The Encryption Notes of the Music Capital: Overview of Austria's Encryption Taxation and Regulatory System

1. Introduction to the Republic of Austria

The Republic of Austria (Austria) is located in the inland of Central Europe, operates under a parliamentary system, and is a representative democracy with a total of 9 federal states. In 1995, Austria joined the EU and is also one of the founding countries of the OECD. Austria is one of the earlier EU countries to implement reforms in cryptocurrency taxation. This article will outline the cryptocurrency tax system and the latest regulatory developments in Austria.

2. Basic Tax System of Austria

2.1 Overview of the Austrian Tax System

The Federal Ministry of Finance (FMA) is the authority in Austria responsible for enforcing all fiscal laws and collecting taxes. This department allocates tax revenue to public and social services to improve the standard of living for residents. Its tax year follows the calendar year (January 1 to December 31) and implements a progressive tax system based on income levels, with personal income tax rates ranging from 20% to 55%, which is considered relatively high within Europe.

Depending on the tax regime, both Austrian residents and non-residents can become taxable persons. Individuals who reside in Austria and stay in the country for more than 180 days per year are considered official tax residents, regardless of nationality. Tax residents are taxed on their worldwide income, including income from employment, business, investments, and property. For non-residents, Austria is only taxed on their income sourced in Austria, i.e. "limited tax liability". However, if a non-resident derives his or her main income from Austria (e.g., more than 90% of his or her income comes from Austria), he or she may be considered an "unlimited tax liable" and subject to tax on worldwide income. Non-Austrian nationals who are involved in paying taxes to the Austrian government may benefit from double taxation agreements (DTAs) under the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, which avoids paying tax twice on the same income.

According to the 2024 Global Base Erosion Report, Austria loses $130 million a year (about 1% of fiscal revenue) due to cross-border tax abuses, and has increased the timeliness and penalties for major tax evasion cases (150,000 fines). In order to prevent tax avoidance and evasion, Austria participates in the Automatic Exchange of Information (AEOI) system, which allows the exchange of information between tax authorities in different countries and helps to prevent and monitor tax irregularities. In the country's tax system, an individual's social security number (Sozial versicherungs nummer) acts as a tax identification number, which is usually registered by the employer. Self-employed persons can obtain this number through the Self-Employed Person's Social Security Service (SVS). At the same time, the taxable person will also need a personal tax identification number (ATIN), which will be issued by the tax office at the time of registration with the new domicile or tax authority. For businesses, a VAT identification number (UID Number) should be obtained at the time of company registration for VAT registration.

2.2 Individual Income Tax

Austria levies income tax on the worldwide income of residents and non-residents of Austrian sources of 20%, 30%, 41%, 48%, 50% and 55% on an excess progressive basis, with income less than €13,308 exempt from tax. The highest marginal tax rate (55%) is the third highest in Europe, behind Denmark at 55.9% and France at 55.4% (for reference, the average EU top tax rate is around 42.8%).

2.3 Corporate Tax

From 2023, Austria's corporate tax is fixed at 24%, which is close to Spain's 25% and Belgium's 25%, but higher than Singapore's 17% and lower than South Africa's 27% and BRICS' 27.20%. When the company distributes profits, it is also subject to a dividend withholding tax of 23% (for the company) or 27.5% (for other beneficiaries) at the shareholder level.

2.4 Value Added Tax (VAT)

The standard VAT rate is 20% in Austria and 19% in the Jungholz and Mittelberg regions, which is slightly lower than the EU average of 21.6%. A low tax rate of 10% applies to books and food, a preferential tax rate of 13% applies to cultural entertainment, wine and domestic flights, while some exports and cross-border services, such as medical care, education and financial services, are exempt from VAT.

2.5 Other Taxes

In addition to the above taxes, Austria also levies property tax and real estate transfer tax on individuals. For businesses, municipal tax must be paid to the local authorities where a permanent establishment is located, employee income tax must be withheld, and both employers and employees are required to pay multiple tiers of social security contributions. To promote environmental protection, the Austrian government imposes vehicle taxes on various activities such as energy, transportation, and pollution, as well as a one-time registration tax (levied based on vehicle emissions), carbon tax, digital services tax, and more.

In contrast to other regions, Austria has abolished formal inheritance and gift taxes since 2008, with exemptions for gifts up to a threshold (over €50,000 for gifts from immediate family members or partners, over €15,000 from others, and up to €1,000 for art, household goods and occasional gifts). In contrast, the rest of Europe still has a higher inheritance tax policy: the UK still levies a 40% levy on estates over £325,000, and countries such as France and Germany are generally in the 20–45% range.

2.6 Austria's New Tax Regulations

In 2025, the Austrian government raised the income tax threshold in response to inflation. With the exception of a 55% tax rate on income over €1 million, the tax threshold has been raised to around 4%. This means that individuals earning more than €13,308 per year are subject to income tax. In addition, some deductible items, such as single parent and retiree deductions, have also been slightly increased. A key change for small businesses is the government's increase in the value-added tax (VAT) registration threshold from €35,000 to €55,000. This means that companies with an annual turnover of less than €55,000 do not need to register or pay VAT.

3. Austria's Cryptocurrency Tax System

In January 2022, Austria passed an amendment to the Austrian Income Tax Act (EStG), updating the provisions related to capital income in Section 27b, thereby establishing a systematic tax framework for cryptocurrencies. Starting from March 1, 2022, Austria, influenced by the European Environment Agency (EEA), implemented an Eco-Social Tax Reform, which had a certain impact on its cryptocurrency tax policy.

At the same time, as one of the founding countries of the Organisation for Economic Co-operation and Development (OECD), Austria also needs to comply with the OECD Model Tax Convention designated by the OECD. This model is dedicated to avoiding double taxation between countries, providing guidance to prevent tax evasion, offering a standardized framework for the terms and structure of international tax agreements, helping governments coordinate and simplify cross-border tax matters, and promoting the exchange of tax information.

3.1 Austria's Qualitative Approach to Cryptocurrency

The Austrian Federal Ministry of Finance (FMA) classifies cryptocurrencies as intangible assets rather than fiat currency. However, Austria taxes cryptocurrencies as income, which is regulated by the Austrian Income Tax Act (EStG).

According to the Austrian Income Tax Act (EStG), a cryptocurrency is considered as a digital form of expression of value, whose value is not determined or guaranteed by a central bank or other state body, and which is not necessarily pegged to any legal tender or has the legal status of a currency or legal means of payment, but which can be accepted as a medium of exchange by natural or legal persons and can be transferred, stored or traded electronically. In addition, claims for reimbursement arising from the transfer of cryptocurrencies are also considered cryptocurrencies.

This definition covers cryptocurrencies that are publicly issued and accepted as a medium of exchange, as well as stablecoins, but does not apply to non-fungible tokens (NFTs) and asset tokens (tokens backed by real assets). The taxation basis for these products depends on their specific nature and is subject to general tax law rules.

3.2 Specific Cryptocurrency Taxation System

3.2.1 Income Tax on Cryptocurrency

According to Section 27a, Paragraph 1 of the Austrian Income Tax Act (EStG), income from cryptocurrency holdings is subject to a special tax rate of 27.5% and is not included in the progressive tax rate range of other income. Income generated from cryptocurrency can be divided into current income and realised gain, which will be defined and detailed regarding specific taxable activities below.

3.2.1.1 Current Income

Current income generated by holding cryptocurrency assets, i.e. remuneration or earnings earned through the transfer or trading of cryptocurrencies. Taxable activities such as interest earned from lending cryptocurrency, providing liquidity for the Decentralised Finance process (DeFi), participating in liquidity mining, running master nodes, etc., or when the income comes from transaction fees (transaction fee), current income is generated for tax purposes, regardless of whether new dollars are generated or not. Potentially confusing but not taxable practices include staking that involves only transaction verification rather than direct compensation, the transfer of cryptocurrency to others without transaction fees (i.e., airdrops) and the proceeds generated therein (bounties), and cryptocurrencies generated as a result of a "hard fork". Since the acquisition cost is zero by default, it is not taxed, but its full value will be taxed when it is sold in the future.

It is worth noting that since mining income does not involve income obtained through capital (Article 11 of the OECD Model Tax Convention) and does not fall under business activities (Article 7 of the OECD Model Tax Convention), the income from cryptocurrency mining is, in principle, classified as "other income" in the sense of Article 21 of the OECD Model Tax Convention, with the taxpayer's country of residence having priority taxing rights over this income. However, from the perspective of Austrian law, Section 27b(2)(2) defines cryptocurrency obtained through technical processes as current income.

3.2.1.2 Realised Gain

Taxation of realised gains held in cryptocurrencies, including exchanging cryptocurrencies for euros or other fiat currencies and paying for goods or services with cryptocurrencies. The income is calculated as the sale proceeds minus the purchase costs, where the sale price is the market fair value by default, transaction costs (such as transaction fees and consulting fees, etc.) can be included in the cost for deduction, and expenses related to financial assets (such as electricity or hardware purchases) are not included in the cost, unless the taxpayer chooses to use the standard taxation mechanism (standard taxation option)。 Transfers between cryptocurrencies are not considered "disposals" and are therefore not taxable, and the fees incurred in such transactions (e.g. gas, platform fees) are not considered significant expenses and are not included in the tax deduction, so the purchase cost of the original cryptocurrency will be carried over to the new cryptocurrency.

3.2.2 Loss Compensation

According to Austrian general tax regulations, profits and losses arising from income involving cryptocurrencies can be calculated for tax purposes together with profits and losses from other capital income. For example, dividends or proceeds from the disposal of stocks.

3.2.3 Commercial Revenue

If income from cryptocurrency is classified as business (enterprise) activity income in Austria, it must be categorized as business profit. In the cryptocurrency industry, the equipment required for mining and staking is often specialized and expensive, needing to be installed and put into use at specific locations, typically fitting the definition of a "permanent establishment." If the generation of cryptocurrency or income from cryptocurrency belongs to a permanent establishment, the contracting state where the permanent establishment is located holds the primary tax rights. The company's residence country will usually exempt this income from taxes, but it still needs to bear progressive tax rates.

In principle, the special tax rate for cryptocurrencies applies to business assets and traditional capital assets. However, if the income generated from cryptocurrencies is part of the core business of the enterprise, the special tax rate does not apply. This means that the cryptocurrency tax system does not apply to businesses engaged in cryptocurrency trading or businesses involved in commercial cryptocurrency mining. Income from such activities will be taxed at progressive income tax rates. Loss balances generated from holding cryptocurrencies, if they are part of the enterprise's assets, will be treated as losses from business capital assets.

3.2.4 Capital Gains Tax (Realized Capital Gain)

From December 31, 2023, Austrian service providers will need to pay capital gains tax on capital gains. Starting in 2025, any institution obligated to withhold capital gains tax must issue tax reports for all of its cryptocurrency income (upon request from the taxpayer).

From 2023 onwards, capital gains tax will only be subject to a profit from the sale of cryptocurrencies (usually 27.5%), and can also be used to offset the profits of other cryptocurrencies if a transaction incurs a loss, thereby reducing the overall tax burden. Compared with the old rules, the new rules limit taxable events to profitable transactions, but not all transactions, and add a favorable system that losses can be used for tax deductions. To be clear, trading here is mainly limited to asset appreciation for profit from the sale of cryptocurrencies, while income from mining, airdrops, etc., is considered active income and is not subject to capital gains tax.

3.2.5 Value-added Tax

As a member of the European Union, Austria's VAT regime on cryptocurrencies is based on the case law of the Court of Justice of the European Union (CJEU) on cryptocurrencies and Bitcoin. No VAT is levied on conversions between Bitcoin and fiat currencies. Institutions that provide bitcoin or related services will be taxed as if they were providing fiat currency or related services, and their tax base will be determined by the value of the bitcoin asset. At the same time, Bitcoin mining is not subject to value-added tax (VAT) due to the lack of clarity in the case law of the European Court of Justice (CJEU) on the recipient of the service (cf. 22 October CJEU2015, Case C-264/14, Hedqvist).

4. Cryptocurrency Regulatory System

4.1 Markets in Crypto-Assets Regulation (MiCAR)

The Market in Crypto-Assets Regulation (MiCAR) aims to establish a unified European regulatory framework to govern public offerings, trading access, and service provision related to cryptocurrencies within the EU, while promoting innovative development, harnessing the potential of cryptocurrencies, and maintaining financial stability and investor protection.

MiCAR defines "cryptocurrency" in a technology-neutral manner as: "a digital representation of value or rights that can be transferred and stored electronically through distributed ledger technology or similar technologies." The regulation specifically standardizes the transparency and information disclosure obligations for the issuance and trading of cryptocurrencies, the authorization requirements and ongoing supervision of cryptocurrency service providers (CASPs) and issuers, the business organization norms for cryptocurrency issuers and service providers, as well as the rules for protecting investors and consumers during the issuance, trading, and custody processes of cryptocurrencies. It also sets related provisions to combat market manipulation in cryptocurrency trading venues. This includes powers such as issuing directives, suspending services, and enforcing compliance requirements, while also establishing an administrative penalty mechanism, reporting obligations, and procedural rules to ensure consistency with EU regulatory standards and directives.

On July 3, 2024, the Austrian Parliament passed the "Crypto Market Regulation Enforcement Act" (MiCA-VVG), which will take effect on July 20, 2024. The Austrian Financial Market Authority (FMA) is designated as the supervisory authority, while the Austria National Bank serves as a partner. Crypto platforms operating in Austria must register and report according to MiCAR. MiCA has reclassified the existing functional and payment tokens and established different prospectus publication requirements based on this.

4.1.1 Asset-Referenced Token (ART)

ART is a cryptocurrency, distinct from electronic money tokens (EMT), whose value is maintained stable by referencing some other value, equity, or a combination thereof. (Article 3(1)(6) of MiCAR)

According to Articles 16 and 20 of MiCAR, the entity intending to issue ART must complete the authorization process before the issuance, and the issuer must be a legal entity established in the EU or an authorized entity. The authorization process needs to be initiated through a formal application (refer to Article 18 of MiCAR). Currently, these technical standards are still in draft form, or the transition may end on December 31, 2025.

In addition, the application must include a legal opinion confirming that the cryptocurrency indeed exists and falls within the definition scope of MiCAR, while not being classified as an Electronic Money Token (EMT). Finally, the issuer needs to submit a cryptocurrency white paper, which can only be published after approval.

4.1.2 Electronic Money Token (EMT)

The value of electronic currency tokens is intended to maintain stability by anchoring the value of a certain official currency, and can be considered as a stablecoin anchored to a single official currency (such as the euro, US dollar, etc.), which is specifically defined and subject to certain regulation in MiCAR.

According to Article 81(1) of MiCAR, only credit institutions or electronic money institutions can issue electronic money tokens (EMT). At the same time, since EMT is legally classified as electronic money, Chapters 2 and 3 of the Electronic Money Directive (EMD) must also be complied with. Compared to ART, MiCAR does not specify an authorization procedure for EMT issuers, but only requires notification to the Financial Market Authority (FMA) and the publication of a white paper.

4.1.3 Other Cryptocurrencies

Utility tokens are neither asset reference tokens (ART) like Bitcoin nor electronic money tokens (EMT), and they also do not fall under the category of cryptocurrencies excluded by MiCAR. They do not require issuance permission, but they need to publish a white paper and comply with obligations such as fair marketing, anti-fraud, and information disclosure.

4.2 Anti-Money Laundering Act (AML)

One of the core objectives of Austria's financial sector is to prevent the financial markets and financial system from being used to conceal or transfer assets of illegal origin, as well as to fund terrorist activities. Therefore, the Austrian government requires financial market participants to take preventive measures (know your customer, KYC, transparent cash flow situations) to ensure the achievement of this objective.

Certain business activities related to cryptocurrencies may be subject to money transmission laws. Licensing requirements may be triggered if cryptocurrencies are used as a means of payment and are designed to be used to make payments between third parties, and the network is broad in terms of geographic coverage, variety of goods/services, or number of recipients. In addition, if operations are carried out in accounts related to currencies, payment instruments, or means of payment, entities holding these accounts may be required to obtain a Payment Service Provider (PSP) license.

Carry out the following business activities: custody of encrypted private keys for holding, storage and transfer of cryptocurrencies for customers (custodial wallet services), exchange services between cryptocurrencies and fiat currencies, exchange services between cryptocurrencies, transfer services for cryptocurrencies, financial services for the issuance and sale of cryptocurrencies; are required to register with the FMA in Austria as Virtual Asset Service Providers (VASPs) and comply with obligations such as Anti-Money Laundering (AML), Identifying Customer (KYC) and Customer Due Diligence.

4.3 Cryptocurrency Policy Regulatory Scope

In parallel with the Eco-Social Tax Reform, Austria's requirement to tax income from cryptocurrency holdings came into force on March 1, 2022, and applies to cryptocurrencies acquired after February 28, 2021 (referred to as "new assets"). Cryptocurrency holdings acquired prior to this date are considered pre-existing holdings and are not subject to the new tax arrangement. These assets will continue to be taxed and administered as economic property in accordance with the provisions prior to the environmental tax reform.

However, if cryptocurrency holdings (old assets) obtained before March 1, 2021, are used to acquire current income from cryptocurrency, or if cryptocurrency is obtained as part of arrangements such as staking, airdrops, bounties, or hard forks, the new tax regulations under Section 27b(2) of the EStG will apply to such acquisitions, and any cryptocurrency obtained in such activities will be considered new assets.

4.4 International Regulation and Cooperation of Cryptocurrencies

At the international cooperation level, the Organisation for Economic Co-operation and Development (OECD) provides Austria with an international tax coordination framework, guiding how cryptocurrency tax rights are allocated internationally through the Model Tax Convention. For example: Income from mining is taxed by the taxpayer's country of residence as "other income," while for business income, the country of residence of the company has the priority to tax these business profits, unless the activities are carried out through a permanent establishment (as defined in Article 5 of the OECD Model Tax Convention) in another contracting state.

Currently, the OECD is also promoting the implementation of the Crypto-Asset Reporting Framework (CARF) for cryptocurrencies, which aims to establish a globally harmonized automatic exchange of information mechanism, and Austria will be required to comply with the Automatic Exchange of Information (AEOI) standard.

In addition, to prevent double taxation, Austria has signed Double Tax Conventions (DTC) formulated by the OECD with multiple countries to coordinate international taxation and prevent the occurrence of double taxation due to residents having tax obligations in multiple countries, clarifying the tax rights between countries. This also relies on close international information sharing and cooperation, and this mechanism can also serve the purpose of anti-money laundering.

As a member of the Financial Action Task Force (FATF), Austria's anti-money laundering standards are heavily influenced by the FATF's "Guidance on Virtual Assets and VASPs", which imposes compliance requirements on crypto assets and crypto service providers (exchanges, wallets, etc.), requiring crypto platforms to implement KYC and customer verification. Additionally, suspicious transfers must be reported to the Austrian Financial Intelligence Unit (Austrian FIU).