred by individual domestic or foreign corporations within a corporate group can be utilized in a tax-optimized manner within the framework of group taxation. In addition to the financial connection required from the beginning of the financial year (capital participation of more than 50% and majority of voting rights), a group application must be submitted to the competent tax office in order to establish a tax group.

This must be submitted at the latest before the balance sheet date (of the company to be included) of the year for which it is to be effective for the first time. Corporations that prepare their accounts as of December 31, 2023 and that have already been financially linked as defined above since the beginning of their financial year (usually since January 1, 2023) can therefore still form a tax group for the whole of 2023 or be included in an existing group by submitting a group application by December 31, 2023. This means that you can still deduct the losses generated by individual group companies in 2023 from the 2023 profits of other group companies for tax purposes.

Please also note that the 75% loss set-off limit does not apply to pre-group losses of group members that are to be offset against the group member's own profits.

By including foreign subsidiaries, foreign losses can also be utilized in Austria in accordance with the shareholdings. However, only foreign capital companies from an EU member state or a third country with which comprehensive administrative assistance exists can be included in the group. Losses of foreign group members can be taken into account in the year in which the loss is attributed up to a maximum of 75% of the total domestic group income. The remaining 25% is included in the loss carryforward of the group parent.

TIP: Group taxation can also be used for the tax-optimized utilization of financing costs in connection with the acquisition of shares in a corporation, unless the shares were acquired by a group company or a shareholder with a controlling influence.

3.3. Losses for capitalist co-entrepreneurs can only be carried forward

In the case of natural persons, losses as a capitalist co-entrepreneur cannot be offset if this results in a negative capital account for tax purposes. Such losses can be carried forward as waiting losses for future profits (or contributions) from the same source of income.

4. Profit allowance / investment allowance

4.1. Profit allowance

All natural persons subject to income tax are entitled to the profit allowance (GFB) as compensation for the preferential taxation of the 13th/14th salary of wage taxpayers, regardless of the method of profit determination. From 2023, the GFB amounts to up to 15% of the profit, max. € 45,950 per year.

Taxpayers are automatically entitled to a basic tax-free allowance of 15% of profits up to € 30,000 (15% of € 30,000 = € 4,500). For profits in excess of € 30,000, a tax-free allowance in excess of the basic allowance (investment-related) is only available if the taxpayer has made certain investments in the year in question. Investments that are eligible for tax relief are unused, depreciable tangible assets with a useful life of at least four years, such as machinery, operating and office equipment, trucks, hardware and investments in buildings from completion. Cars, software and used assets are excluded. Certain securities can also be used to claim an investment-related GFB. These are all bonds as well as bond and real estate funds that are eligible as cover securities for the pension provision.

These securities must be held as fixed assets for at least four years from the date of acquisition. It is still easiest to meet the investment cover required for the investment-related GFB for profits over € 30,000 by purchasing the eligible securities. Securities purchased for the GFB can be pledged at any time. In order to make optimum use of the GFB, the expected annual taxable profit for 2023 should be estimated together with the tax advisor by around mid-December and the profit allowance expected to exceed € 4,500 (= basic allowance!) should be determined according to the steps described above and securities purchased in the corresponding amount. The securities must be deposited in your securities account by 31.12.2023!

TIP: The GFB is also available for self-employed ancillary income (e.g. from a work or freelance service contract), remuneration of a self-employed shareholder-manager or supervisory board and foundation board remuneration.

Note: If you claim a lump sum for operating expenses, you are only entitled to the basic exemption amount (€ 4,500).

Please note: In the event of the sale or closure of a business, the GFB must be re-taxed if the minimum holding period of 4 years is not met. In the event of business closure due to force majeure (e.g. death of the taxpayer without transfer or continuation of the business as part of the succession) or as a result of official intervention, there is no subsequent taxation.

4.2. Investment allowance 

The new investment allowance was introduced in the 2023 financial year. The investment allowance leads to an additional depreciation of 10% (15% for climate-friendly investments) of the acquisition costs of the fixed assets (for a maximum acquisition cost of € 1 million pa). The prerequisite for claiming the investment allowance is that the corresponding assets have a normal useful life of at least four years and are attributable to a domestic business or a domestic permanent establishment. The following assets are excluded from the investment allowance:

• Assets for which the investment-related profit allowance is claimed
• Assets for which a special form of depreciation is expressly provided, with the exception of motor vehicles with a CO2 emission value of 0 g/km
• Low-value assets
• Non-physical assets (except in the areas of digitalization, ecologization and health/life science)
• Used assets
• Equipment used for the extraction, transportation or storage of fossil fuels

TIP: The investment allowance is an option that must be exercised with the tax return in the year of acquisition or production. As the investment allowance cannot be claimed at the same time as the investment-related profit allowance, it is advisable to compare the benefits of each asset.

5. What you should bear in mind when planning your taxes for 2023

5.1. Non-current provisions 

Non-current provisions must be discounted at a fixed interest rate of 3.5% over the expected term. 

5.2. Manager salaries 

The tax deductibility of manager remuneration is capped at € 500,000 gross per person and financial year. However, this provision does not only apply to manager salaries, but also to all genuine employees and comparable organizationally integrated persons (including temporary employees), regardless of whether they are actively employed or have performed work or services in the past. Voluntary severance payments and redundancy payments are only deductible as business expenses to the extent that they are subject to preferential taxation at 6% for the recipient in accordance with § 67 para. 6 EStG or are paid out as part of social plans (§ 20 para. 1 no. 8 EStG).

5.3. General bad debt allowances and general provisions

Since the 2021 financial year, general bad debt allowances and the creation of general provisions have been permitted for tax purposes. In both cases, the approach under company law is decisive. However, the tax recognition of general provisions is limited to provisions for other uncertain liabilities. Lump-sum provisions for impending losses and provisions for expenses are excluded for tax purposes.

A general bad debt provision may also be made for receivables that arose before January 1, 2021. Lump-sum provisions may also be created if the reason for the first-time creation is before January 1, 2021. In such cases, however, the value adjustment or provision amounts must be spread over the year 2021 and evenly over the following four financial years.

5.4. Withdrawal of buildings at book value

Withdrawals from business assets to private assets are generally to be valued at the going concern value at the time of withdrawal. In the case of business buildings, hidden reserves are regularly disclosed, which are taxable at the time of withdrawal. Since 1 July 2023, the withdrawal of business premises has been carried out at book value and therefore does not lead to the realization of hidden reserves. This means that there is no direct tax effect. In this context, it is clarified that the manufacturer exemption only applies if the building was manufactured as private assets.

Self-manufactured buildings (as business assets) therefore remain taxable after removal to private assets. As a result of the new regulation, the building tax relief on the closure of a business, which had become obsolete, no longer applies. However, in the case of business closures that entitle taxation at half the tax rate (60 years of age or disability, etc.), the hidden reserves of the building may be taxed on application - applying the withholding tax rate - and thus the building may be revalued to the fair market value for tax purposes (Section 24 (6) EStG as amended by the AbgÄG 2023).

Note: After a tax-free withdrawal of a building, it is possible to make the sale of a building withdrawn from business assets tax-free if it has served as the taxpayer's main residence for a continuous period of 5 years after the withdrawal and before the sale.

6. Donations from business assets 

Donations from business assets to certain beneficiary institutions named in the law are generally tax-deductible up to a maximum of 10% of the profit for the current financial year. The upper limit is the profit before taking the profit allowance into account. In order for such donations to be deductible in 2023, they must be made by 31.12.2023 at the latest (for further details, see "Donations as special expenses").

In addition to these donations, donations in cash and in kind in connection with assistance in the event of (national and international) disasters (in particular flood, landslide, mudslide and avalanche damage) are also deductible as business expenses, with no limit on the amount! Warlike events, terrorist attacks or other humanitarian disasters (e.g. epidemics, famines, refugee disasters) are also considered disasters within the meaning of the Income Tax Act.  The prerequisite is that they are marketed accordingly as advertising (e.g. by mentioning them on the company's website or in advertising brochures).

TIP: Sponsorship payments to various charitable, cultural, sporting and similar institutions (opera, museums, sports clubs, etc.) are also tax-deductible if they are associated with an appropriate consideration in the form of advertising services. Such payments are not donations, but genuine advertising expenses.

7. Research premium

A research premium of 14% can be applied for research expenses (research expenditure) from in-house research. There is no cap on the amount of research expenses (expenditure) eligible for a premium for in-house research. Premiums for contract research, on the other hand, can only be claimed for research expenses (expenditure) up to a maximum amount of € 1 million per financial year. In general, expenses (expenditure) "for research and experimental development" (i.e. basic research as well as applied and experimental research in the production and service sector, e.g. also expenses or expenditure for certain software developments and fundamentally new marketing methods) are eligible. The research must be carried out in a domestic business or a domestic permanent establishment.

TIP: Remember that from this year onwards, you can for the first time also include a notional entrepreneur's salary (as a sole proprietor, co-entrepreneur and unpaid shareholder of a corporation) for an activity demonstrably carried out in research and experimental development in your research expenses. A notional entrepreneur's wage of € 45 per hour for a maximum of 1,720 hours (= € 77,400 per person and financial year) can be recognized.

TIP: For the 2023 premium application, an annual report from the Austrian Research Promotion Agency (FFG) must be obtained electronically after the end of the financial year. In order to obtain greater certainty about the tax recognition of research expenses, it is possible to apply in advance to the tax office for a confirmation of the tax-privileged research for a specific research project. To do this, it is necessary to obtain a so-called project appraisal from the FFG.

8. Advantages of e-mobility

Investments in electromobility were made more attractive in 2023 with the introduction of the investment allowance. Although company subsidies for the purchase of e-cars have been restricted to social institutions, driving schools, e-car sharing and e-taxis, electric vehicles are still preferable to combustion engines for tax purposes. Electric vehicles (CO2 emission value of 0 g/km) have the following advantages over conventional vehicles powered by combustion engines:

• Input tax deductibility: However, full input tax deduction is only available for purchase costs of the car or motorcycle up to a maximum of € 40,000 gross. Between € 40,000 and € 80,000 gross, there is an aliquot input tax deduction. If the electric car costs more than € 80,000 gross, there is no input tax deduction.
• Please note: Hybrid vehicles are not included in the benefits for purely electric cars.
• The running costs such as electricity costs and the costs for electricity supply points are fully input tax deductible regardless of the acquisition costs.
• E-mobility subsidy: In 2023, the subsidy for the purchase of electric cars for companies will only be offered for social institutions, driving schools, e-car sharing and e-taxis. The subsidy amounts to €1,000. For private individuals, the subsidy is up to €3,000, up to a maximum of 50% of the acquisition costs. Hybrid vehicles are not subsidized. Furthermore, the e-charging infrastructure (e.g. wallbox, intelligent charging cable) is also subsidized (both privately and commercially).
• Please note: The e-mobility subsidy is only granted if the gross list price (base model without optional extras) of the car does not exceed € 60,000.
• Degressive depreciation: Electric vehicles with an emission value of 0 g/km enjoy the benefits of degressive depreciation (see point 1.1)
• No NoVA: As the NoVA is calculated on the basis of CO2 emissions, electric vehicles with an emission value of 0 g/km are completely exempt.
• No non-cash benefit: No non-cash benefit is payable for employees who are allowed to use the employer's own electric car privately.
• No motor-related insurance tax: purely electric vehicles are completely exempt from motor-related insurance tax.
• Possibility of claiming the investment allowance of 15% of the acquisition costs.

9. Pension obligation outsourcing until the end of 2023 

The company pension as the second pillar of retirement provision increases your attractiveness as an employer and serves as an instrument for employee retention.

Current and future obligations must be shown in the balance sheet by means of a pension provision. A transfer of the pension provision to a pension fund is conceivable, whereby a preferential outsourcing in accordance with § 124 EStG is only possible until the end of 2023. The preferential treatment stipulates that the 10% limit of Section 4 para. 4 no. 2 lit a EStG does not apply to the transfer to a pension fund or an insurance company. This means that in the case of defined contribution commitments, the contributions can exceed 10% of the total salary of all beneficiaries and are recognized in full as a business expense.

The difference between the tax-deductible pension provision and the amount required to cover it must be capitalized and deducted evenly over ten years.

The outsourcing of pension obligations results in the elimination or reduction of pension provisions for the company and thus a balance sheet reduction. The pension fund contributions represent operating expenses. For the beneficiary, outsourcing is interesting in that in uncertain times the company pension is paid out regardless of the future fate of the company.

TIP: The outsourcing of pension commitments is a complex process that should be accompanied by a professional advisor in advance.

10. Securities cover for pension provisions

In the event that the pension provision has not been outsourced to a pension fund or an insurance company, securities with a nominal value of at least 50% of the pension provision reported for tax purposes at the end of the previous financial year must be held as business assets at the end of each financial year. Claims from a reinsurance policy can be taken into account. If the required securities cover is even temporarily less than the required 50% of the provision, the profit must be increased by 30% of the securities shortfall as a penalty (except to the extent that the provision is no longer recognized at the end of the year due to a reduction in pension entitlements or securities redeemed are replaced within 2 months).

Securities eligible as cover include bonds and bond funds issued in euros (whereby bonds issued by Austrian borrowers as well as bonds issued by borrowers domiciled in an EU or EEA member state are permitted), as well as domestic real estate funds and foreign open-ended real estate funds domiciled in an EU or EEA member state. The securities may not be pledged.

TIP: The moderate lower of cost or market principle generally applies to securities held as fixed assets. If there have been sustained price losses, these securities must be written down and new securities purchased in the amount of the difference.

11. Tips for small businesses

11.1. Small businesses for VAT purposes

Entrepreneurs with an annual net turnover of up to € 35,000 are small businesses for VAT purposes and are therefore exempt from VAT. Depending on the applicable VAT rate, this corresponds to a gross turnover (incl. VAT) of € 38,500 (with only 10% turnover, e.g. apartment rentals) to € 42,000 (with only 20% turnover). Certain tax-free sales, e.g. from medical activities or as a member of the supervisory board, are excluded from the calculation of the small business limit. Turnover declared within the framework of the EU-OSS (OneStopShop - mail order business) is also excluded from the calculation of the small business limit. If the small business regulation is used, no VAT may be invoiced. In addition, the input tax deduction for all expenses associated with these sales is lost.

VAT-exempt small businesses whose turnover is close to the small business limit should check in good time whether they will exceed the net turnover limit of € 35,000 in the current year. A one-off overrun of 15% within 5 years is harmless. If the limit is exceeded, corrected invoices with VAT may still have to be issued in 2023 for services to entrepreneurs. Experience has shown that it is difficult to correct invoices for services to non-entrepreneurs, which is why the VAT then due must be deducted from the gross income amount.

In many cases, it may make sense to waive the tax exemption for small businesses (e.g. in order to benefit from the input tax deduction for the expenses associated with the sales, e.g. investments). The waiver will be easier, especially if the customers are in any case predominantly entrepreneurs entitled to deduct input tax.

TIP: A small business owner can waive the application of the small business regulation in writing to the tax office until the VAT assessment becomes final. However, the waiver binds the entrepreneur for five years!

11.2. Small business flat rate for income and expenditure calculators 

In the case of self-employed or commercial activities, the profit can be calculated on a flat-rate basis if the small business regulation under VAT law is applicable or is only not applicable because the turnover limit was not exceeded by more than € 5,000. The small business flat rate is also applicable if another non-genuine VAT exemption takes precedence over the small business regulation under VAT law (e.g. doctors or insurance agents). However, income as a shareholder-managing director, supervisory board member and foundation board member is excluded. When determining profits, operating expenses are to be set at a flat rate of 45% or 20% for service companies. In addition, only social security contributions, the flat-rate workplace allowance and the 50% flat-rate allowance for network tickets for mass transportation used for business purposes can be deducted. The basic tax-free amount of the tax-free profit allowance is also available.

TIP: As there are very often only low operating expenses in the case of sideline income (e.g. lecturing activities, author fees), it can be interesting to make use of the lump sum.

12. "Small business owners" - apply for gsvg exemption until 31.12.2023

Tradespeople and doctors (dentists) can apply for exemption from health and pension insurance under the GSVG (doctors only pension insurance) retroactively for the current year by 31.12.2023 at the latest if the taxable income in 2023 will not exceed € 6,010.92 and the annual turnover in 2023 will not exceed € 35,000 from all business activities. The following are eligible to apply:

• Young entrepreneurs (maximum 12 months GSVG obligation in the last five years) who have not yet reached the age of 57.
• Persons who have reached the age of 60, as well as
• Men and women who have reached the age of 57 (but not the age of 60) if they have not exceeded the relevant turnover and income limits in the last five years.

The exemption can also be applied for while receiving childcare allowance or in the case of partial insurance during the child-raising period if the monthly income does not exceed € 500.91 and the monthly turnover does not exceed € 2,916.67.

TIP: The application for 2023 must be received by the SVS by 31.12.2023 at the latest. If health insurance benefits have already been received in 2023, the exemption from health insurance contributions only applies from the date of receipt of the application.

13. Workplace allowance and network card for the self-employed

The workplace allowance is available for expenses arising from the (partial) business use of your own home if no other space is available for business activities. A distinction is made between the "large" and the "small" lump sum:

• € 1,200 per year is entitled if no other income is earned from active gainful employment of more than € 11,000 for which another room is available outside the home.
• 300 per year if the other active income is more than € 11,000. Expenses for ergonomic furniture are also deductible (also max. € 300 per year).

Since 2023, self-employed persons can deduct 50% of the expenses for a weekly, monthly or annual ticket for a means of mass transportation as a flat-rate business expense without recording the separation into business and private trips, provided that these are also credibly used for business trips. The lump sum can also be taken into account as an additional business expense for the basic lump sum or the small business lump sum.

Note on VAT: 50% of the gross costs are to be recognized as operating expenses, as the actual business use would  have to be proven for the input tax deduction.

14. End of retention for documents from 2016

The 7-year retention obligation for books, records, receipts etc. from 2016 expires on 31.12.2023. These can therefore be destroyed from 1.1.2024. Please note, however, that documents must continue to be kept if they are relevant in pending appeal proceedings (according to BAO) or for pending court or official proceedings (according to UGB) in which you are a party.

For properties that are used for business purposes for the first time from April 1, 2012, a correction period of 20 years applies to input tax in the event of a change in the circumstances that were decisive for the original input tax deduction. The retention period for documents relating to such properties is 22 years.

Note: extended retention period for all documents, receipts and working time records in connection with:

• Short-time work: 10 years from the end of the year of the last payment of the entire subsidy
• Investment premium: 10 years from the end of the calendar year of the last disbursement
• Energy cost subsidies: 10 years from the end of the calendar year of the last payment
• COFAG funding conditions: 7 years

TIP: Regardless of the legal requirements, as a private individual you should keep all documents relating to property. In addition to the purchase contract, this includes above all the receipts for ancillary purchase costs (e.g. legal and notary fees, land transfer tax, valuation costs) and all investments made after the purchase. All these costs increase the actual acquisition costs when determining the capital gain and thus reduce the taxable profit.

In any case, electronic archiving of all accounting documents saves space. In this case, care must be taken to ensure that the identical, complete and orderly reproduction is guaranteed at all times until the statutory retention period expires.

Source: ÖGSW