New developments in connection with secondments or personnel leasing from Artus, Austria
Published on December 16, 2022
In 2022, changes have occurred in some areas with regard to cross-border activities. This is not least due to the normalization of the Covid situation in the area of social security or due to decisions of the AT supreme court (for example in connection with family benefits or withholding tax for inbound personnel leasing). Below you will find a small excerpt of the most significant changes.
Reduction of withholding tax to 14%
Withholding tax is due, among other things, when employees are leased to Austria. In order to ensure the taxation of the employee's income in Austria, it was previously necessary for the hiring company to withhold 20% withholding tax on the remuneration invoiced by the lending company, unless an exemption notice was available. If the employees file a tax return in Austria and the taxation of wages and salaries is thus ensured, the lending company would be entitled to a refund of the full withholding tax upon request. To ensure that no withholding tax is withheld at all, an exemption notice is required upfront and, at the same time, Austrian payroll accounting must be carried out for the leased personnel.
With the Alignment Regulation for implementation of Double Tax Treaties, the AT Ministry of Finance is reacting to a ruling by the Higher Administrative Court, according to which only the wage portion may be subject to withholding tax. This is because, in the case of personnel leasing to Austria, the leasing company does not establish a permanent establishment in Austria. Consequently, it would not be appropriate to levy a withholding tax on the profit share contained in the remuneration for the provision of labor. Only the income of the leased employee (due to the economic employer) may be subject to Austrian taxation. As of 2023, it will generally be possible to withhold the withholding tax of 20% only on 70% (=14% effective tax burden) of the remuneration for services rendered, unless payroll accounting is carried out in Austria anyway. However, an application for exemption is required. In this application, it must be indicated whether a lump-sum taxation based on 70% of the invoice amount is to be claimed or whether a voluntary payroll accounting is to be carried out.
As of September 1st, 2022, a flat 6% withholding tax will be refunded on all open refund claims (equivalent to reducing withholding tax from 20% to defacto 14%).
Changes in the areas of home office and social insurance
In principle, an employee within the EU/EEA can be subject to social security obligations in only one country. The territoriality principle (place of activity) applies primarily. If the employer and the residence of the employee are not in the same country or if an employee works in two countries (e.g. in his member state of residence for more than 25% of his total working time, such as in a home office), the member state of residence may be entitled to collect social security (soc.sec.) contributions for the worldwide income subject to soc.sec. (according to the coordination rules of the Reg. (EC) 883/2004).
During the pandemic, the EU Administrative Commission for the Coordination of the Social Security System decided on a exception in this respect, according to which the social security responsibility does not change to the Member State of residence due to a Covid-related home office activity (especially if the employer is not domiciled in the employee's Member State of residence).
However, as of June 30th, 2022, this Covid exception has basically expired. The Administrative Commission then published a guidance note, especially since the normalization of the Covid situation means that "force majeure" can no longer be used as a valid legal basis as of July 1st, 2022. Therein it was stated that cross-border home office activity occurs when the employee performs his activity outside the place of work where he usually works. According to the Administrative Commission, home office only exists when the same activity that was previously performed at the employer's workplace is now performed at the employee's premises, and not, for example, when the employee works at the customer's premises. The following possibilities for determining the applicable legal provisions are provided for in the guidelines:
- secondment according to Art. 12 Reg. (EC) 883/2004
- If home office is not part of the usual work rhythm (e.g. renovation of office premises, care of sick relatives in addition to temporary work in the home office, extension of a vacation stay), it can be assumed that it is a secondment (retention of the existing soc.sec. responsibility for up to 24 months)
- Multiple activity according to Art. 13 Reg. (EC) 883/2004 (collision norm)
· If the home office activity is performed on a regular recurring basis.
·25% limit applicable if the 25% activity limit in the member state of residence is exceeded in a 12-month period change of soc.sec. responsibility to the member state of residence.
- However, the Administrative Commission pleads for more flexible solutions (see below bilateral agreement between AT-GER)
- Exemption agreement according to Art. 16 Reg. (EC) 883/2004
- Retention of the soc.sec.responsibility of the state in which the company is a resident in the case of home office activity extending beyond the 24 months (approval in the interest of the persons concerned, e.g. in the case of care for sick family members).
In order to avoid abrupt changes in social security jurisdiction, the Corona exception rule was initially extended until December 31st, 2022 and now until June 30th, 2023 by the Administrative Commission to give those affected time for necessary planning measures and processing.
This means that as of July 1, 2023, there could be a change in soc.sec. responsibility if a significant activity (at least 25%) is still performed in the home office. This can lead to the employer having to register in the other state (namely where the employee works in the home office) and to pay soc.sec. contributions there.
Due to the more flexible arrangement pleaded for by the Commission, Austria has reached a bilateral agreement with Germany, according to which, as of January 1, 2023, up to 40% of the activity can be performed in the home office upon request, without a change of soc.sec. responsibility to the state of residence. The application of this 40% limit can be requested for a maximum of two years, but extension requests are possible. The application must be submitted to the “Dachverband der Sozialversicherungen” (DVSV). Due to the extension of the exception by the Commission, the agreement with Germany will not be effective until July 1, 2023.
Negotiations with other neighboring countries of Austria are in progress.
Example: M is employed by the Austrian employer A. At the beginning of 2023, M agrees with his employer that he will work from his German place of residence. Thereupon, an application is filed with the DVSV for the period 1.1.2023-31.12.2024. Especially since the bilateral agreement with Germany will only become effective as of July 1st, 2023 (since the Covid exception still applies until that date) M could also work more than the agreed days in the home office until that date. Austria remains the competent state for social security. As of July 1st, 2023, the home office activity may amount to a maximum of 2 days per week.
Social security agreement with Brazil
In relation to third-country states, there is a risk of double taxation with soc.sec. contributions for one and the same income. In order to avoid this, soc.sec. agreements have been concluded with a number of countries. These agreements are intended to coordinate social security responsibilities when working in the contracting states.
On May 17th, 2022, Austria signed a soc.sec.agreement with Brazil. It is not yet clear when the agreement will come into force. According to the agreement, the obligation to be insured in Austria continues for a further five years in the case of secondment to Brazil, provided there was an obligation to be insured in Austria for at least one month before starting work in Brazil. An extension is not possible. During these five years, there can be no obligation to pay contributions in Brazil. After expiration of these five years, an interruption of the activity in Brazil must take place for at least one year, so that no insurance obligation is triggered in Brazil. After this year, the 5-year period starts anew.
Health insurance is not regulated in the agreement. Any medical expenses would have to be borne by the employer; it is recommended to conclude a private health insurance.
AT family bonus plus for children abroad:
Since 2019, it has been possible to claim for family bonus plus for eligible children. This is a deduction that directly reduces the tax burden by EUR 2,000 annually (2019-2021: EUR 1,500 annually) in full. The entitlement lasts as long as the child is entitled to Austrian family allowances (until the age of 18 or beyond if the child is studying, for example). From the age of 18, the Family Bonus Plus is reduced to EUR 650.00 per year (2019-2021: EUR 500.00).
For children living abroad, the family bonus plus could previously only be claimed if an application for marginal payment (“Differenzzahlung”) was filed in Austria (for example, because the foreign state is primarily responsible for the payment of family benefits). Even if the family benefits are higher abroad and the difference payment would have amounted to EUR 0.00, this (zero) decision was previously necessary in order to be able to obtain a family bonus plus for parents who work and are liable to pay tax in Austria. In the course of the Administrative Court decision of April 4th, 2022 (Ra 2021/15/0067), it was decided that an application for a marginal payment was no longer necessary. It is not important to file an application or to actually be entitled to family allowances in Austria, but only to meet the eligibility requirements for family allowances, regardless of the EU/EEA country, if one of the parents is obliged to pay social security in Austria. If there is no soc.sec. obligation in Austria, the children would have to live in Austria in order to meet the eligibility requirements for the family bonus plus.
Swiss AHV pensions
The Swiss and Austrian authorities agreed on April 7th, 2022 that pension payments from the Swiss old-age and survivors' insurance (AHV) to a tax resident of Austria fall under Article 21 (other income) of the double taxation agreement between Austria and Switzerland and not under Articles 18 or 19 Double Tax Treaty AT-CH, which concern pensions. This income may therefore only be taxed in the country of residence, regardless of whether the pension recipient worked in the private sector or in the public sector.
We will be happy to provide more detailed information should any of these topics be relevant to you. In particular, please keep an eye on the date of expiry of the Covid exception rule with regard to social security jurisdiction (July 1st, 2023) in case you employ staff working in another EU/EEA member state.
Michael Obernberger
Partner, tax advisor
M.Obernberger@artus.at