US citizens

The United States is nearly unique in taxing by citizenship. A US citizen who becomes Austrian tax resident — the tests are on the tax residence page — therefore does not swap one tax system for another but stacks them: full Austrian taxation of worldwide income, and continued full US taxation of the same income, each with its own return, its own rates and its own definitions. The same is true for green-card holders until the card is properly surrendered.

This is entirely workable — thousands of Americans live well in Vienna — but it changes the planning method. Every structure, investment and timing decision must clear both systems, and a step that is optimal in one can be punitive in the other. The single most important practical rule is to have Austrian and US advisers work from the same facts at the same time, ideally before the move, as part of the sequence described on the pre-immigration planning page.

Under US rules, virtually every non-US pooled investment — UCITS funds, ETFs domiciled in Ireland or Luxembourg, Austrian retail funds — is a passive foreign investment company (PFIC). The default US regime for PFICs is deliberately punitive: gains and certain distributions are taxed at top ordinary rates with an interest charge for deferral, and each fund requires its own annual reporting on Form 8621 unless the whole PFIC holding stays under a low de minimis threshold (USD 25,000, or USD 50,000 on a joint return). The qualified electing fund election that would soften the regime is usually unavailable in practice, because European funds rarely publish the annual information statement US rules require; the mark-to-market election asks only that the shares be regularly traded on a qualifying exchange, so it is open for many listed funds — at the price of tax on unrealised gains every year at ordinary rates.

What makes the position genuinely awkward is the mirror image: Austria taxes non-reporting foreign funds penally on a lump-sum basis, and many US-domiciled funds are non-reporting funds for Austrian purposes — while EU investor-protection rules restrict the sale of US funds through European brokers in the first place. A US citizen in Austria is squeezed from both sides, and the answer is portfolio design rather than heroics:

Directly held securities in a managed account clear both systems cleanly, which is why they anchor most portfolios of US citizens here. The Austrian banks accustomed to US clients are noted on the banking and finance page.

US retirement accounts are among the harder parts of the move, not one of the easier ones. The treaty allocates taxing rights over pensions once they are paid — private pensions to the state of residence, US social security and other public pensions to the paying state — but it contains nothing that protects the tax deferral inside a US plan. Austrian law has no equivalent of section 401(k), and the Finance Ministry's published view is that investment income arising inside such an account is attributed to the holder as it accrues once he or she is resident here, the later withdrawals then generally triggering no further Austrian tax. Nor is an IRA, Roth IRA or 401(k) automatically a pension for Austrian purposes: the characterisation turns case by case on the plan's actual legal and economic structure, and where the assets are invested on a risk-spreading basis the investment fund rules can apply instead. A plan that is tax-free in the United States is not tax-free in Austria, and the mismatch in timing and characterisation can itself produce double taxation the treaty does not cure. The sensible course is to map the accounts, and any intended withdrawals, against both systems before the move, alongside the wider compensation questions on the pre-immigration planning page.

US information reporting continues in full from Austria. The FBAR (FinCEN Form 114) is due once aggregate foreign account balances exceed USD 10,000 at any point in the year — a threshold nearly every relocated family passes on day one. Form 8938 adds a second, overlapping report of foreign financial assets, at higher thresholds for Americans living abroad (USD 200,000 at year-end, or USD 300,000 at any time, for single filers; double for joint filers). Foreign companies, foundations and trusts bring their own forms, and the penalties across this landscape are severe enough that completeness, not optimisation, is the objective.

The flow of information is two-way by design. Austria operates a Model 2 FATCA agreement, under which Austrian financial institutions report their US account holders directly to the IRS; expect a W-9 with the account-opening papers, and expect some institutions to decline US clients altogether — the receptive ones are worth identifying early via the banking and finance page.