Tax & Legal News in English July & August 2026

New Residence Permit as a Cross-Border Commuter – No Austrian Residence Required

As of December 1^st, 2025, third-country nationals (non-EU citizens) residing in a neighboring country can work in Austria under an Austrian employment contract, while maintaining their family residence in the neighboring country. An Austrian residence is no longer a requirement for obtaining a residence permit as cross-border commuter. This leads to a simplification of cross-border work for third-country nationals.

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Non-Applicability of Sec 2d Law amending the Employment Contract Law (AVRAG) to training cost agreements without an obligation to establish an employment relationship

The Austrian Supreme Court has clarified that section 2d AVRAG, governing the reimbursement of training costs, is not applicable to agreements concluded prior to the establishment of an employment relationship without an obligation to subsequently enter an employment relationship.

The ruling was prompted by a dispute over the repayment of costs for a pilot training program financed in advance by the employee. Although the training agreement provided for different repayment scenarios depending on whether an employment relationship was later established, neither party was obliged to conclude an employment contract after completion of the training.

While the Austrian Supreme Court acknowledged that section 2d AVRAG may apply to training completed before the start of an employment relationship, this requires a sufficiently close connection between the training arrangement and a future employment contract.

The decision provides important clarification regarding the limits of employee protection under Austrian training cost reimbursement law and confirms that purely pre-contractual training financing agreements remain primarily subject to general principles of civil law.

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Remuneration during parental part-time in the absence of a determinable additional hours and overtime component in an all-in agreement

The Austrian Supreme Court has clarified that, where an all-in remuneration agreement does not specify a clearly identifiable portion attributable to additional hours and overtime, the employee’s remuneration during parental part-time must be calculated on the basis of the entire all-in salary. A subsequent deduction of an assumed additional hours and overtime component based on average additional hours and overtime worked in the past is not permissible.

.While the ruling enhances legal certainty for employees, it also highlights the need for precision in drafting employment contracts. If an employer fails to clearly specify an additional hour and overtime component in the contract, he bears the full risk of having to use the entire all-in salary as the basis for calculations during parental part-time employment.

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Fixed Cost Subsidy and Compensation under the Epidemics Act: An Impermissible "Double Funding"?

In its decision of 15 April 2026 (RV/3100837/2025), the Austrian Tax Appeals Court (BFG) addressed whether a later compensation under the Epidemic Act (Epidemiegesetz) triggers a repayment obligation for an already granted COVID-19 fixed cost subsidy (Fixkostenzuschuss I) under the COFAG-Neuordnungs- und Abwicklungsgesetz (COFAG-NoAG). The court held that COFAG funding conditions and FAQs form part of the private-law funding contract, requiring mutual consideration of EpiG compensation and fixed cost subsidy to prevent double funding for identical days. In the case at hand, the taxpayer disclosed the fixed cost subsidy in the EpiG procedure and reduced the EpiG claim for overlapping periods; accordingly, no double compensation occurred and the fixed cost subsidy remained lawful.

The Tax Appeals Court rejected the tax authority’s view that any later EpiG payment automatically invalidates the earlier fixed cost subsidy for the entire period and found no legal basis for a full clawback under the COFAG-NoAG. Due to divergent Tax Appeals Court case law and the lack of supreme court guidance on COFAG-NoAG repayments, the court allowed an appeal to the Administrative High Court (VwGH), and an official revision has already been filed.

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New statutory rule on shareholder current accounts

For financial years ending in calendar year 2027, a new statutory rule will tighten the tax treatment of receivables in shareholder current accounts involving individual shareholders and related persons. Under section 8 para 2a KStG, such receivables must be settled by the balance sheet date or converted into an arm’s length loan meeting in particular the requirements of written documentation, ongoing interest and a repayment obligation. If no such settlement occurs, the amount exceeding EUR 50,000 is deemed to constitute an open distribution and to have been received for tax purposes on the day following the resolution on the annual financial statements, or at the latest after five months. Companies should therefore review shareholder current accounts at an early stage and ensure timely settlement or proper contractual restructuring.

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No pro rata allocation for double household expenses

In its decision of 30 March 2026, the Austrian Tax Appeals Court (BFG) ruled that double household expenses caused by a foreign assignment cannot be allocated proportionately between Austrian and foreign employment income. According to the Court, such expenses are entirely attributable to the foreign employment activity that caused them and therefore reduce only the progression income. Even if Austrian workdays occur in the same tax year, this does not justify a partial deduction from Austrian taxable income. The decision confirms that the allocation of employment-related expenses is based on the principle of causality.

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Political agreement on the reform of EU social security coordination

The political agreement on reforming the EU social security coordination rules (Regulations 883/2004 and 987/2009) aims to make them clearer, fairer and more enforceable, while better reflecting a highly mobile labour market. It revises key areas such as unemployment, long‑term care and family benefits, access for economically inactive persons, and the rules determining which Member State’s legislation applies to postings and multi‑state work.

For employers and mobile workers, the core changes concern A1 certificates, business travel and short‑term assignments. A1s are to be requested in principle before work abroad begins, with a new “3/30 rule” (no A1 for up to three consecutive working days within 30 days), from which the construction sector is excluded. A business trip is legally defined, monitoring and documentation duties for days and types of activities abroad are tightened, and procedures are to be fully digitalised, including automatic acknowledgements of A1 requests.

After the Parliament approved the provisional agreement on 7 July 2026, the text still needs to be formally approved by the Council, which is likely to happen in September. The new rules will enter into force on the first day of the month following the date of its publication in the Official Journal of the EU, with transition periods of up to 24 months for key elements, particularly the revised A1 regime. Until then, the current rules – including existing A1 and host‑state notification obligations – remain fully in force.

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Identifying Sham Companies and Mitigating Risks

Sham companies are commonly used to evade payroll taxes and social security contributions, facilitate undeclared work, or disguise unlawful payment structures through sham invoices and manipulated documentation. Businesses dealing with such entities may face significant tax, liability and financial criminal law risks.

Typical warning signs include missing operational infrastructure, non-transparent management structures, questionable invoicing practices and unclear employment relationships. To mitigate these risks, businesses should implement robust control measures, including verification of business partners before contract conclusion, documentation of identities and services performed, and ongoing reviews of invoices, payments and tax compliance documentation throughout the business relationship.

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Statistics on fiscal penal offenses

The Anti-Fraud Office (ABB) has published its annual report for 2025. The report includes an activity report for 2025, which provides a statistical overview of the field operations and fiscal penal law measures carried out by the ABB. In 2025, the ABB identified 411 sham companies, which is more than double the number identified in the previous year. The ABB carried out a total of 25,981 regulatory inspections, during which 51,235 employees were checked. In 2025, the ABB imposed administrative and judicial financial penalties totalling around 45 million euros, representing a 50 per cent increase compared to the previous year. Furthermore, tax investigations yielded additional revenue in the amount of approx. 84 million euros. In total the revenue resulting from all measures taken by the ABB increased by 44 per cent compared to 2024. In total, the ABB received 11,730 formal complaints and 9,928 voluntary self-disclosures in 2025. Given the high risks that may arise from tax audits, appeal proceedings and fiscal penal law proceedings, we recommend to seek professional advice in advance.

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Established case law on formal flaws of invoices

According to the case law of the CJEU and the Administrative High Court, the right to deduct input VAT may still be granted if it is established that the substantive requirements have been met. In such cases, however, the taxpayer must be able to demonstrate by other means that the substantive requirements for the input VAT deduction are satisfied. In the present case, the taxpayer failed to provide such evidence.

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