Choice of business entity
The most important types of companies in Austria are the limited liability corporation (GmbH) and the joint stock corporation (AG). Foreign investors generally choose the GmbH since it provides a higher degree of corporate law control and allows for lower equity provision.
As a legal entity, the GmbH exists upon registration with the Companies' Register. The conventional application for registration must contain the notarised signatures of all managing directors. The articles of association must be drawn up in the form of a notarial deed (written document executed by a public notary) and must, as minimum requirements, include the name of the company as well as its seat, the business purpose, the amount of registered capital, and the capital contribution of each of the various owners.
The application for registration for a GmbH with only one shareholder is possible without notarised signature as of 1 January 2018 via the Internet (based on the 'Deregulierungsgesetz 2017').
The minimum share capital for a GmbH amounts to EUR 35,000. Formation costs and fees are linked with the amount of the minimum share capital.
The minimum share capital for companies founded after 30 June 2013 is EUR 10,000 for the first ten years after foundation. In the case a company intends to claim this foundation privilege, an amendment of the articles of association is required. After the first ten years upon incorporation, the minimum share capital will be automatically increased to EUR 35,000.
Generally, one half of the registered capital must be raised in cash while the remainder may be contributed in the form of assets (contributions in kind). Of the original capital contribution, 25%, or at least EUR 17,500 (EUR 5,000 in case of a start-up), must actually be paid in upon incorporation. Under certain conditions, the capital can be provided exclusively in the form of assets (incorporation in kind, in this case the contribution is subject to an audit verifying the market value of the assets contributed). The articles of association may provide for additional capital contributions payable by the owners on the basis of a resolution adopted by the shareholder meeting.
The minimum share capital of an AG is EUR 70,000. For an AG, the same payment regulations apply as for a GmbH, but the owners can agree upon a further capital contribution going beyond the nominal value of the shares (premium). The premium is shown on the company's balance sheet as a capital reserve.
Since 2004, the company type Societas Europaea (SE) can be chosen in Austria. The SE is a stock corporation based on community law. The advantages of this legal form are the simplification of organisational structures (in particular for international groups) and the possibility of cross-border transfers of corporation seats without loss of the legal identity. The SE allows the choice of a business location under an economic point of view as well as the choice of the most favourable legislation. The minimum share capital required for the incorporation of a SE is EUR 120,000 while the statutory seat of the corporation must be located in the same country where the place of management is located in.
EU state aid investigations and base erosion and profit shifting (BEPS)
Austria is involved in the BEPS-development process at an EU/OECD level. The recommendations of the OECD have been implemented to local law in individual areas (see the limitation of the deductibility of interest under Payments to foreign affiliates in the Deductions section).
The main changes in local tax law due to the BEPS project are probably the introduction of local rules on the transfer pricing documentation. On 1 August 2016, the Austrian government published the new mandatory transfer pricing documentation requirements (VPDG). For more details, see Transfer Pricing in the Group taxation section.
On 7 June 2017, Austria was one of the jurisdictions signing the MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting) in Paris. The MLI entered into force on 1 July 2018, but the MLI will only modify the covered tax agreements if both contracting jurisdictions have ratified the MLI and share a common position regarding the MLI. Thus, the MLI also needs to enter into effect on the DTT level in both states. For events in 2019 giving rise to local WHTs, the modification(s) of the respective treaty will apply from 1 January 2019. For all other taxes (e.g. assessment in the course of a tax return), the entry into effect of the modified DTT is delayed for another year (until 2020) if the partner country's ratification took place after 30 June 2018.
As a result, the modified DTT with Austria is fully applicable for Poland and Slovenia as of 1 January 2019 for all taxes ruled by the DTT.
The following table summarises Austria’s position, including 'Application for methods for Elimination of Double Taxation' (Article 5), 'Purpose of a Covered Tax Agreement' (Article 6), 'Prevention of Treaty Abuse' (Article 7), 'Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions' (Article 10), 'Artificial Avoidance of Permanent Establishments Status through the Specific Activity Exemptions' (Article 13), and 'Arbitration' (Part VI, including article 18 to 28):
|Country||Entry into force||Art. 5||Art. 6||Art. 7||Art. 10||Art. 13||Part VI|
|Bosnia and Herzegovina (1)||1.1.2021||-||-||-||-||-||-|
|Burkina Faso (1)||1.2.2021||-||-||-||-||-||-|
|Costa Rica (1)||1.1.2021||-||-||-||-||-||-|
|San Marino (1)||1.7.2020||-||-||-||-||-||-|
|Saudi Arabia (1)||1.5.2020||-||-||-||-||-||-|
- The agreement would not be a ‘Covered Tax Agreement’ because neither jurisdiction has included it in its notification.
EU state aid investigations
Currently, there are no investigations on the part of the European Commission with regard to Austrian tax law.
However, the BFG Linz (case RE/5100001/2014) referred three questions to the ECJ for a preliminary ruling with respect to the compatibility of the reform of the rules on energy tax rebates from 2011 (as envisaged by the legislator, exclusion of service providers from the refund of energy taxes) with the General Block Exemption Regulation. Based on the decision of the ECJ of 21 July 2016 (C-493/14, Dilly I), the BFG Linz concluded that the exclusion of service providers from energy tax rebates had not entered into force yet. The tax administration challenged this court decision at the VwGH, which in September 2017 referred several questions with respect to the classification of the Austrian scheme as state aid to the ECJ (C-585/17, Dilly II). Based on the decision issued by the ECJ on 14 November 2019, the VwGH decided on 18 December 2019 (VwGH Ro 2016/15/0041) that the exclusion of service providers from the refund of energy taxes came into force in 2011 and that it is in line with the General Block Exemption Regulation.
International exchange of information
The Republic of Austria signed a Model 2 Intergovernmental Agreement (IGA) with the United States on 29 April 2014. The IGA came into force on 30 June 2014. The approval of the Austrian Parliament took place on 23 October 2014. This agreement has been enacted in order to support the implementation of the Foreign Account Tax Compliance Act (FATCA) in Austria. The Model 2 IGA includes the obligation of Austrian financial institutions to forward summarised information (collected data) regarding the accounts of US customers (recalcitrant account holders) to the US Internal Revenue Service (IRS). Due to the conclusion of this agreement, the US tax authorities will not withhold a 30% WHT on capital income in Austria.
EU Directive on Administrative Cooperation (DAC 6)
The European Union is increasing transparency to detect potentially aggressive tax arrangements. The new rules of DAC6 introduce mandatory disclosure requirements for certain cross-border tax arrangements provided the main benefit of such arrangements is the expectation of a lower tax burden and/or of other specific characteristics (so-called 'hallmarks') defined in the Directive.
The Directive has to be implemented locally by 31 December 2019 and the rules have to apply from 1 July 2020. However, the reporting obligation already applies to transactions implemented from 25 June 2018 onwards. Transactions implemented between 25 June 2018 and 1 July 2020 have to be reported by 31 August 2020.
On 22 October 2019, the ‘EU-Meldepflichtgesetz’ (EU-MPfG), which implements the EU Directive locally, was published in the Austrian Federal Law Gazette. The final text of the EU-MPfG largely adopts the language of the German translation of the EU Directive. Hence, the scope of the implementation coincides with the scope of the directive. Infringements of the Austrian reporting obligation trigger penalties of up to EUR 50,000 per case and can be imposed on several levels (company, members of board of directors). The ‘EU Meldepflichtgesetz’ will become effective from 1 July 2020 onwards.
Due to the COVID-19 pandemic, the European Commission proposed to postpone the beginning of the reporting obligations. According to an agreement on EU level, the member states have the option to postpone the reporting obligations up to six months. Austria decided not to exercise this option. However, the tax authority, at the beginning of July 2020, communicated that (overdue) reportings filed till the end of October 2020 will not trigger any penalties ('de-facto' deferral).
Common Reporting Standard (CRS)
On 29 October 2014, the Republic of Austria signed a multilateral administrative agreement on the automatic exchange of information, which required Austria to apply the Standard for the Automatic Exchange of Financial Account Information (Common Reporting Standard). EU Directive 2014/107/EU amending Directive 2011/16/EU on Administrative Assistance implements this Common Reporting Standard at the EU level. The EU Directive was implemented in Austrian national law (‘Austrian Common Reporting Standard Act’ or ‘Gemeinsames Meldestandardgesetz’) by 31 December 2015.
Based on this domestic law, financial service companies must comply with certain administrative obligations and report information on foreign account holders to the Austrian tax authorities.
Restructuring measures (M&A from a business perspective)
Transfers of assets and undertakings can be realised with retroactive effect and be tax neutral within the framework of the Austrian Reorganisation Tax Act (so-called 'UmgrStG').
The legislation administers the following areas (Article I-VI):
- Mergers (within EU, also cross-border) of corporations.
- Special conversion (from corporations to partnerships).
- Contribution of businesses and exchange of shares.
- Merger of partnerships.
- Demerger of partnerships.
- Demerger of corporations.
If the reorganisation qualifies for the application of the Austrian Reorganisation Tax Act, the reorganisation steps are realised tax neutrally and with a retroactive effect as of the reorganisation due date. Existing tax loss carryforwards can be transferred under certain conditions as well. Furthermore, several other tax privileges are granted under the Reorganisation Tax Act for stamp duties, etc. However, the application of the Austrian Reorganisation Tax Act requires the transaction to be classified as a non-abusive transaction; consequently, it must be based on plausible non-tax reasons.