In this article, we explain:
Preliminary contribution base
Final contribution base
Voluntary Payment of Higher Contributions
Reduction of the Provisional Contribution Basis
One of the most significant challenges faced by self-employed individuals in Austria, and indeed one of the most daunting financial obstacles, is the recalculation of social security contributions after the third year of business. In my experience, this issue often comes from a lack of understanding of the system, which subsequently results in a failure to adequately plan for the future.Â
So, let's delve deeper into this topic and try to prevent any unpleasant surprises down the road.
Preliminary contribution base
During the first three years of self-employment, the preliminary contribution base is determined either by the minimum contribution base (€ 518.44 for 2024) or by your own estimation of your income for the year (Adjustment of contribution base: https://www.svs.at/cdscontent/?contentid=10007.816711&portal=svsportalFinal contribution base). After the third year, the preliminary contribution base is calculated based on your most recent tax assessment.Â
You can find more information about the preliminary contribution base here.
However, it's important to note that the preliminary contributions do not necessarily align with your actual income, neither in the initial year of business nor in the current year for which you are paying. This discrepancy arises because SVS lacks information about your real income during these specific periods.
Final contribution base
Your actual contribution base and final payments will be estimated in the following manner:
For the first time after the third year of self-employment.
In every subsequent year for the preceding year.
This estimation process is based on your tax assessment. The Social Security Institution (SVS) will use this assessment to recalculate your previous contribution payments and adjust the payments in the current year accordingly.
The calculation will be done on the grounds of the well-known formula:
Contribution base x contribution rate = contribution payment.
The SVS will take the estimated income provided in your tax assessment and add to it the monthly insurance payments you've made throughout the particular year. The resulting sum will be divided by the number of months you have been insured. Based on this calculation, the SVS will re-evaluate your monthly payments as well.
If your final social insurance basis is higher than the preliminary one, you will be required to make an additional payment to the SVS. Conversely, if it is lower than the preliminary one, the SVS will reimburse you the difference.
For example:
In 2024 you’ve been self-employed for 10 months, and you paid monthly for:
Pension insurance: € 95,91
Health insurance: € 35,25
Accident insurance: € 11,35
Severance pay: € 7,93
In 2025, after your tax decision is in effect, it will be submitted to SVS. According to this decision your income from self-employment is € 15.000,00, which makes € 1.500,00 monthly contribution base (15.000 / 10 months = 1.500,00)
The final contribution base will be: 1.500,00 + 95,91+35,25 = 1631,16
The final monthly payment for pension insurance will be
1.631,15 x 18,5% = 301,74
and for health insurance:
1.631,15 x 6,8% = 110,90
Your additional payment for 2024 will be:
(301,74 + 110,90) – 95,91 – 35,25 = 281,48 and the additional payment for the whole period: 281,48
Want to learn more about the SVS contributions and meet Severina online? Don't miss out:
If there is a retroactive charge of contributions, the SVS will not immediately invoice you for the full amount. Instead, it will be divided into four installments.
However, this is possible if you remain compulsory insured.Â
The first installment will be invoiced during the first quarter of the following year after the retroactive assessment.
The contribution to accident insurance is a fixed amount and remains independent of your income. As such, it is not subject to retroactive assessment. Similarly, severance pay is assessed at the time of retroactive assessment and is not retroactively reassessed.
There is an exception in the law related to young entrepreneurs.Â
A young entrepreneur is defined as someone who has either never been self-employed in Austria or has not been insured as self-employed in Austria within the last five years.Â
For the first two calendar years following the establishment of their business, the health insurance contribution calculated based on the minimal insurance base is considered final. This means that the preliminary health insurance contribution will not be recalculated in the third year.Â
This regulation applies on a calendar-year basis. For instance, if you founded your business in November 2022, this rule would apply for the next 14 months.
Voluntary Payment of Higher Contributions
Voluntarily opting to pay higher contributions can be advantageous, particularly when it is anticipated that the final contribution basis will surpass the provisional one. These additional payments can subsequently be claimed as operating expenses for the same fiscal year, thereby reducing overall profits.
However, it's crucial to note that such voluntary payments are only recognized by tax authorities if their amount has been meticulously estimated. Arbitrary payments lacking reasonable economic justification are not considered legitimate operating expenses.
Since 2016, there has been a legal provision allowing for an increase in the provisional contribution basis upon request, provided there is convincing evidence that the final contribution basis will substantially exceed it.
Reduction of the Provisional Contribution Basis
It is also possible to anticipate that the final contribution basis will be lower than the provisional one. This typically occurs when the current income is expected to be lower than that of the third preceding calendar year.
In such circumstances, to mitigate potential liquidity issues, a reduction of the provisional contribution basis can be requested. Furthermore, this request can also be made retroactively within a calendar year.
Dealing with Austria's social security contributions, particularly after three years of self-employment, poses a significant challenge. Transitioning from preliminary to final payments, based on tax assessments can be tricky to grasp. Retroactive charges are managed gradually, with components like accident insurance and severance pay remaining untouched. Young entrepreneurs enjoy specific regulations, and voluntary contributions, along with reductions in preliminary bases, offer different ways for financial planning. A thorough understanding is crucial for effective financial management and regulatory compliance.