Personal income tax, which is the major direct tax in Austria, is organized as an assessed tax in the case of income from profits (revenues from agriculture and forestry, trading and professional or self-employed activity) and as an earnings tax (Lohnsteuer) deducted at source, i.e. withheld by the employer, in the case of income from employment. In 1974 the former principle of household-based taxation for higher incomes was abolished and it is now a purely individual tax. Up to the end of the 1980s the system was characterized by high tax rates (up to 62%), owing to large tax concessions which undermined the assessment basis for high income earners. Under the tax reform of 1989 the rates were reduced and five scale bands created: 10, 22, 32, 42 and 50%; however, since special payments for employees (the Christmas bonus and holiday bonus, respectively constituting a thirteenth and fourteenth month's pay) are taxed, up to a limit of one sixth of annual income, at a flat rate of only 6%, the maximum rate for those paying earnings tax is actually 43.7%

The taxable income to which this scale is applied is reduced both by social insurance contributions and by professional expenditure and a number of special allowances which can be deducted, subject to upper income limits, in the form of tax-exempt allowances. As a result of the limits set and the scope for claiming reliefs in regard to taxable income (particularly in the case of assessed tax), a range of deductible allowances and the reduced-rate taxation of special payments for employees, the income tax burden is relatively low in Austria: the average rate is around 9% in the case of assessed tax and 12% in that of earnings tax. By international standards, the proportion of tax revenue deriving from taxes on income and earnings is, at 25%, some 10 percentage points lower than the average for the EU or the OECD as a whole. See also deductions from pay.))

Please note: the European industrial relations glossaries were compiled between 1991 and 2003 and are not updated. For current material see the European industrial relations dictionary.