Many Ukrainians currently living in Austria still own property in Ukraine. An apartment in Kyiv, Lviv, Odesa or another city may be rented out, with the rental income declared and taxed in Ukraine.
This raises an important question: if tax has already been paid in Ukraine, does the rental income still need to be reported in Austria?
In many cases, the answer is yes.
Where is rental income from Ukrainian property taxed?
The Double Taxation Agreement (DTA) between Austria and Ukraine remains in force.
Under Article 6 of the DTA, income from immovable property may be taxed in the country in which the property is located.
Therefore, if an Austrian tax resident rents out an apartment located in Ukraine, Ukraine has the right to tax the rental income.
However, this is not the end of the tax analysis.
Do you have to pay tax on the same rental income again in Austria?
As a general rule, no.
Article 23 of the Austria–Ukraine DTA provides for the exemption method (Befreiungsmethode) for this type of income. If the income may be taxed in Ukraine under the DTA, Austria generally exempts it from direct Austrian income taxation.
This means that rental income from Ukrainian property is generally not taxed a second time in Austria.
However, this does not mean that the income can simply be omitted from the Austrian tax return.
What is the “Progressionsvorbehalt”?
Income from Ukrainian property may still be taken into account in Austria when determining the applicable tax rate on your other taxable income.
This is known as the Progressionsvorbehalt, or exemption with progression.
For example, a person lives and works in Austria and also receives rental income from an apartment in Ukraine. The Ukrainian rental income itself may be exempt from Austrian taxation under the DTA, but it can increase the tax rate applicable to the person’s other taxable income in Austria.
As a result, foreign rental income may affect the final amount of Austrian income tax even though the rental income itself is not taxed again in Austria.
Important: the Ukrainian taxable amount cannot simply be copied into the Austrian tax return
Another important point is that foreign income relevant for Austrian tax purposes generally has to be determined according to Austrian tax rules.
Therefore, the amount of taxable rental income calculated under Ukrainian tax law does not necessarily correspond to the amount relevant for Austrian tax purposes.
Rental payments received, deductible expenses and other costs connected with the property may need to be reviewed separately in accordance with Austrian tax law.
What if the rental income remains in a Ukrainian bank account?
The location of the bank account does not, by itself, determine the tax treatment.
Receiving rent into a Ukrainian bank account and not transferring the money to Austria does not mean that the income is irrelevant for Austrian tax purposes.
The decisive factors are the taxpayer’s tax residence, the nature of the income and the applicable provisions of the Austria–Ukraine Double Taxation Agreement.
Which documents should you keep?
If you own and rent out property in Ukraine while living in Austria, it is advisable to retain the rental agreement, records of rental payments actually received, documentation of expenses related to the property, documents relating to the acquisition of the property, as well as Ukrainian tax returns and evidence of taxes paid.
These documents may be required to correctly determine the foreign rental income under Austrian tax rules.
The key point
If you live in Austria and rent out property in Ukraine, you should not automatically assume:
“I have already paid tax in Ukraine, so I do not need to report this income in Austria.”
Rental income from Ukrainian property may indeed be exempt from direct taxation in Austria under the Austria–Ukraine DTA. However, it may still affect the tax rate applicable to your other Austrian income through the Progressionsvorbehalt and should therefore be properly considered when preparing your Austrian tax return.
The exact tax treatment depends on your tax residence, the use of the property, the income and expenses involved, and the individual circumstances of each case. We therefore recommend reviewing cross-border rental income individually before filing the Austrian tax return.
