In practice, many questions still arise with regard to the granting of the tax-free employee profit sharing created by the Eco-Social Tax Reform. The Federal Ministry of Finance already published information on this in March and has now answered a number of further questions, which will be taken into account in the next maintenance of the Income Tax Directive. In addition, the Wage Accounts Regulation has been adapted with regard to the payment of a cost-of-living bonus.
Employee profit sharing
Overview
As of January 1, 2022, active employees may, under certain conditions, participate tax-free in the employer's profits up to a maximum of EUR 3,000 per calendar year pursuant to Section 3 (1) no. 35 of the Austrian Income Tax Act (EStG). The prerequisites are, among others, that the profit sharing is granted to all employees or certain groups of employees, is not based on a wage-forming regulation and is not paid in lieu of the previously paid salary or a customary wage increase. In addition, the total amount of profit sharing granted may not exceed the previous year's earnings before interest and taxes (EBIT). Although the employee profit-sharing is exempt from wage tax, it is subject to social security and non-wage labor costs, in contrast to the cost-of-living bonus (see below). In the event of payment of a (tax-free) employee profit sharing, employers are obliged to record it in the payroll account (cf. Section 2 no. 1 of the Wage Accounts Ordinance).
Update
In a reply letter (reference number: 2022-0.513.910), the Federal Ministry of Finance made the following statements, among others, for clarification:
- Active employees: This refers to persons who are in a valid employment relationship (under labor law). It has now been clarified that the tax exemption is not based on the duration of active employment in the company (not even in the underlying year in which the profit was generated). The term "employee" is based on Section 47 of the Austrian Income Tax Act. In the case of a managing director of a limited liability company who holds a non-significant interest of 25% and who has a blocking minority, this is not an employment relationship under labor law, but under tax law he is deemed to be an employee within the meaning of Section 47 of the Austrian Income Tax Act (EStG) and therefore meets this criterion for tax-exempt employee profit sharing.
- Group formation: Any group formation must be based on objective and comprehensible criteria. In this regard, it has now been stated that a branch, a department, a company, etc. can be used as a criterion for delimiting a group, whereas the characteristic of being an "all-in recipient" is not suitable as the sole delimitation criterion. Furthermore, the formation of subcategories is also permissible, provided that the group is formed according to objective, comprehensible criteria and that this group formation does not represent a circumvention of an individual performance reward. Furthermore, in the case of profit sharing being granted to a defined group of employees as well as to individual employees who do not belong to a group, it has been clarified that the tax exemption does not cease to apply to all employees, but that the profit sharing is only taxable for all those who do not form a corresponding group.
- Key data: It was further clarified that profit sharing does not have to be based on company-related key data. The only decisive factor is that all employees or groups of employees participate in the profit and that any group formation is comprehensible on the basis of objective criteria and does not turn out to be a circumvention for an individual reward. A tax-free employee profit-sharing scheme can therefore also be paid out if neither the payment of a bonus nor its amount is dependent on a specific performance indicator of the company, provided that the other requirements are met. The entitlement to a bonus can also be based on compliance with a cost budget, branch growth, etc., as well as non-financial indicators (e.g., achievement of sustainability targets, customer satisfaction targets), provided that these are objective and comprehensible criteria.
- Wage-forming regulation: It was stated that the additional granting of a profit share to a - due to an entitlement under a collective agreement - non-tax-privileged profit share is permissible and possible tax-free if all other requirements are met.
- Wage type: The settlement of the tax-free EUR 3,000 in a tax-free wage type (with annual sixth neutrality) and taxable amounts of profit sharing in excess of this in a wage type created as other remuneration in accordance with Section 67 (1) and (2) of the Austrian Income Tax Act (applying the tax-free amount, offsetting against the annual sixth, etc.) is permissible.
Cost-of-living bonus
Overview
The cost-of-living adjustment package also allows employers to pay out bonuses and allowances of up to EUR 3,000 per year to employees free of tax in the calendar years 2022 and 2023 (so-called cost-of-living bonus). Neither wage tax nor social security contributions nor ancillary wage costs (employer‘s contrubition to the family equalization fund, supplement to employer’s contribution, municipal tax) have to be paid. However, part of the maximum amount (EUR 1,000) is subject to the existence of a corresponding provision in a wage agreement (e.g. collective agreement).
Update
Consequently, the Wage Accounts Ordinance has now also been amended accordingly (Federal Law Gazette, BGBl II 303/2022). In the event of a payment, employers are now required under Section 5 (4) of the Wage Accounts Ordinance to include the (tax-exempt) cost-of-living bonus under Section 124b(408) of the Income Tax Act in the wage account and to indicate the amount of the bonus paid on the basis of a wage-forming regulation.
Contact:
Talk to our BDO experts Julia Mäder und Thomas Neumann.
Julia Mäder
julia.maeder@bdo.at
+43 5 70 375 - 1521
Thomas Neumann
thomas.neumann@bdo.at
+43 5 70 375 - 1720
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