Some things have stayed the same, but the changes require a closer look.
Stability Act 2012 – Introduction of Real Estate Income Tax (“ImmoESt”)
The Austrian Stability Act of 2012 brings with it new regulations for the taxation of real estate. There are new restrictions regarding the deduction of input tax in the case of the construction of a building, and there will be a new taxation system concerning capital gains from the transfer of real estate.
Taxation of capital gains from transfer of real estate
Until now, gains from the sale of real estate (land and buildings as well as related land rights) were taxed if the transfer was realized within a speculative period of 10 years after acquisition (extension of time up to 15 years in case of tax-privileged expenditures in manufacturing). This speculative profit was taxed using the normal progressive tax scale – up to 50%. After the speculative period of 10 (or 15) years has elapsed, the capital gain from the transfer was tax-free.
Due to the Austrian Stability Act 2012, private gains from the transfer of real estate will be taxed regardless of the period of ownership. This new taxation system went into force on April 1, 2012. The taxable base is the difference between acquisition costs and sales revenue. Additional costs such as conveyance duty, cadastral register charge or notary costs increase the acquisition costs. In contrast to the original taxation system, other expenses such as estate agent costs or external financing costs are not to be deducted. Exceptions to this new taxation regime remain as before – principal residence or buildings one builds oneself.
This new taxation regime not only covers recently purchased real estate – older real estate is also covered by the new system. This older real estate, which is defined as having been purchased before April 1, 2002, and which otherwise could now be sold tax-free, is given special tax treatment – it is assumed that this real estate could be sold after March 31, 2012, with a 14% increase in sales price. Value enhancement due to reallocation from grassland to building land is accounted for with a 60% increase of the sales price (for reallocation towards December 31, 1987). In case of donation or inheritance, acquisition costs will be adopted from the assignor.
Real Estate Income Tax (“ImmoESt”)
Income from the transfer of real estate will be taxed with a 25% withholding tax in line with the taxation of capital gains of stocks. Taking the 25% withholding tax as a basis, for older real estate there will be an effective tax burden of 3.5%; in case of reallocation there is an effective tax burden of 15%. Nevertheless, it is possible to opt into progressive taxation (e.g. in case of lost compensation).
The tax-free transfer of real estate is no longer possible after March 31, 2012. Since that date, capital gains from the transfer of real estate are taxed with a withholding tax of 25% (“ImmoESt”). In case of non-resident taxation, this new real estate income tax will also be applicable if there are gains from the transfer of Austrian real estate.