The eco-social tax reform - planned relief

The eco-social tax reform is currently in the form of a draft bill for review and has the combating of the climate crisis as its central concern (after all, Austria is to be climate-neutral by 2040 at the latest). While the aim of ecological enhancement is also associated with tax burdens, which are intended to have a steering effect, many compensatory measures are also provided for. The following provides an overview of important aspects. As always, the legislative process remains to be seen.

Reduction in income tax

With effect from 1 July 2022, the second bracket in the income tax scale is to be reduced from 35 % to 30 %. The reduction of the third tax bracket from 42 % to 40 % is set to follow from 1 July 2023. Mixed tax rates will apply for these calendar years.

Increase in the Family Bonus Plus and the Child Supplement

The Familienbonus Plus is to be increased from €125 to €166.68 per month for children up to 18 years of age from July 2022. This also applies to children aged 18 and over, from €41.68 per month to €54.18 per month. Regarding the child supplement, the draft bill provides for an expansion of the circle of eligible persons as well as a phased increase (up to €350 per child instead of up to €250 for the year 2022, and up to €450 per child from the year 2023).

Employee profit-sharing schemes

An exemption from profit-sharing schemes for employees can not only contribute to sustainable financial security and an increase in liquid assets on the part of employees, but also lead to a strengthened bond with the employer's company. In order to make employee participation in the company's success more attractive, a subsidy for employee profit-sharing schemes is to be introduced as part of the eco-social tax reform from 1 January 2022. This should amount to a maximum of €3,000 per employee per year and is linked to the existence of a profit by the employer. Specifically, the profit of the previous tax year must be used, which represents the upper limit for all profit shares paid out tax-free to employees in the calendar year. The tax-free profit share in the form of an allowance may, of course, not be granted in lieu of previously paid wages or a usual wage increase.

Increase in tax-exempt profit allowance

The profit allowance, currently set at 13 %, is to be increased to 15 %, thereby enabling a maximum tax-free basic allowance of €4,500 (to claim an allowance in excess of €30,000 as the tax base, corresponding investments must still be made). The increased profit allowance is to apply to financial years from 1 January 2022 and is intended to provide targeted relief for sole traders and partnerships in the SME sector, which do not benefit from the reduction in corporation tax.

Reintroduction of the investment allowance

As a measure to promote economic growth, a modernised investment allowance is to be introduced (applicable for the first time to assets acquired or manufactured (completed) after 31 December 2022). Under this scheme, 10 % of the acquisition or production costs of depreciable fixed assets will be deductible as business expenses. Where such assets relate to environmental sustainability, the investment allowance increases to 15 % (as an incentive for climate-friendly investments). In any case, the modernised investment allowance is to be capped at acquisition/production costs of €1 million per financial year – a pro rata calculation must be made for short financial years. The draft report considers the simultaneous use of similar preferential measures, such as the investment-related profit allowance or the research premium, to be unproblematic due to the cap. Similarly, the investment allowance does not affect ongoing depreciation. An important prerequisite for claiming the allowance is the existence of a business income category, whereby profit must be determined either by comparing business assets or by means of a full income and expenditure account (no flat-rate method!). Furthermore, the assets must have a normal useful life of at least four years and be of domestic origin. Generally excluded from the investment allowance – similar to declining-balance depreciation – are buildings, low-value assets, assets related to fossil fuels, etc.

Limit for low-value assets is increased

The limit for the immediate write-off of low-value assets is to be increased from €800 to €1,000. Through this repeated increase in the amount limit, it will be possible to immediately deduct the acquisition or production costs of depreciable fixed assets up to this amount as business expenses or income-related expenses for tax purposes, respectively. The aim of this measure, which will apply to business years after 31.12.2022 in the commercial sector and from assessment year 2023 onwards in the private sector, is to simplify processes and create further investment incentives. One simplification through the immediate deductibility of these assets is that no fixed asset register needs to be kept and the expense is not spread over several years.

The transition from fossil fuels to climate-friendly systems is being promoted

To implement the heating strategy, a supportive tax instrument should also be created, which promotes the replacement of a fossil fuel-based heating system ("boiler replacement") with a climate-friendly system (such as district heating). Likewise, the thermal renovation of buildings should be encouraged in the form of special expenses. A key feature of this relief is therefore that only private expenses should be taken into account, but not business expenses or income-related expenses.

Reduction of corporation tax

As a signal in the international competition between business locations, corporation tax is to be reduced to 24 % in 2023 and to 23 % from 2024 onwards. The change also affects the interim tax for private foundations and the withholding taxes on corporate income subject to capital gains tax (KESt) and property income tax (Immo-ESt).

Reduction in health insurance contributions

Part of the eco-social tax reform is also to include a reduction in health insurance contributions borne by the insured for low and middle incomes. Effective from 1 July 2022, the reduction is to be implemented according to a legally defined tiered system depending on the amount of the monthly contribution base. These are fixed amounts that are not subject to annual revaluation. The implementation for the respective group of insured persons will take place within the framework of the relevant social insurance laws.

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