2009 Tax Reforms Herald Good News For Austrian Taxpayers

by Ulrika Lomas, Tax-News.com, Brussels

24 November 2008

Sweeping tax reforms, approved by both the Social Democratic Party of Austria and the Austrian People’s Party, and due to enter into effect from January 1, 2009, aim to ensure relief for all taxpayers, amounting to significant annual savings of up to EUR1,350. Other measures intended to provide tax breaks for families have also been announced.

Details outlined in the reforms signify that, from next year, an additional 200,000 individuals will fall outside the threshold at which income tax becomes imposed. Moreover, around 67,000 taxpayers will benefit from proposals to increase the level at which the top rate of income tax is applied.

Key initiatives for 2009, agreed by both parties, are summarised as follows:

  • The threshold from which income tax will be levied, will be raised from EUR10,000 to EUR11,000, instantly exempting around 200,000 individuals from the tax.
  • The initial rate of tax, for those with a taxable income of between EUR11,000 and EUR25,000 per year, will be lowered from 38.3% to 36.5%.
  • Regarding the middle rate of tax, this will be reduced from 43.6% to 43.2%, for individuals with a yearly income of between EUR25,000 and a revised EUR60,000.
  • Although the highest rate of income tax will remain static at 50%, the level at which this will be levied will be increased to EUR60,000.

Measures contained in the 2009 reforms designed to benefit families include:

  • Raising the tax allowance from EUR610 to EUR700 a year, or from EUR50.90 to almost EUR60 per child per month. Families exempt from income tax are also able to claim the benefit.
  • Introducing a new children’s tax allowance, amounting to EUR220 per child per year, thus reducing the tax base, yet only applying to taxpaying families.
  • Enabling annual external child care costs of up to EUR2,300 to become tax-deductible, again, purely aimed at those families already subject to tax.

Recently highlighted by the Organization for Economic Co-operation and Development as a country placing huge burdens on its taxpayers, these long-awaited tax reforms mark considerable progress for Austria.

The tax reforms will be concluded in the spring of next year and, once ratified, are due to enter into force retroactively from January 1, 2009.

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