Amendments of the taxation of funds in Austria

At a glance

• To check the applicability of the 27.5% special income tax rate for individual investors, it is recommended to flag income from privately placed bonds and non-bank-based private loans, for both closed end and open-end funds, to assess whether it exceeds the 20% tax de minimis rule.

• The Austrian tax authorities plan to amend the Austrian fund reporting scheme, which will be submitted to the Austrian Kontrollbank (OeKB) in due course.

• The amendments for closed end and open-end funds will be applicable for fiscal years beginning after 31 December 2023.

A closer look

Amendments of the taxation of funds in Austria

In the course of the recently published Austrian Venture Capital Fund Act (WKFG), amendments to the tax provisions of the Austrian Investment Fund Act (InvFG) and the Austrian Income Tax Act (EStG) were conducted.

Applicability of the 27.5% special income tax rate for individual investors

Closed end funds (private placement funds)

According to the WKFG, other closed-end funds are entitled to acquire illiquid assets, up to 20% of the fund’s total assets under certain circumstances. Given that these types of investments often result in income subject to deemed distribution or income not subject to the special income tax rate of 27.5% and final taxation for individual investors in the fund, the Austrian Investment Fund Act (InvFG) is extending the tax de minimis rule from its current 10% in relation to the entire income of the fund, to 20%.

The tax de minimis rule states that income which is not subject to the 27.5% special income tax rate and final taxation, i.e., income from private placement bonds or private loans, is converted into income subject to final taxation if this income does not exceed 20% of the entire income of the fund. This means, individual investors do not have to file an income tax return and the before mentioned income will be subject to tax at the individual progressive income tax rate (up to 55%) for income from private placement bonds and private loans if the 20% tax de minimis rule is not exceeded.

It is therefore recommended, to flag income from private placement bonds and private loans (not based on a bank transaction) to assess whether the 20% tax de minimis rule is exceeded. The Austrian tax authorities also plan to amend the Austrian fund reporting scheme, which will be submitted to the Austrian Kontrollbank (OeKB) in due course.

Open end funds (public placement funds)

The amendment in the Austrian Income Tax Act (EStG) states that when a public offering is required for the special income tax rate to apply, i.e., private placement bonds, conducting a public offering for the fund’s shares is considered as compensating for the missing public placement of the underlying asset, i.e., bond, within the fund. This results in the application of the 27.5% special income tax rate and final taxation for individual investors, instead of the progressive income tax rate.

However, interest income from a private loan (which is not based on a bank transaction), should be subject to the special tax rate even if the shares in the fund are offered to the public according to the official notes to the amendments in the EStG. The application of the 20% tax de minimis rule for this kind of interest income received by open end funds is not yet confirmed by the Austrian tax authorities.

Similar to the closed-end funds, it is recommended for open-end funds investing in private loans (not based on a bank transaction) to flag the corresponding interest income for accurate investor tax reporting to the OeKB.

The above mentioned amendments for both closed-end and open-end funds will become effective for fiscal years of funds beginning after 31 December 2023.

Deloitte can assist in determining whether the application of the 27.5% special income tax rate and final taxation on this income for individual investors can be achieved, as opposed to the progressive income tax rate.