Austrian citizens will be able to begin making tax free private pension provision from January 1 next year, following new provision made under the country’s year 2000 budget.
The ‘Tax Reform Act 2000’ currently being ratified by the Austrian parliament will allow individuals to invest up to ATS13,000 (E945) in mutual funds with no fiscal barrier, before being taxed under a special premium for retirement investment arrangements.
“Both the pension and the capital gains made on investment up to this limit, will be tax free up to this level, and then they will be taxed depending on the level of an individuals earnings, which could vary between 10% and 50%,” says Peter Quantschnigg, head of the tax policy division at the Austrian Ministry of Finance.
He adds that the political decision was taken in order to support the country’s state and supplementary pension pillars whilst giving a boost to Austria’s financial markets.
And the Austrian government has also capitulated on its deadline date of December 31 this year for company book reserve pension arrangements to transfer to pension funding systems. The date has now been put back to December 31, 2010.
Kurt Ebner, actuary and member of the board at the Vienna based Vereinigtes Pensionskasse, says: “The deadline didn’t really have much im-pact on company decisions to switch from book reserve to a pensionskasse anyway. “The tax treatment for these transfers wasn’t that favourable, and it was possible to negotiate the tax gaps in the book reserve.”
In Austria, the large gap between taxed book reserves and reserves calculated according to economic and actuarial standards allowed the government to offer an incentive for funding through bridging this gap and making it tax deductible.
In the case of smaller companies, however, the requirement to physically transfer the asset to a fund meant that those companies without the necessary cash flow could not do so.
“The tax authorities thought that there would not have been any damage done to the tax system of Austria if they lengthened the deadline period,”says Ebner.
He adds that those companies really wishing to switch to a ‘Pensionskasse’ had already done so regardless of the government initiative.
“Some more companies will in-evitably switch to a pension fund be-cause of the greater time period available, but I don’t believe there will be a boom in companies doing so without more incentive.
“And the government has not suggested that it will grant any further tax concessions to boost the number of companies switching systems,” he comments. Hugh Wheelan