Agreement on Double Taxing
Tax registration is carried out at the respective tax office; relevant tax office is assigned according to the headquarters of the company.
Registration is due within 30 days after the foundation on a company; for Austrian legal entities not having permanent seat in Slovakia the tax registration is due at the latest on the first day of running the activities subject to tax duty in Slovak Republic.
Agreement on Double Taxing in Details
Agreement on avoiding double taxing in the field of income tax has been valid since 1 Jan 1979 and it followed a model OECD agreement. By force of the BMF (Federal Finance Ministry) decree dated 27 Jan 1993 it was possible to claim that the Agreement on double taxing can be also applied for succession states of former Czechoslovakia. The Agreement is valid for the persons having their seat in Austria or Slovakia Republic. In case of a natural person their seat is defined by the criteria in the following order:
- permanent seat
- centre of attention in case of double residence
- current residence
- agreement of offices
In case of legal entities and companies the permanent seat is defined
by the place of their real company administration.
In the context of Agreement on double taxing the term “company workplace“ is of an essential significance. However, workplace in the context of Agreement on double taxing is not different from a workplace as defined by the Slovak internal tax law.
Workplace is a permanent business facility where a complete or partial activity of a company is carried out. Construction and building sites existing less than 12 months, warehouses and information offices providing only auxiliary activities are not considered to be workplaces. In such cases, business owner’s workplace is considered to be the representative if they are in possession of power of attorney allowing them to sign a contract including a regular activity in another country and they are no independent representatives (e.g. broker, commissioner, sales representative). The most frequent form of workplace is a branch (former “agency”).
According to the Agreement on double taxing a workplace is founded in case of a construction with duration exceeding 12 months as well as in case of submission to another sub operator or in case of partial presence in Slovak Republic.
Workplace’s income is the one that would be achieved by a workplace if it was an independent company. Thus all the expenses commercially connected to the workplace are tax-deductible even if they are carried out abroad. On the other hand is in Austria necessary to single out the income from the domestic tax base assessment even in case it is different from the profit share subject to taxation in Slovakia
(Federal Finance Ministry, 21 Jun 1993).
Losses are counterbalanced with incomes of an Austrian company in the same year. However, in the following year, after the realization of loss (balancing with positive income), additional taxation is carried out in Austria to avoid double including of the loss (according to judicatore 25 Sep 2001, no.99/14/0217, and according to planning connected to the tax reform 2005).
Losses of a Slovak daughter company can also be compensated with a partial deduction of value in Austria (this regulation is only valid for the year 2004 and it is supposed to be changed after the tax reform in 2005 as it is planned to start taxation of the groups which will enable the realizations of losses of daughter companies based abroad at certain amounts of share).
b) Dividends are subject to 10% withholding tax. It is also necessary to take into account that e.g. income of limited partners count as dividends in Slovakia. Withholding tax is added in another country. Dividends relating to a company’s investments in another company, mostly in the amount of minimum 25%, which are free of tax in Austria, are an exception and in their case an addition is not possible.
c) Interests are taxed in the country of the receiver, withholding tax cannot be held up. Royalties for using patents, patterns, models, brands and know-how, or for the right to use industrial, commercial or scientific equipment (e.g. leasing rate), are subject to withholding tax which is added in the country of the receiver. It is not permitted to deduct any withholding tax for using copyrights. Payments for services (e.g. consulting) are not considered to be royalties.
d) Wages are strictly taxed in the country of the supplier’s residence. If an activity is carried out in another country the appropriate wages taxed in another state can be paid for it.
Taxation in the country of residence is possible only in case the employee does not spend more than 183 days in another country in one calendar year and the wage is paid by or to an employer not having a seat in another country and at the same time the wage is not paid by a workplace or a permanent facility owned by the employer in another country (e.g. in connection with supplies or contributions)
Agreement on double taxing does not include any own regulation of cross-border work.
e) In order to avoid double taxing an additional exemption method with the condition of progression is used. Withholding tax is only added in case of dividends and royalties.
Source information: (c) WKO/The Austrian Federal Economic Chamber