Business expenses
How does the law define the term business expenses?
Operating expenses are the expenses or expenditures incurred by the operation. They must be demonstrated to the tax office upon its request through supporting documents. The tax office may also require the name of the recipient. Aside from certain luxury expenses, the tax authorities are not allowed to examine the reasonableness of operating expenses. The necessity or economic feasibility is also generally not examined.
Operating expenses are included in the operating income categories; these are:
- Income from agriculture and forestry,
- Income from self-employment and
- Income from business operations
Below you will find an exemplary list of the most important operating expenses, with related bonuses and subsidies also being covered:
Handling fees
Compensation payment to a troublesome partner
Depreciation for wear and tear (AfA)
Backpack
Relatives
Antiques
Down payments
Work clothes
Unemployment insurance
Office room
Training, further education and retraining costs
Basic lump-sum payment
Consulting costs (e.g.: lawyer, notary, tax advisor)
Professional groups' lump-sum tax calculation (§ 17, paragraph 4, EStG)
Bribes
Beverage expenses
Education allowance
Education bonus
Guarantor
Computers
Damnum or Disagio
Loan interest
Diets
Dual household management and family house moves
Collection costs
Professional literature
Travel costs of the entrepreneur
Company or business value
Research awards
Voluntary social contribution for the workforce
Building
Costs of raising funds
Low-value assets
Gifts for customers / clients and business friends
Tax-free allowance (for the tax years 2013 to 2016)
Start-up costs
Incentive travel
Start-up costs
Internet
Meeting fees
Motor vehicles
Mileage allowance
Training for apprentices
Legal costs
Travel costs of the entrepreneur
Damages
Self-employed savings
Social security contributions of the employer
Donations
Sponsorship
Tax advice costs
Taxes
Penalties
Tuition fees
Study trips
Phone, fax
Carpets and Tapestries
Tips
Insurances
Advance payments
Newspapers, magazines
Subsidies to private foundations
The payroll of an employee or the contributions to the employee provident fund amounting to 1.53% of the wage are labor costs and therefore constitute operating expenses.
Compensation payment to a troublesome partner:
A troublesome shareholder damages the company through his behavior, so it is in the company’s interest to remove him. He must have committed actual conduct that damages the company. A severance payment to this shareholder can be an expense for the company if it exceeds the value of his capital account and his share in the silent reserves and the company’s value (overpayment to ward off a disruption in operations). In a capital company, there is a hidden profit distribution. If the capital company acquires the share of the departing shareholder, a comparison with the market must be made.
Depreciation for wear and tear (AfA):
The AfA is the depreciation of the acquisition or production costs for economic assets of the depreciable fixed assets, distributed over the normal period of use. It is mandatory to carry out. If the economic asset is not used for more than six months after commissioning, half of the annual amount is to be depreciated (half-yearly AfA). From a tax point of view, only a linear AfA is permissible, i.e., a uniform distribution over the period of use. Deductions for extraordinary technical or economic depreciation are permitted.
Valuables (see below) can be immediately and in full disposed of.
Income-expenditure calculators must keep an accounting record. In the case of a basic flat-rate scheme pursuant to Section 17(1) of the German Income Tax Act (see below), the claim for the AfA is not permitted.
The normal period of use is to be estimated, unless a legally regulated period of use exists:
- Buildings (without proof of actual use) are eligible for depreciation of up to 2.5% p.a. For buildings leased for residential purposes, the annual depreciation amount without proof of use is up to 1.5%.
- Purchase or production costs for buildings that are protected by the building conservation regulations can be deducted over a period of up to ten years.
- Passenger cars and combination vehicles:
at least 8 years; except for driving school vehicles and motor vehicles used for commercial passenger transport, which must be at least 80% years old; for used vehicles, the total period of use must be at least 8 years. - Company value:
15 years (agriculture and forestry, business operations) - Practical value (enterprise value for free professions):
is not regulated by law; therefore, it must be determined: between 3 and 15 years possible;
see article "Advertising costs briefcase"
Contracts between close relatives are only recognized for tax purposes if
- they sufficiently express themselves externally,
- have clear, unambiguous and excluding any doubt content, and
- also would have been concluded between strangers under the same conditions (cross-comparison).
It is therefore advisable to conclude a written contract with the mutual performance obligations.
"Immediate relatives" are all persons who are in a special relationship with one another, such as:
(former) spouses, relatives, siblings, foster parents and adopted children, partners and their children and grandchildren; persons related by marriage are also considered to be family members, e.g. the managing director in a partnership in relation to a GmbH;
Antiques are items that are more than 150 years old or come from a specific style period. To be eligible for a deduction, the antique must be used commercially (e.g., as a desk). For purchases up to €7,300, the appropriateness check for the amount is waived. Depreciation for wear and tear (see above) is not applicable.
In the income-expenditure calculator, the accrual principle applies; that is, deposits become earnings-effective at the time of payment and are considered operating expenses from that point onwards. Deposits related to depreciable fixed assets must be taken into account in the depreciation allowance (see above).
Expenses for work clothing are eligible as business expenses only if they relate to professional clothing that is equipped with a uniform character that is readily recognizable and practically exclusive to private use. Therefore, expenses for civilian clothing (e.g., suits) are not eligible for deduction, even if the clothing is worn exclusively for professional purposes. Cleaning costs for deductible work clothing can be claimed as business expenses.
The contributions to the unemployment insurance for self-employed individuals are tax-deductible.
Expenses and expenditures for a workroom located within the housing association and its furnishings are generally not deductible expenses and expenditures. However, if the workroom forms the centerpiece of the entire business activity, the expenses and expenditures associated with it, including the costs of its furnishings, are eligible as operating expenses. A workroom is located within the housing association if it does not have access separated from the entrance of the residential building. Additionally, it is required that the workroom is necessary according to the nature of the activity.
Training, further education and retraining costs:
see article "Advertising costs training, further training and retraining costs"
- Section 1 of the EStG allows for a flat-rate calculation of business expenses for income-expenditure calculators that receive income from self-employment or from a business activity. Another prerequisite is that the turnover in the previous business year does not exceed €220,000.
The average rate is either
- 6%, maximum 13,200 €, for freelance or commercial income from commercial or technical advice, income from other self-employed activities, and from a writing, lecturing, scientific, teaching, or educational activity,
- otherwise 12%, at most 26,400 €
the sales.
In addition to the flat fee, the following operating expenses are eligible for deduction:
- Purchases of goods,
- Wages and related costs, including overtime and
- Social security contributions
The tax return must show that the taxpayer is using the lump-sum method.
In addition to the basic flat-rate pricing, there are average rates for certain professional groups (see "Professional group flat-rate pricing" below).
Consulting costs (e.g.: lawyer, notary, tax advisor):
In the case of business-related expenses, these are business expenses.
Tax advisory costs can also constitute special expenses.
Professional groups' flat-rate taxation (§ 17, paragraph 4, EStG):
By decree of the Federal Minister of Finance, average rates for profit determination have been established for certain professional groups. The prerequisite is that there is no accounting obligation (double-entry bookkeeping) and that books are not kept voluntarily.
Such blanket pricing regulations exist, for example, in the field of agriculture and forestry, for artists, sales representatives, and certain business owners.
Money and material benefits the granting or acceptance of which is subject to a judicial penalty are not tax-deductible.
In principle, catering expenses for "catering for business friends" are part of the representation expenses and are therefore not deductible. Such expenses or expenditures may be deducted in half, provided that the catering serves advertising purposes and the business or professional reason far outweighs the operational or professional reason. This must be demonstrated by the taxpayer. The term "advertising" is not clearly defined; essentially, a "product or service information" must be provided.
Accommodation costs are also included in the catering expenses.
Attendant expenses can be fully deducted if the catering is part of the service, has a fee-based nature (e.g., as part of an incentive trip) or does not have a representative component (e.g., catering as part of event marketing).
The education tax credit can finally be claimed in the 2015 tax return!
- External educational institutions
For the training and further education of employees, a training allowance of up to 20% of the expenses can be claimed. The expenses must directly relate to training and further education measures that are carried out in the interest of the employees. - In-house educational institutions
Here too, there is a tax exemption of up to 20% of the expenses for the training and further education of employees. The expenses must again directly relate to training and further education measures that are carried out in the interest of the employees. Furthermore, they must be internal training facilities that are comparable to a part-time branch. They may not offer the training measures to third parties, unless the third parties are intra-group companies, and the activity of these branches must consist in providing such services to the company’s own employees. The internal guidelines must also stipulate that persons who were employees of the taxpayer immediately before receiving the childcare allowance may also participate in the training and further education measures. The costs per training and further education measure may not exceed €2,000 per calendar day, regardless of the number of participants.
In the case of lump-sum taxation, the education allowance is not available.
The education bonus can finally be claimed as part of the 2015 tax return!
The premium amounts to 6% of the expenses. It can alternatively be claimed as an education allowance for external educational institutions. It is not available for in-house training and development and in the case of lump-sum payments. The respective premiums must be claimed after the end of the financial year, at the latest by the entry into force of the relevant income tax, corporate tax or determination decision. This is a tax credit.
If the acquisition of a guarantee is a business-related matter, it may be an operating expense. In the case of a shareholder-manager, the guarantee usually represents an investment for the company.
see article "Advertising costs for computers“
A damnum is the difference between the repayment amount of a liability and the amount to be disbursed. It is to be distributed over the duration of the liability (see also below: "Costs of raising funds").
Loan interest is deductible if the loan serves operational purposes. If the loan is intended from the outset for operational and private purposes, only the portion spent for operational purposes counts as operating expenses (aliquotation).
(see article: "Advertising costs travel costs")
Dual household management and family house moves:
see article "Advertising costs double household management“
Costs that are directly related to the collection of business receivables are operating expenses.
see article "Advertising costs – specialist literature“
Travel costs of the entrepreneur:
Travel expenses are deductible as operating expenses in their actual amount. Mileage is credited for business trips made with a private vehicle (see "Mileage").
The means of transport can be chosen freely. Travel expenses in First Class/Business Class are also fully tax-deductible. With online cards, the private portion must be deducted.
Travel costs between the apartment and the place of work are also deductible, unless the place of residence is for personal reasons located at an unusual distance from the place of work (reference value: approximately 120 km).
Distinguish travel costs from travel expenses (see below)!
s.o. "capital allowances"
The research funding was increased from 1.1.2016 from 10% to 12%.
The following premiums can be claimed for business years starting on January 1, 2016:
- Self-employed research in an in-house establishment/in-house location
There is no limit to the amount, as in the case of commissioned research. The claim for the research grant is linked to a report from the Research Promotion Society mbH (FFG). - Contract research commissioned by an in-house company/in-house facility
The contracted company or the contracted institution must, among other things, have its registered office within the EU or the EEA and be engaged in research activities. The amount of expenses for which a research subsidy can be claimed is limited to €1,000,000 per fiscal year.
The amount of both premiums is 12% of the expenses.
Voluntary social contribution for the workforce:
Voluntary social contributions (e.g. a company outing), especially gifts to employees, are company expenses.
s.o. "capital allowances"
Income-expenditure calculations, including various fees, are jointly subject to tax law and must be calculated over the life of the loan if they are directly related to it. This also applies to income-expenditure calculators when only income-expenditure calculations are involved.
There is a free limit of €900, provided that no activation-required damage has occurred.
Business assets of non-expendable fixed assets whose acquisition or production costs do not exceed €1,000 can be depreciated immediately (see "Depreciation for Consumption"). Business assets that form a unit may not be split into less valuable business assets.
Gifts to customers/clients and business friends:
Occasional gifts to customers or business associates generally count as non-deductible expenses. By way of exception, business expenses may be incurred provided that the gift is predominantly of a remunerative nature or serves advertising purposes and the professional reason predominates significantly. This must be demonstrated by the taxpayer.
Smaller gifts for specific occasions (e.g. Christmas) with an existing business relationship are generally non-refundable.
Gifts to employees are counted as voluntary social contributions (see above).
Profit exemption amount (exempt amount for invested profits):
The profit exemption can be claimed by natural persons as a deduction from the profit of a business entity when determining the profit. The basis for calculation is the profit. The exemption is staggered as follows for tax returns for the years 2013 to 2016: For the first 175,000 €, the exemption is 13%, for the next 175,000 € 7%, and for the next 230,000 € 4.5%. Thus, a maximum of 45,350 € can be claimed per tax year. The basic exemption of 3,900 € is available without actual investment. If the profit exceeds €30,000, the investment-related profit allowance can be claimed. This must be covered by the acquisition or production costs of the qualifying goods. The depreciation allowance (see above) is not affected by this.
Beneficiary economic goods are:
- Non-durable physical assets of the investment portfolio with a useful life of at least four years, attributable to domestic enterprises/establishments
- Housing bonds that are dedicated to the assets of an domestic business or a domestic establishment for at least four years from the time of purchase
No profit exemption can be granted for the following business assets:
- Passenger cars and vans, excluding school-bus vehicles and passenger cars used for commercial passenger transport of at least 80% people
- Aircraft
- Valueless economic goods (see above)
- Used business assets
- Economic goods purchased by a company that is under the controlling influence of the taxpayer
- Economic goods for which a research subsidy is claimed
In the case of lump-sum taxation, only the basic exemption amount applies.
The investment-related profit exemption must be claimed in the tax return. The respective business assets must be listed in a register.
In the case of capital companies, the deductibility of start-up costs is limited by the obligations arising from the company agreement.
Travels that are granted to business partners as a reward or motivation can usually be deducted as business expenses.
Start-up costs are expenses related to the establishment of an operating organization. They are not eligible for deduction and are immediately deductible operating expenses.
In the case of internet costs in the work room of a private apartment, the case law takes partial private use into account. Exclusive business use would have to be proven by appropriate records. If an exact division into private and business portions is not possible, the private portion must be estimated.
Mandatory contributions to chambers are tax-deductible as business expenses.
- motor vehicle predominantly used for business purposes:
Expenses for the car constitute operating expenses. Any private contribution must be deducted. - a vehicle predominantly used privately:
The motor vehicle belongs to the private property. Mileage allowance (see below) or actual expenses can be claimed as business expenses.
- Company car:
The costs are deductible as operating expenses in their actual amount. The mileage allowance scheme is not possible. - Private vehicle:
For business trips using the private vehicle (owned by the taxpayer), mileage reimbursement can be set as an option or the actual costs. The official mileage reimbursement includes, in addition to fuel costs, most vehicle expenses such as vignettes, insurance, and winter tires. Mileage reimbursement is paid up to a maximum annual mileage of 30,000 km.
Below is an overview of the various apprenticeships support programs. Detailed information can be found under www.lehrefoerdern.at available.
- Basic funding
The basic subsidy is granted retroactively to apprentices upon request. The amount of the subsidy is: - for the 1st year of employment: 3 collective contract gross trainee compensations
- for the 2nd year of study: 2 collective contract gross apprentices’ allowances
- for the 3rd or 4th year of study: 1 collective contract gross trainee compensation
In the case of half-time studies, teaching periods and shortening of teaching periods, the basic grant is calculated in aliquot parts.
- Support for companies that employ an apprentice from the Off-site Apprenticeship Program (ÜBA)
- Measures for apprentices with learning difficulties
- Further training for instructors
- Grant of 200 € or 250 € for good and excellent final exams
- Equal access for young women and men to various vocational training programs
- Promotion of preparatory courses for the final exam
- Free start for the final exam after a negative exam
- AMS funding for teacher training
- Girls in professions with a low female representation
- Young people who are disadvantaged in the labor market
- Participants in an inclusive vocational training program
- Adults (over 18 years of age) whose employment problem can be resolved through training due to qualification deficiencies
- Benefiting people with disabilities
If the subject of a civil lawsuit falls within the scope of business operations, the costs are generally deductible. This also applies to the costs of an administrative procedure.
Costs for a judicial or administrative criminal proceedings are only deductible in the event of (partial) acquittal or dismissal of the proceedings due to a reason for decriminalization.
Travel costs of the entrepreneur:
see article: "Advertising costs travel costs“
If the costs are attributable to the operations of the business, they constitute operating expenses. If the damage results from the intentional unlawful conduct of the business owner, no deductible is granted.
Self-employed retirement savings:
Compulsory contributions to a pension fund are tax-deductible. This also applies to self-employed individuals who take advantage of the opt-in option.
Social security contributions of the employer
Contributions to statutory mandatory insurance are, in any case, business expenses.
Insurance premiums for voluntary personal insurance are special expenses.
Donations from the operating assets are eligible for deduction under the following conditions:
- Donations to institutions designated by law, such as universities based in the EU or other countries with which there is comprehensive official assistance, the Austrian National Library, museums, and even voluntary fire departments.
- Certain institutions that have been determined by notice to be eligible for donations. For these institutions, the Federal Ministry of Finance publishes lists on its website. Since January 1, 2012, these include organizations for nature and animal protection.
Donations in cash and in kind are eligible; the amount cannot exceed 10% of the profit for the last fiscal year, after taking into account a profit withholding tax.
In sponsorship, an entrepreneur uses money or material benefits from a specific person or group of people to receive advertising benefits in return.
Sponsorship is only eligible for reimbursement if it is based almost exclusively on business considerations, the sponsor receives an appropriate consideration, and broad public awareness is achieved.
s.o.: "Consulting costs"
Expenses incurred through business operations are tax-deductible (e.g., motor vehicle tax). Personal income taxes (e.g., income tax) are not tax-deductible. When it comes to late payment and default charges, it depends on whether the underlying tax debt is a personal or business tax.
Since 2 August 2011, penalties and fines imposed by courts, administrative authorities or the EU institutions are no longer explicitly deductible.
Penalties that the employer pays for the unlawful behavior of an employee can constitute operating expenses.
see article "Advertising costs training, further training and retraining costs"
see article "Advertising costs training, further training and retraining costs"
In the case of costs for a telephone in the apartment from which operational calls are also made, the financial administration takes a private share. In the absence of precise records of operational calls, the private share is estimated.
Expenditures for tapestries and hand-knotted carpets can constitute operating expenses if they are used for business purposes. If they are located in a work room, the tax authorities assume that there is a predominant private interest, so depreciation is not permitted. The purchase costs must not exceed €730 per square meter (adequacy check). These business assets are not subject to any adequacy check if they are a service (e.g. in a hotel). An allowance for depreciation (see above) is only applicable in the case of technical depreciation.
In the case of business-related reasons, gratuities are tax-deductible. Please note that, if applicable, proof of payment with date, amount and recipient must be provided.
- Personal insurance:
Contributions to compulsory insurance s.o. "Self-employed individuals" savings" and "Employers' social security contributions"
Premiums for voluntary personal insurance are generally considered to be part of the private life of the individual and therefore not considered business expenses. - Property and damage insurance:
If the insurance covers business assets (e.g. business premises) and business management (e.g. professional liability insurance), then it is considered business expenses.
Prepayments that are not subject to activation are to be distributed evenly over the period of the prepayment, unless they only concern the current and the following year:
- Consulting
- Guarantees
- Foreign funds
- Guarantees
- Rent
- Trust
- Placement
- Sales
- Administration
Daily newspapers and magazines with generally interesting content are not eligible for deduction. This is not the case for professional literature (see article "Advertising costs – professional literature").
Subsidies to private foundations:
Subsidies to the following private foundations are operating expenses:
- Corporate purpose funding foundations:
The private foundation serves exclusively and directly the operational purpose of the founding entrepreneur. - Employee sponsorship foundations:
The private foundation serves to support employees who are part of the company. - Employee shareholding foundations:
The private foundation serves to transfer share earnings to (former) employees. - Contributions to the „profit-generating assets“ of non-profit private foundations and comparable legal entities may, under certain conditions, be tax-deductible up to an amount of €500,000 (for a period of five years).
For detailed information, please contact us!
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