Budget Accompanying Act 2025 under review
The eagerly awaited draft of the Budget Accompanying Act 2025 (BBG 2025) was submitted for review on 2 May 2025. With the aim of consolidating the budget and promoting fair taxation, this proposed legislation is intended to provide relief and support for companies and their employees as well as to reduce the burden on citizens – and targeted measures should help to reduce the budget deficit.
Austria is currently in a challenging economic situation. With domestic economic output shrinking by 1.2% in 2024, a greater decline than in 2023 (-1%), Austria is experiencing the longest recession in the Second Republic. According to a study by the Austrian Institute of Economic Research (WIFO), an upturn is not expected anytime soon. The Austrian federal government is therefore faced with the challenge of adapting the federal budget to the new circumstances and implementing measures in line with the 2025-2029 government programme that ‘promote both growth and employment.’
As part of the 2025 Budget Consolidation Act1, initial tax measures to consolidate the budget from 2025 onwards have already been adopted. Further significant consolidation measures for 2025 and 2026 are now to follow with the BBG 2025, with the present package of laws expected to generate additional revenue of around EUR 5.1 billion and relief measures of around EUR 1.5 billion by 2029.
In the following, we would like to inform about the main tax projects of this package of measures:
Suspension of the final third of the inflation adjustment under the cold progression
For reasons of budget consolidation, inflation adjustments for the calendar years 2026 to 2029 will only be made to the extent of two-thirds. This will be accompanied by the expiry of the temporary increase in tax relief for overtime.
Suspension of the annual inflation adjustment of the child tax credit
The indexation of certain family benefits will be suspended for the calendar years 2026 and 2027, meaning that the child tax credit for the calendar years 2026 and 2027 will not be adjusted for inflation.
Increase in the commuter allowance
In order to take greater account of the costs incurred by employees who have to commute to work, the commuter allowance, which is a tax-deductible allowance, is to be increased.
The commuter euro was previously two euros per kilometre of the one-way journey between home and work if the employee was entitled to a commuter allowance. From 2026, this will be six euros per kilometre of the one-way journey between home and work.
As part of the social security refund, the maximum refundable amount for employees entitled to the commuter allowance is to be increased from EUR 608 (value for the calendar year 2025) to EUR 737. Based on this amount, there will be a further increase for 2026 as part of the inflation adjustment in 2025.
Enabling a tax-free employee bonus
Employers should have the option of granting each of their employees a tax-free employee bonus for the calendar years 2025 and 2026. In the calendar year 2025, an employee bonus of up to EUR 1,000 should be granted tax-free.
The group characteristic shall not be decisive for the tax exemption, i.e. the employee bonus shall also be granted to individual employees without them already forming a group. If the bonus is not offered to all employees or not to all employees to the same extent, the distinction must be objectively justified and based on operational reasons.
As was also the case for the inflation bonus, the employee bonus must be an additional payment, i.e. a payment that has not usually been granted in the past. Payments based on performance agreements, regular bonus payments or extraordinary salary increases are therefore not eligible as tax-free payments.
Taking into account the results of an evaluation of this measure (evaluation by 30 April 2026), a draft law is to be drawn up by 31 May 2026 setting out the conditions and the maximum bonus amount for a tax-free employee bonus in 2026.
Tightening of real estate transfer tax – real estate transactions and share deals
In order to capture real estate transactions in the form of share deals more effectively for tax purposes, the tax bases for changes in shareholders or the consolidation and transfer of shares are to be expanded and additional restrictions for real estate companies are to be introduced.
As before, there will be two taxable events: a ‘change of shareholders’ (Section 1 (3) (1) GrEStG) and, if this does not apply, a ‘share consolidation and transfer’ (Section 1 (3) (2) GrEStG). The expansion of the taxable events for changes of shareholders and share consolidations is to be achieved primarily through the following measures:
- The participation threshold for triggering the tax liability is to be lowered from 95% to 75%, meaning that 95% of the shares no longer have to be held or transferred to a single entity; 75% will suffice. This is intended to make it more difficult to prevent the tax liability from being triggered by retaining so-called ‘minority interests’.
- In addition, in the case of a transfer or consolidation of shares, share transfers to companies owning real estate in a chain of shareholdings are to be taken into account at each level by means of a pass-through calculation (indirect share transfers). Such indirectness is deemed to exist if it is not the shares in the company owning the real estate that are transferred, but the shares in a company higher up in the chain of shareholdings. A ‘stock exchange clause’ is intended to exclude transfers of shares in corporations that are traded on a stock exchange from the definition of a change of shareholders.
- In the case of a share consolidation, the attribution entity is to be changed from the (tax) group pursuant to Section 9 of the Austrian Corporation Tax Act 1988 to separately defined associations of persons. An association of persons exists – in line with the concept of a group under company law2 – if partnerships or corporations are combined under uniform management or under the controlling influence of one person for economic purposes through shareholdings or other means (e.g. through syndicate agreements or voting agreements). This is intended in particular to make it more difficult to fulfil the criteria for tax liability by retaining minuscule shares (via so-called GrESt blockers). Natural persons who exercise unified management or controlling influence are also covered.
- In the case of a share consolidation, the tax debtor shall now always be the person in whose hands the shares are consolidated. This may be a person or a group of persons (joint and several liability).
- In addition to the extension of the basic criteria, additional restrictions are to be introduced for real estate companies with regard to the assessment basis and tax rate: If a share consolidation, a change of shareholders or a reorganisation is carried out by a real estate company, the tax shall be 3.5 % of the fair market value. A real estate company shall be deemed to exist if the main focus of the company’s business is the sale, letting or management of real estate. In order to prevent unequal treatment between ‘share deals’ and ‘asset deals’ within a family group, if all shareholders in the property-owning company belong exclusively to the family group, the property value and the preferential tax rate (0.5 %) will continue to apply.
The amendments are to come into force on 1 July 2025 and apply to acquisitions for which the tax liability arises or would arise after 30 June 2025.
The tax consequences of a change of shareholders and a share consolidation are also to be realised if there is a transfer of shares, provided that these do not fall below the relevant participation thresholds (75 %). However, according to the draft law, no acquisition transaction will be realised when the BBG 2025 comes into force.
Introduction of a reclassification surcharge on property sales
Increases in value resulting from the reclassification of land (in particular greenfield sites to building land) are to be taken into account more strongly in taxation, based on the legislative rationale of taxation according to ability to pay.
To this end, a rezoning surcharge is to be added to the positive (operating and non-operating) income from the sale of rezoned land (for ‘old assets’ and ‘new assets’). This should amount to 30 % (capped) and, in principle, be paid as part of the real estate income tax. In order to prevent excessive taxation of rezoned land that has experienced a particularly high increase in value, it should be ensured that, even when the rezoning surcharge is taken into account, no income higher than the proceeds from the sale is recorded.
The reclassification surcharge should not affect the existence of a mixed gift (75% limit) because it does not change the market value of the property. The reclassification surcharge shall also not be taken into account in the transfer of hidden reserves pursuant to Section 12 of the Income Tax Act 1988 (EStG) or Section 13(4) of the Corporation Tax Act 1988 (KStG), because the hidden reserves must be determined ex lege3 on the basis of the proceeds of the sale, which are not affected by the reclassification surcharge.
This is intended to cover sales of land from 1 July 2025 if the reclassification took place on or after 1 January 2025.
Increase in the basic flat rate including input tax flat rate
The scope of application of the income tax basic flat rate is to be expanded. Accordingly, for the calendar year 2025, the turnover limit is to be increased from EUR 220,000 to EUR 320,000 and the flat-rate operating expenses from 12 % to 13.5 %. From the 2026 calendar year onwards, the turnover limit is to be increased to EUR 420,000 and the flat-rate operating expenses to 15 % of turnover. However, the reduced rate of 6 % (e.g. for writing, lecturing, scientific, teaching or educational activities) will remain unchanged.
Since the basic flat-rate income tax is the central prerequisite for the application of the basic flat-rate VAT (input tax flat rate), the input tax flat rate is also to be adjusted accordingly. The input tax amount to be determined using the average rate is to remain unchanged at 1.8 % of total turnover. In line with the previous limitation of the maximum amount of deductible input tax, a corresponding adjustment is to be made for the 2025 assessment period (deductible input tax currently capped at EUR 3,960 to a maximum of EUR 5,760) and for assessment periods from 2026 onwards (deductible input tax capped at EUR 7,560).
Increase in the foundation entry tax
The tax rate for donations to private foundations is to be increased from 2.5 % to 3.5 % from 1 January 2026.
Extension of mandatory electronic delivery
Companies that participate in FinanzOnline and are required to submit a VAT return will in future be obliged to participate in electronic delivery via FinanzOnline. This means that all documents from the tax office will be sent to them electronically in future. This will also apply to small businesses that have opted out of the small business scheme.
Once this provision comes into force on 1 September 2025, it will no longer be possible for the companies affected to opt out of electronic delivery.
Increase in gambling taxes
The gambling tax on lotteries is to be increased from 16 % to 17.5 %, and the concession and gambling tax on electronic lotteries (online gambling) from 40 % to 45 %. The gambling tax for state games with slot machines and for games with video lottery terminals is to be increased from 10 % to 11 %, and the surcharges levied by the federal states (amounting to 150 % of the basic tax) are consequently to be increased from 15 % to 16.5 %. Furthermore, a gambling tax of 7.5 % is to be introduced on the administrative cost contribution for lotteries.
The increase in the gambling tax from 10 % to 11 % is to take effect on 1 January 2026.4 The remaining adjustments are to come into force on 1 July 2025.
VAT exemption for feminine hygiene products and contraceptives
Feminine hygiene products and contraceptives are to be available VAT-free (in real terms) from 1 January 2026, without the right to deduct input tax being lost.
The review period is very short and ends on 9 May 2025. It remains to be seen whether the law will be passed.
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