Key Takeaways
- Austria’s tax treaty with the United States makes it a relatively tax-friendly country for U.S. expats.
- While Austria doesn’t impose an inheritance tax, it’s important to carefully evaluate your current estate planning strategies to make sure they’re compatible with Austria’s civil law system.
- A qualified international wealth manager can help you navigate your financial challenges as a U.S. citizen living in Austria.
Known for its stunning Alpine scenery, rich classical music heritage and delicious cuisine, Austria is an attractive destination for many U.S. expats. If your travel to Austria has inspired you to move there as a permanent resident, it’s important to be prepared. Following are four important financial planning considerations to keep in mind as you plan your move.
Financial Planning Considerations for U.S. Expats
Leveraging the U.S.-Austria tax treaty
Overall, Austria is a tax-friendly destination for U.S. expats. One main reason is that the United States has an income tax treaty with Austria, which helps ensure U.S. citizens aren’t double taxed on their income. Specifically, the treaty allows U.S. citizens to claim a foreign tax credit for income taxes they pay to Austria, which can be used to offset their U.S. tax liabilities. Austria offers a reciprocal tax credit for U.S. taxes paid on U.S.-based income.
For example, let’s say you’re living and working in Austria and earn an annual salary equivalent to $120,000. You pay $49,000 in Austrian income taxes. Your U.S.-based tax liability on this income is $44,000. Under the tax treaty’s provisions, you can claim a foreign tax credit of $49,000 on your U.S. tax return. This reduces your U.S. tax liability to zero and provides you with a $5,000 tax credit that can be carried over to future years.
The U.S.-Austria tax treaty also prevents you from paying into both countries’ Social Security systems simultaneously. Typically, you’ll only contribute to the system of the country for which you work.
Estate Planning Under Austria’s Civil Law System
Austria abolished its inheritance tax in 2008, but there are some important complexities to keep in mind as you structure your estate plan. Austria has a civil law structure, which dictates that a portion of a deceased person’s estate must automatically transfer to specific heirs. Compared to the United States’ common law structure, Austria’s structure makes it much more difficult to control the distribution of your assets.
Because of this, trusts generally aren’t effective estate planning tools for Americans living in Austria. In fact, U.S.-based trusts are typically viewed by Austrians as private foundations, which are subject to significant foundation transfer taxes. If you’re a U.S. citizen, it’s possible to elect EU Succession Regulation 650/2012 in your Austrian will so that forced heirship isn’t your default distribution option.
Before moving, it’s wise to consult with an experienced international wealth manager and estate planning attorney who are familiar with the estate planning challenges of Americans living in Austria. These professionals will evaluate the appropriateness of any trusts currently included in your estate plan and help you establish strategies that are in line with Austria’s tax code and civil law structure.
Understanding Austria’s investment tax structure
Austria typically applies a flat withholding tax on investment gains, which is assessed in euros regardless of what currency the assets are held in, as follows:
- Capital gains – The standard rate for capital gains on stocks, bonds and other investments is 27.5%.
- Bank interest – Interest on bank deposits is taxed at 25%.
- Real estate – Income from the sale of private real estate is taxed at 30%
Compared to U.S. capital gains tax rates of 0%, 15% or 20%, Austria’s rates are significantly higher. And if you inadvertently invest in a passive foreign investment company (PFIC), you may incur additional liabilities, as the United States imposes significant punitive tax penalties on Americans holding PFICs.
At Creative Planning International, we’ve created a U.S.-based portfolio compiled of exchange-traded funds (ETF) specifically for our U.S. expat clients living in Austria. Positions chosen for these portfolios report annually to the Oesterreichische Kontrollbank (OeKb), which provides both U.S. and Austrian tax efficiencies for U.S. citizens in Austria.
Your international wealth advisor can help you identify additional strategies to help reduce your investment tax exposure.
Navigating Austria’s universal healthcare system
If you live in Austria and work for an Austrian company, you’ll be automatically enrolled in the public health insurance system, and contributions to the system will be deducted from your paycheck. If you’re self-employed, you’ll need to register with a public insurance provider, such as the SVS (Sozialversicherungsanstalt der Selbständigen) or the ÖGK (Austrian Insurance Fund).
If you wish to supplement your public insurance coverage, it may make sense to purchase a private international health insurance policy. Your international wealth manager can help you identify a policy that meets your needs.
