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Austria abolishes tax exemption for gains on long-term real estate holdings

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Previously, capital gains, realised by resident and non-resident individuals on transfer of privately-held Austrian real estate sold after a 10-year holding period, were exempt from Austrian taxation.

Effective April 1 2012, this exemption was abolished. Capital gains from the transfer of real estate in Austria will now be taxed, at a special tax rate of 25% (after December 31 2012, the notary public formalising the transfer will withhold the tax). An option exists for taxation at marginal income tax rates. The taxable income (loss) will be the difference between the sale price and the acquisition cost. Expenses are not, generally, deductible. To avoid the taxation of paper profits, the taxable income is reduced by an inflation allowance of 2% per year up to a maximum of 50%, beginning with the eleventh year after acquisition.

Where Austrian real estate was acquired before April 1 2002, a reduced rate of tax will apply through reduction of the taxable income to 14% of the sale price (an effective rate of 3.5%) or – if a rezoning into construction land has occurred after December 31 1987 – of the taxable income to 60% of the sale price (an effective rate of 15%). The vendor may elect out of this method of calculating tax, if it is not advantageous.

Exemptions from the new tax regime apply for the sale of self-constructed buildings (unless they have been used for earning income within the last 10 years) and for principal residences (used either two years continuously since acquisition or five years continuously within the last 10 years).

Losses from the sale of real estate may be offset against corresponding gains, but not against other income. The new tax regime also applies to capital gains on real estate held as a business asset.

Niklas Schmidt (niklas.schmidt@wolftheiss.com)

Wolf Theiss

Tel: +43 1 515 10 5410

Website: www.wolftheiss.com

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