Cross-border projects:
Tax pitfalls and how to avoid them

1. Why tax matters are especially important for international projects

Companies operating across borders benefit from new markets and business opportunities — but international expansion also brings tax challenges. Whether it’s construction projects, consulting services, or product distribution: if you work in another country, you need to recognise and avoid tax pitfalls early on.

Especially companies from Slovakia or other EU countries operating in Austria need to deal with permanent establishments, VAT, payroll, and double taxation. Insufficient knowledge in these areas can lead to back taxes, penalties, or even loss of contracts.

2. Permanent establishment issues: When does a company become taxable in Austria?

One of the most common tax pitfalls in cross-border projects is whether a permanent establishment (PE) is created in Austria. As soon as a PE exists, the company becomes taxable in Austria and must file a tax return. A PE exists if a company has a fixed place of business in Austria from which activities are carried out regularly. Construction sites or installation projects can also create a PE under certain conditions.

Key points to watch:

• Duration of activity: A PE can arise if a project exceeds a certain minimum duration — usually six to twelve months, depending on the applicable double taxation agreement.
  
  Tip: Clarify in advance whether your project falls under these rules to avoid unexpected tax liabilities.


• Place of service provision: Even without a fixed office, regular activities on-site can be considered a PE.
  
  Tip: For recurring or long-term assignments in Austria, check if tax registration is required.

3. VAT: When and where does it apply?

VAT is another common source of issues in cross-border projects. In the EU, the destination principle applies — VAT is due in the country where the service is provided — but there are many exceptions in practice.

Companies providing assembly, construction, or consulting services to Austrian clients may need an Austrian VAT ID.

Key points to watch:

• Reverse-charge mechanism: For certain cross-border services, VAT liability shifts to the customer — but only if both parties are correctly registered.
  
  Tip: Check before starting your project whether VAT registration in Austria is required or if the reverse-charge applies.


• Invoice requirements in Austria: Invoices must meet formal requirements, especially when dealing with Austrian customers.
  
  Tip: ​​Incorrect invoices can lead to VAT back payments. Check the requirements early to avoid this.

4. Payroll and social security in cross-border projects

Companies sending employees to Austria or hiring locally must comply with payroll and social security regulations. Depending on the nature of the project, Austrian income tax and social security contributions may apply.

A common mistake is assuming that posted employees automatically remain covered by their home country’s social security system.
Without a valid A1 certificate, employees may become subject to Austrian social security.

Key points to watch:

• Income tax obligations in Austria: If employees work permanently in Austria or if a PE exists, income tax obligations may arise.
  
  Tip: Clarify whether your employees are taxable in Austria to avoid issues with the authorities.


• Social security and A1 certificate: Without an A1 certificate, social security contributions might be payable in Austria.
  
  Tip: Apply for the certificate before posting employees to avoid double contributions.

5. Avoiding double taxation – the correct approach

When a company or individual operates in multiple countries, there’s a risk of double taxation — meaning the same income is taxed in both the home country and Austria.

Austria has signed double taxation treaties (DTTs) with many countries to define which country has the right to tax.
In many cases, taxes paid in one country can be credited against the tax liability in the other.

Key points to watch:

• Check the relevant DTT: Tax rules vary depending on the type of income and the applicable treaty between Austria and your home country.
  
  Tip: If you regularly work on projects in Austria, seek advice to avoid tax disadvantages.


• Use tax credits and exemptions: In many cases, taxes already paid in one country can be credited in the other.
  
  Tip: Proper tax documentation helps avoid double taxation and unnecessary payments.

Conclusion: Tax planning is essential for cross-border projects — and the same applies to social security

Companies doing business in Austria should address tax and social security matters early. Permanent establishments, VAT, payroll, and double taxation are complex issues that, if mishandled, can lead to significant financial losses.
Careful tax planning, clear documentation, and working with experts are key to avoiding costly mistakes. If you understand the legal requirements in advance, you can focus fully on your business success.

(This article is for general information only and does not replace professional legal or tax advice. For specific questions and personal support, please feel free to contact us.)