Updated: Aug 20, 2021
By Niklas Schmidt e Eva Stadler | Wolf Theiss
Austria, one of the wealthiest countries in the world and an EU Member State, continues to attract investors owing to its stable political and social situation and its geographical position in the center of Europe.
Apart from proximity, historical ties to the countries of Central and Eastern Europe (CEE) have made Austria a very attractive location for multinationals from Brazil and elsewhere to choose as their base of operations regarding CEE.
Commom forms of business organization
The most commonly used form of Austrian business organization for inbound investments is the limited liability company (GmbH). Owing to its less burdensome corporate governance requirements, it is generally preferred by investors to the more complex stock corporation (AG), a corporate form that has to be used if a listing on a stock exchange is being considered.
Both entities are subject to Austrian corporate income tax on their income. Shareholders are taxed separately on dividends received from these corporations.
Partnerships, such as the general partnership (OG) or the limited partnership (KG), are of lesser relevance for inward investments into Austria. In a general partnership, all partners are subject to unlimited liability for the partnership's debts and obligations, while in a limited partnership, only one partner must have unlimited liability.
A structure commonly seen is the GmbH & Co KG; this is a limited partnership with the general partner being a limited liability company. Partnerships are treated as transparent for Austrian tax purposes. Thus, the income of a partnership is not taxed at the level of the partnership, but rather attributed to its partners and subject to (corporate) income tax at the level of the partners.
Corporate Income Tax in Austria
Austria levies corporate income tax at a rate of 25% on the income of corporations. The most important aspects of that are as follows:
Corporations having their legal seat, their place of effective management, or both, in Austria are deemed to be tax residents of Austria, and are thus subject to unlimited corporate income tax in Austria on their worldwide income. Corporations having neither their legal seat nor their place of effective management in Austria are taxable only on specific types of income with an Austrian nexus, which are exhaustively enumerated in the statute.
This, inter alia, includes income from an Austrian permanent establishment, which is defined as a fixed place of business through which the business of an enterprise is wholly or partly carried out.
2. Determination of taxable profit
Austrian tax-resident corporations are taxed on their worldwide income. The tax base for income from an active trade or business is generally the profit as shown in the financial statements. Profits are generally taxed on an accrual's basis. As a general rule, expenses incurred in acquiring, securing and maintaining taxable income are tax deductible.
3. Participation example
Three types of participation exemption are available:
Under the national participation exemption, dividends received by an Austrian corporation from its Austrian subsidiary are exempt from corporate income tax regardless of the extent of the participation or the holding period.
Under the international qualified participation exemption, an Austrian corporation is exempt from corporate income tax on dividends received from a foreign subsidiary or capital gains realized on the alienation of shares in that foreign subsidiary if the parent demonstrably holds a participation of at least 10 per cent of the stated share capital of the foreign subsidiary for a minimum duration of one year, and if the foreign subsidiary qualifies as a company of an EU Member State or is legally comparable to an Austrian corporation.
Under the international portfolio participation exemption, an Austrian corporation is exempt from corporate income tax on dividends received from a foreign subsidiary, regardless of the participation or the holding period, if the Austrian international qualified participation exemption outlined above is not applicable, and if the foreign subsidiary qualifies as a company of an EU Member State or is legally comparable to an Austrian corporation and has its legal seat in a state with which Austria has agreed to the comprehensive exchange of information.
4. Tax groups
Austria has a group taxation regime for affiliated companies. Affiliated companies are those that are connected through a direct or indirect participation of more than 50 per cent of the nominal capital and voting power. Such participation must exist throughout the entire fiscal year of the member of the tax group (and in total for at least three years).
The formation of a tax group results in 100 per cent of the taxable income of each resident member of the group being attributed to the top-tier company in the tax group.
In the case of non-resident companies that are members of a tax group, only negative income of such companies is attributed to the top-tier company, and only on a pro rata basis (this makes the use of foreign losses possible; note that this is only of a temporary nature, with a claw-back provision applying).
Outlook and conclusions
Austria, as a wealthy and sophisticated jurisdiction with a stable political system in the center of the EU, will remain a strong candidate for inward investment from Brazil for years to come.
Niklas Schmidt - Partner (firstname.lastname@example.org)
Eva Stadler - Counsel (email@example.com)
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