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INTERNATIONAL LAWYERS NETWORK

BRAUNEIS KLAUSER PRÄNDL ESTABLISHING A BUSINESS ENTITY IN AUSTRIA

ILN CORPORATE GROUP [ESTABLISHING A BUSINESS ENTITY IN AUSTRIA] 2

This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these market places and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship, or its equivalent in the requisite jurisdiction.

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ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN AUSTRIA] 3

ESTABLISHING A BUSINESS ENTITY IN AUSTRIA

entity that combines characteristics of each of “Establishing a Business Entity in those two. Austria” Dr. Andreas Bauer 2. Types of business entities Partner Austrian company law offers a limited number Brauneis Klauser Prändl – Vienna of possible corporate forms, which are

conclusively regulated by law. No further 1. Introduction company forms may be created (however, companies incorporated in a Member State of In principle any national citizen or foreign the EU or EEA must be recognized as such in national is allowed to establish a business in Austria). The most important Austrian company Austria. A company is defined as a partnership forms are: of at least two persons (exceptions for limited liability companies and joint-stock companies), • Limited liability company or Gesellschaft founded by a legal transaction, who want to mit beschränkter Haftung (GmbH) achieve a certain purpose through organized • Joint-stock company or cooperation. While one person is sufficient to Aktiengesellschaft (AG) establish a limited company (Kapitalgesellschaft), at least two persons are • European Company or Societas necessary to form a partnership entity Europaea (SE) (Personengesellschaft). A business operated by • General Partnership or Offene a single natural person with full personal Gesellschaft (OG) liability (i.e. without any further partners or • shareholders) is referred to as a sole Limited partnership or proprietorship (Einzelunternehmen). Kommanditgesellschaft (KG) If foreign business owners choose to establish a • Branch offices of foreign companies or subsidiary in form of a limited company in Zweigniederlassung Austria it is important to mention that the 2.1 Limited liability company (GmbH) establishment is legally independent from the The limited liability company or Gesellschaft parent company meaning that the foreign mit beschränkter Haftung (GmbH) is an parent company does not bear direct and incorporated entity and is among the most unlimited liability for the subsidiary’s popular legal forms for business enterprises obligations. The corporate forms typically in Austria. Its legal identity is independent of chosen for such subsidiaries are the limited that of its shareholders. As a general rule, liability company (GmbH) and the joint-stock the shareholders of a limited liability company (AG). Additionally, there is the company do not bear any personal liability European Company (SE), which is seldom used. towards the company’s creditors for the With regard to partnership entities, the general company’s obligations (“principle of partnership (OG) and the limited partnership separation”). The shareholders of a GmbH (KG) may be used. Another option to choose is are only personally liable for unpaid share the so-called GmbH & Co KG, which is a hybrid capital, or in the case of malevolence of the form of a limited company and a partnership shareholder.

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A GmbH is set up by one or more frequent transfer of shares is desired. shareholders, who may be individuals, 2.2 Joint-stock company (AG) corporations and partnerships, residents and non-residents, Austrian and foreign citizens, The joint-stock company or as well as foreign corporations. Aktiengesellschaft (AG) is similar to the Gesellschaft mit beschränkter Haftung The contract between two or more founders (GmbH) and the second legal form of a of a limited liability company is called limited company in Austria. The Articles of Association (Gesellschaftsvertrag). Aktiengesellschaft (AG) is an independent In case of a sole-shareholder company, the legal entity and possesses rights and articles are referred to as Declaration of obligations of its own. The shareholders of Establishment (Errichtungserklärung). Both an AG are only personally liable for unpaid documents must be certified by a notary share capital, or in the case of malevolence public by means of a notarial deed. The of the shareholder. Gesellschaft mit beschränkter Haftung (GmbH) comes into legal existence upon its In comparison to the GmbH, the registration in the Commercial Register establishment of a joint-stock company is (Firmenbuch). The minimum share capital of more complicated and more expensive. a limited liability company is EUR 35,000. At An AG may be set up by one or more least half of the share capital (EUR 17,500) natural persons or legal entities. In the case must be paid in cash (exception: of a sole founder it is required to register continuation of an enterprise and the sole- shareholder’s name in the contributions in kind). If the founders make Commercial Register (Firmenbuch). The use of the so-called Formation Privilege Articles of Association must be certified by (Gründungsprivilegierung), only EUR 5,000 a public notary by means of a notarial must be paid in cash at the time of deed. The formation procedure is subject to formation. Additionally, the shareholders are stricter formal requirements compared to personally liable for another EUR 5,000 the GmbH. The minimum stock capital of an during the first ten years after the Aktiengesellschaft (AG) is EUR 70,000. At “privileged formation” of a GmbH has been least one quarter of said amount must be registered in the Commercial Register paid in during the company’s formation. The (Firmenbuch). The Formation Privilege AG comes into legal existence upon its (Gründungsprivilegierung) ends after ten registration in the Commercial Register years at the latest but can also be (Firmenbuch). discontinued voluntarily at an earlier point in time. The requirements for this step are In comparison to the GmbH, the AG is that the Articles of Association are amended structured after a so-called dualistic model. accordingly and that the statutory minimum This means that the General Meeting deposit requirements (usually at least EUR (Hauptversammlung) appoints a Supervisory 17,500 in cash) are met. Since the transfer of Board (Aufsichtsrat) with at least 3 shares in a GmbH is more difficult (a notarial members and the Supervisory Board deed is required) than that of stock in a appoints the Board of Directors (Vorstand). stock company (AG) the GmbH is less The directors are appointed for a maximum suitable if a widespread ownership or the term of 5 years but may be reappointed after their term has ended. Contrary to the

ILN Corporate Group – Establishing a Business Entity Series [ESTABLISHING A BUSINESS ENTITY IN AUSTRIA] 5 managing directors of a GmbH, members of 2.5 Limited Partnership (KG) the Board of Directors (Vorstand) of a joint- 2.5.1 General information stock company (AG) are not subject to instructions by the General Meeting or the The limited partnership or Kommandit- Supervisory Board in their normal course of gesellschaft (KG) is a partnership entity business. consisting of at least two physical persons or legal entities, similar to the The most significant advantage of the Offene Gesellschaft (OG). The major Aktiengesellschaft (AG) compared to the difference towards the OG is the liability GmbH is the easier transferability of of its members, because not all the company shares and their tradability on the partners bear full and unlimited liability stock market. for the partnership’s obligations. At least 2.3 Entities under European Law (SE) one partner (“general partner”) is The European Company or Societas Europea required to bear unlimited liability for (SE), the European Cooperative Society (SCE) the partnership’s obligations while the and the European Economic Interest remaining partner/s (“limited partner”) Grouping (EEIG) are also business entities is/are only liable up to the amount of which may be incorporated under Austrian their capital contributions registered in law but are seldom used. the Commercial Register (Firmenbuch). 2.4 General Partnership (OG) 2.5.2 GmbH & Co KG The general partnership or Offene The GmbH & Co KG is a hybrid form of Gesellschaft (OG) is an association of at the limited liability company (GmbH) and least two physical persons or legal entities. the limited partnership (KG) in which Each of the partners in a general partnership the sole personally liable general partner bears personal, unlimited, direct and joint is a limited liability company (GmbH). In a liability for all the partnership’s obligations. typical setup the shareholders of the The liability towards creditors can’t be GmbH are also limited partners of the limited. The general partnership may be KG. established for any purpose permitted by Considering how the liability of the law and may therefore undertake all partners is modified in case of the GmbH commercial, industrial, professional and & Co KG the Austrian legislation tends – agricultural activities (exceptions: activities due to the strict rules on creditor such as insurance businesses, pension funds protection – to apply the same legal and employee provision funds). Unlike framework to the GmbH & Co KG as to limited companies, the Offene Gesellschaft the limited liability company (GmbH). (OG) may be set up without any initial Therefore, the GmbH & Co KG is capital. It comes into legal existence upon sometimes referred to as “hidden limited its registration in the Commercial Register company”. (Firmenbuch). The reasons for establishing this special form of a limited partnership are motivated mainly by the advantages of an indirect limitation of liability and tax

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benefits. foundation of a limited liability company and a 2.6 Branch offices of foreign companies joint-stock company a notarial deed is required. All applications to the Commercial Register Foreign legal entities (i.e. sole proprietors, (Firmenbuch) must be notarized. partnership entities and limited companies) may do business in Austria by establishing The limited liability company demands a so-called branch offices minimal amount of stock capital of EUR 35,000 (Zweigniederlassungen). This possibility is (in the case of a Privileged Formation, EUR available to every foreign legal entity, also 10,000) and the joint-stock company EUR business entities from non- European 70,000. Furthermore, there are certain criteria countries. as to how the stock capital must be composed. Although branch offices Generally, a company comes into legal (Zweigniederlassungen) of foreign legal existence upon its registration in the entities are required to be registered in the Commercial Register (Firmenbuch). Sole Commercial Register (Firmenbuch), they do proprietorships do not have to be registered not enjoy a separate legal personality. All unless they exceed a certain business turnover obligations and liabilities of the branch of more than EUR 700,000 in two consecutive office (Zweigniederlassung) constitute years or more than EUR 1.000,000 in one year. obligations of the respective foreign legal Insurance Requirements: entity (business owner). Within the first month the managing directors If a branch office (Zweigniederlassung) is (Geschäftsführer) (GmbH) or partners (OG, KG) established for a foreign limited liability must be registered with the Commercial Social company or joint-stock company with its Insurance Fund. Before employing anyone, a registered seat outside the EU/EEA, it is notification must be sent to the Regional required to appoint a “permanent Medical Insurance Company representative” for the Austrian branch. The (Gebietskrankenkasse). Also, within the first “permanent representative” is obliged to month the commercial activity must be have his ordinary/main residence in Austria. reported to the local fiscal authorities to 3. Steps and Timing to Establish receive a taxpayer identification number. The necessary steps to establish any company Required documents for a limited liability form in Austria are similar in many ways, but company: there are a few differences for each type of The following documents must be presented to business entity. the Commercial Register (Firmenbuch) for the The principal step of any formation proceeding incorporation of a limited liability company is the conclusion of the so-called Articles of (GmbH): Association (Gesellschaftsvertrag) which • Application for registration in the determine inter alia the name, the seat of the Commercial Register (Firmenbuch) company, its purpose as well as the rules • Articles of Association governing the interaction of its shareholders. (Gesellschaftsvertrag) The company’s name must be suitable for its identification and must have a distinctive • Shareholder resolution on the character. As already mentioned, for the appointment of at least one managing

ILN Corporate Group – Establishing a Business Entity Series [ESTABLISHING A BUSINESS ENTITY IN AUSTRIA] 7

director (Geschäftsführer) sensitive and confidential information to third parties, and they may be held • Notarized signature specimen of the personally liable for all damages caused by managing directors (Geschäftsführer) breaches of these obligations. Moreover, and other authorised representatives they usually must abide to a non- (Prokuristen) competition clause, which is normally part of • Bank confirmation that the initial their employment contract. contributions have been paid into the As already mentioned, for joint-stock agreed amount in cash and that they companies (AG) a dualistic model is are at the free disposal of the managing compulsory. This means that the General directors (Geschäftsführer) and are Meeting (Hauptversammlung) appoints a especially not limited by any claims Supervisory Board (Aufsichtsrat) with at • Resolution of the shareholders in least 3 members and the Supervisory Board notarized form regarding the election of appoints the Board of Directors (Vorstand). the Supervisory Board (Aufsichtsrat) (if The directors are appointed for a maximum applicable) term of 5 years but may be reappointed • Resolution of the Supervisory Board after their term has ended. Contrary to the (Aufsichtsrat) regarding the election of a managing directors of a GmbH, members of chairman and the deputy chairman (if the Board of Directors (Vorstand) of a joint- applicable) stock company (AG) are not subject to instructions by the General Meeting or the 4. Governance, regulation and on-going Supervisory Board in their normal course of maintenance business. The Board of Directors (Vorstand) 4.1. Corporate governance must also prepare the financial statements, which must be approved by the Supervisory Corporate governance of course varies by Board (Aufsichtsrat) and then presented to the type of the company. For limited the General Meeting (Hauptversammlung). companies the supreme body is the General Meeting: the so- called Generalversammlung 4.2 Audit requirements for the GmbH and the so-called In the first five months of the financial Hauptversammlung for the AG. year, limited companies (GmbH, AG) and A limited liability company (GmbH) is obliged hidden limited companies (GmbH & Co KG) to have a General Meeting must prepare and submit the annual (Generalversammlung) and one or more financial statements, together with the managing directors (and in some cases a accompanying notes, a management report Supervisory Board (Aufsichtsrat), which may and, if applicable, a corporate governance also be established voluntarily). Managing report (e.g. large joint-stock companies) and directors (Geschäftsführer) must act with a report on payments to government due diligence and follow the principle agencies for the preceding financial year, to resolutions passed by the company’s general the members of the Supervisory Board meeting in compliance with the Articles of (Aufsichtsrat) (if there is one). Association of the company and the In the following cases a statuary audit is applicable laws. They must not disclose mandatory:

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• Joint-stock companies (AG) - Shareholders who hold at least one third of the share capital alone or jointly • Banks, insurance companies and may appoint a minority representative to investment funds the Supervisory Board (Aufsichtsrat). • Large and medium sized limited liability - Shareholders whose capital contributions companies (GmbH) amount to (i) 10% of the share capital In comparison, small and very small or (ii) the nominal amount of EUR companies are only obliged to submit 700,000 or (iii) a lower amount limited financial information to the stipulated in the Articles of Association Commercial Register (Firmenbuch). (Gesellschaftsvertrag) alone or jointly are A company is considered small if at least two entitled to the following minority rights: of the following criteria are met: o Appointment of an expert for a • Total assets are lower than EUR 5 million special audit of the annual financial statements; • Turnover is below EUR 10 million o Assertion of claims to which the • Average number of employees is less company is entitled against than 50 shareholders, managing directors A company is considered medium-sized if at (Geschäftsführer) and members of least two of the following criteria are met: the Supervisory Board (Aufsichtsrat); • Total assets are between EUR 5 million o Appointment and dismissal of and 10 million liquidators for cause. - • Turnover is between EUR 10 million and Shareholders who hold at least 5% of 40 million the share capital or the proportionate amount of EUR 350,000 alone or jointly • Average number of employees is have the following minority rights: between 50 and 250 o Appointment of auditors; A company is considered large if two of the o Audit of the annual financial above-mentioned criteria are exceeded (total statements during liquidation. assets exceed EUR 10 million, turnover exceeds EUR 40 million and average Further minority rights result from the number of employees exceeds 250). majority requirements for shareholder resolutions. Resolutions which require a 4.3 Minority shareholder rights and majority of three quarters of the cast votes, protection e.g. amendments to the Articles of The rights of minority shareholders shall be Association (Gesellschaftsvertrag), can be explained in this chapter on the basis of prevented by more than 25% of the cast the legal framework regarding the limited votes (blocking minority). liability company (GmbH). It may be noted that the rights of minority Shareholders are entitled to the following shareholders in joint-stock companies (AG) minority rights, depending on the percentage are like the aforementioned rights in the of equity held: limited liability company (GmbH).

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5. Employment Law 6. Taxation 5.1. Employment of foreign citizens The tax burden on corporate profits in Austria The employment of foreign citizens is subject depends on the legal form of the company, the to various restrictions and controls under amount of profit generated and lastly on the Employment of Foreign Citizens Act whether the profit is distributed or withdrawn (Ausländerbeschäftigungsgesetz, AuslBG), by the shareholders or not. which forms the basis for the access of foreign workers to the Austrian labour 6.1 Income tax and corporate income tax market. Austrian tax law knows two different The AuslBG aims to regulate the ordered income taxes: income tax access of foreign workers to the Austrian (Einkommenssteuer, ESt) and corporate labour market and ensures that they are income tax (Körperschaftssteuer, KÖSt). employed under proper working conditions While the income tax (ESt) for individuals is and wages. designed as a progressive tax-system Employment of EU/EEA Nationals: For depending on the actual amount of income, nationals of EEA member states and the corporate income tax (KÖSt) is set Switzerland (with exceptions currently still in uniformly at 25% of the taxable income or, place for Croatia until 30/06/2020), the rules in the case of limited liability, at 25% of of free movement of workers apply the taxable income earned within Austria. substantially in the same way as for citizens Legal entities that fall under the corporate of EU member states. EU/EEA nationals income tax are limited companies (most have free access to the Austrian labour notably GmbH and AG), institutions and market according to EU law and require no foundations, but also regional authorities employment or working permit. EU/EEA and professional bodies (e.g. Chamber of citizens who wish to stay longer than three Commerce). In contrast to other EU countries, months in Austria only need a registration there are no other taxes on the profit (e.g. a certificate. This is issued by the competent trade tax). residence authority. Losses may be carried forward indefinitely. Employment of Non-EU/EEA Nationals: In each subsequent profit year, only 75% of According to the AuslBG workers from third the profit may be compensated. This countries (non-EU/EEA countries) require – means that 25% of the profit is taxable even as mentioned above – a combined work with existing loss carry-forwards. and residence permit to be granted long- Branches of foreign companies are also term access to the labour market in Austria. subject to Austrian corporate income tax Such a permit enables them to work for a (KÖSt) with their income earned in Austria. specific employer (e.g. with a so- called Rot-Weiß-Rot-Karte) or grants free access to 6.2 Group taxation the labour market (e.g. with a so-called Rot- Austria has a modern group taxation Weiß-Rot-Karte Plus). It can be noted here system, which allows compensation of that issuing such a work visa is made profit and loss within a group. Even foreign easier if a highly qualified and well-paid entities may be part of this system. worker is to be recruited.

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Austrian group taxation has the effect of 6.3 Tax relief and international box balancing the profits and losses of the participation parent company and its subsidiaries by In general, taxation of foreign income is forming a group of companies. The group based on the provisions for avoiding double parent then combines the results of the taxation. The so-called international box group members and subjects them to participation (Schachtelbegünstigung) is an taxation. objective tax exemption within the The requirements for the eligibility of the framework of the corporate income tax group taxation are: (KÖSt) for distribution and capital gains from - Capital participation (share capital, share certain participations in foreign corporations. capital or cooperative capital) of more The goal of the regulation is to ensure that than 50% and majority of voting rights of profits earned by corporations are taxed only the group parent in the group once, as long as they do not flow to natural members (financial link); persons. - Submission of a group application to the The rules for an international box tax authority; participation apply if - - Conclusion of a group agreement for the an Austrian parent company purpose of tax equalization within the - has a share of at least 10% group; - in a foreign subsidiary (that is like an - Financial link during the entire financial Austrian company) year and/or retention in the group for at - for an uninterrupted period of at least least 3 years. one year. In the case of an international box dividends from shares in limited companies). participation, profit distributions of the Capital gains of a company are fully included foreign subsidiary to the Austrian parent in the taxable income and are taxed at the company are tax-free. corporate income tax rate of 25%. Capital 6.4 Capital gains tax gains on sales of shares in foreign companies Capital gains tax (Kapitalertragsteuer, KESt) is are exempt from Austrian income tax under a special form of income tax. In the case of certain circumstances. domestic income from capital assets, this This Memorandum is for information purposes only and reflects income tax is levied by withholding tax. This Austrian law in September 2018. means that the capital gains tax is withheld This Memorandum does not constitute legal advice and cannot replace personal consultation on a case-by-case basis. If you by the bank or the paying agent and paid have any further questions about establishing a business in directly to the tax office. Austria or need general legal advice, please contact Mr Andreas Bauer, [email protected], +43 1 532 12 10. Capital gains tax of 25% is imposed on bkp Rechtsanwälte is one of the leading business law firms in investment income from cash deposits (e.g. Austria. We are specialized in consulting in all areas of business for interest on savings books and current law with a distinctly international orientation. We assist our accounts). For all other income from capital clients in the long term and find sustainable ways to achieve their desired objective. assets, the tax rate is 27.5% (e.g. for

ILN Corporate Group – Establishing a Business Entity Series