International Tax Austria Highlights In Plain English

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Phone : +1 202 792 6600 www.CastroAndCo.com Currency – Euro (EUR) Austria and the nonresident’s country, are exempt from corporate tax (domestic/EU/ Foreign exchange control – No restrictions non-EU portfolio dividend exemption). are imposed on the import or export of capital. Repatriation payments may be Dividends received from a nonresident made in any currency. Both residents and company that does not satisfy the above nonresidents may hold bank accounts in any criteria are tax exempt if the following currency. criteria are met (international participation exemption): (i) the nonresident is a company Accounting principles/financial statements comparable to an Austrian company or a – UGB (Austrian Commercial Code), IAS/ type of company listed in the EU parent- IFRS. UGB Financial statements in EUR must subsidiary directive; (ii) the parent company be prepared annually. holds directly or indirectly at least 10% of Principal business entities – These are the the equity capital of the subsidiary; and public/private limited liability company, (iii) the minimum 10% shareholding is held partnership, sole proprietorship and branch continuously for at least one year. of a foreign corporation. Capital gains – Capital gains generally are Corporate taxation: taxed at the same rate as ordinary income. Under the international participation Residence – A corporation is resident if it exemption, gains from the sale of a is incorporated in Austria or managed and participation in a nonresident company are controlled in Austria. exempt unless the resident company has exercised an option to have capital gains Basis – Residents are taxed on worldwide treated as taxable income. income; nonresidents are taxed only on Austrian-source income. Branches are taxed Losses – Losses may be carried forward in the same way as subsidiaries. indefinitely, but generally may be offset against only 75% of the profits of a given Taxable income – Corporation tax is year. The carryback of losses is not imposed on a company’s profits, which permitted. consist of business/trading income, passive income and capital gains. Normal business Rate – 25% Surtax – No expenses may be deducted in computing taxable income. Interest on debts obtained Alternative minimum tax – There is an to acquire a participation is not deductible annual minimum corporate income tax of if the acquisition is intragroup. Interest and EUR 1,750 for a limited liability company and royalties paid to group companies that are EUR 3,500 for a joint stock company. subject to an effective tax rate of less than Austria Highlights 2019 10% are not deductible. Foreign tax credit – Foreign tax paid may be Taxation of dividends – Dividends received credited against Austrian tax, but the credit from an Austrian resident company are tax is limited to the amount of Austrian tax exempt. Portfolio dividends (i.e. where there payable on the foreign income. is a participation of less than 10%) received from a type of company listed in the EU Participation exemption – Intercompany parent-subsidiary directive, or a nonresident dividends are exempt under the domestic/ company comparable to an Austrian EU/non-EU portfolio dividend and company that is resident outside the EU international participation exemptions (see and where there is a broad exchange of under “Taxation of dividends,” above). information clause in a tax treaty between As noted above, under the international EU/EEA parent companies if the withholding participation exemption, capital gains on tax cannot be credited in their residence the sale of qualifying participations are tax- state under a tax treaty. exempt unless the resident company has exercised an option to have capital gains Interest – No withholding tax is levied treated as taxable income. on loan interest paid to a nonresident company. Payments made to a nonresident The EU/non-EU portfolio dividend silent partner in an Austrian company are exemption and the international subject to 27.5% withholding tax (25% if the participation exemption do not apply if the silent partner is a corporation), unless the dividends are tax deductible at the level of rate is reduced or the distributing nonresident entity. the payments are exempt under a tax treaty As from 1 January 2019, the switch-over or the EU interest and royalties directive. clause in the participation exemption (i.e. the switch from the exemption method Royalties – Royalties are subject to a to the credit method for dividends and 20% withholding tax, but the rate may be capital gains) is amended to bring it in reduced or the payments may be exempt line with new controlled foreign company under a tax treaty or the EU interest and (CFC) rules introduced as from that date royalties directive. (see under “Controlled foreign companies,” Technical service fees – Fees for technical below). For financial years starting on or services are subject to a 20% withholding after 1 January 2019, the credit method tax, unless the rate is reduced or the applies to distributions from international payments are exempt under a tax treaty. participations and qualified portfolio shareholdings (above 5%) where the foreign Branch remittance tax –No subsidiary derives low-taxed passive income of more than 50% of total income in the Other taxes on corporations: relevant year. The switch-over mechanism Capital duty – No does not apply where the profits distributed already have been attributed to and taxed in Payroll tax – Municipalities levy a general the hands of the Austrian controlling parent payroll tax of 3% on total salaries and wages company under the CFC regime. paid monthly by permanent establishments based in Austria. Other payroll-related taxes Holding company regime – See under between 5.77% and 5.85% also must be “Taxation of dividends” and “Participation paid. exemption,” above. Real property tax – Municipalities impose an Incentives – Various incentive programs are annual real estate tax of up to 0.2% on up available, including a 14% cash premium on to five times the assessed value of property. certain R&D expenses. Social security – The employer is Withholding tax: required to make pay- related social Dividends – Dividends paid to another insurance contributions. The employer’s Austrian company are exempt. Dividends contribution generally amounts to 21.38% paid to a nonresident company are subject of an employee’s salary. The employee’s to a 27.5% withholding tax, unless the rate corresponding contribution of 18.12% must is reduced under a domestic provision or be withheld by the employer and remitted a tax treaty, or the dividends are exempt to the social insurance agencies. under the EU parent-subsidiary directive. A Stamp duty – Stamp duty is levied at a refund of the withholding tax is possible for rate ranging from 0.8% to 2% on various guidance based on the OECD guidelines. transactions (e.g. the assignment of Transactions between affiliated companies receivables, rent (but not for residential must be at arm’s length. Taxpayers may purposes) and lease contracts) if the obtain binding rulings on transfer pricing transaction is evidenced in a stamp duty- issues. relevant deed in Austria. Thin capitalization – There are no specific Transfer tax – Transfers of real estate are thin capitalization rules, but, in accordance subject to an acquisition tax of 3.5% of with case law, interest may be reclassified the consideration (plus a 1.1% registration as a dividend in certain situations. The tax fee with the land register). If there is no authorities usually accept a debt-to- equity consideration, the real estate transfer ratio of 4:1 in tax audits, although this is not tax and registration fee usually are based considered a safe harbor. on the fair market value (with a tax rate between 0.5% and 3.5%). For certain Interest deduction limitation rule – As an privileged transactions (e.g. reorganizations EU member state, Austria was required to or transfers of at least 95% of the shares implement the interest deduction limitation in a company holding Austrian real estate), rules included in the EU Anti-Tax Avoidance a real estate transfer tax of 0.5% and the Directive into domestic law by 1 January registration fee are based on the lower 2019. Austria is not, however, included on of: (i) three times the assessed value of the EU’s published list of jurisdictions that the land plus the value of the building; (ii) have correctly implemented the measures. standardized values provided by the Ministry It is not yet clear what further action, if any, of Finance; or (iii) the fair market value. Austria will take.

Other – Austrian banks and foreign banks Controlled foreign companies – CFC rules with an Austrian branch are subject to a are introduced as from 1 January 2019 that banking tax based on the balance sheet attribute low- taxed passive income earned total, reduced by equity and covered by controlled foreign entities to an Austrian contributions. The banking tax applies to a parent company. Control is deemed to exist tax base of more than EUR 300 million, at a if an Austrian company owns directly or rate of 0.024% to indirectly more than 50% of the shares or voting rights or is entitled to more than 50% 0.029%. It is not tax deductible for of the profits. corporate income tax purposes. Additionally, a special one-time contribution of 0.211% to The CFC rules apply if passive income 0.258% was levied in 2017, payable in four (determined under Austrian tax provisions) installments from 2017 to 2020. Cap and exceeds one-third of the CFC’s annual floor sets apply. income. Passive income includes dividends, interest, royalties and capital gains from Anti-avoidance rules: shares (if the income would be subject to tax in the hands of an Austrian income Transfer pricing – Standardized transfer recipient), finance lease income, income pricing documentation (a master file, from banking and insurance activities local file and country-by- country report) (with certain exemptions) and income from is required in line with the OECD BEPS settlement companies. Low taxation is recommendations. Penalties of up to EUR presumed if the effective tax rate in the 50,000 can be assessed if documentation country of the CFC does not exceed 12.5%. requirements are not met. Apart from that, no special transfer pricing provisions exist, The CFC rules do not apply if the controlled but the Ministry of Finance has issued foreign entity carries out a substantive economic activity supported by staff, of a proposed transaction, and a binding equipment, assets and premises. ruling on issues relating to restructurings, tax groups, transfer pricing, international Disclosure requirements – See under tax law, VAT and abuse of law. For a binding “Transfer pricing,” above. ruling, the taxpayer will be charged a fee of Other – Under the statutory general anti- up to EUR 20,000 by the tax authorities. avoidance rule, the tax authorities can make Personal taxation: adjustments if there has been an abuse of legal forms and methods to achieve a tax Basis – Austrian resident individuals benefit. are taxed on their worldwide income; nonresidents are taxed only on Austrian- Compliance for corporations: source income.

Tax year – The tax accounting period Residence – An individual is resident if he/ generally may not exceed 12 months. she is domiciled or has a habitual abode in Consolidated returns – Companies may Austria. A habitual abode is assumed if the form a consolidated group in Austria. To individual stays in Austria for more than six be eligible to file a consolidated return, months. a parent company must hold more than Filing status – Each taxpayer must file a 50% of the affiliated company. Nonresident return; joint filing is not permitted. companies resident in the EU or in countries that have concluded broad mutual Taxable income – Taxable income is the assistance agreements with Austria also sum of income from all sources, including may participate in a tax group, and their income from employment, the carrying on losses may be used in Austria. However, of a business or profession and income foreign losses of nonresident companies from investments. are subject to a recapture rule if the nonresident leaves the Austrian tax group, Capital gains – Capital gains relating to changes its business significantly compared investments are subject to a 27.5% capital to the year in which the losses were gains tax, and capital gains from real estate incurred or subsequently is liquidated. An are subject to a 30% tax. The alienation annual corporate income tax return must be of real estate acquired before 1 April 2002 filed for each member of the group subject usually is subject to more favorable rules. to unlimited tax liability in Austria, as well Deductions and allowances – Deductions as for the head of the group. from income are available for various Filing requirements – Austria operates losses, special and exceptional expenses a self- assessment regime. Advance and disabled individuals, and to farm and payments of corporate tax are required in forestry workers. Allowances based on four installments. The tax return must be a taxpayer’s personal circumstances are filed electronically by 30 June of the year replaced by tax credits (for sole earners, following the tax year. Filing deadlines sole educators and employees). may be extended if the corporation is Rates – Rates are progressive up to 55%. represented by a tax advisor. Other taxes on individuals: Penalties – Penalties apply for failure to comply. Capital duty – No Rulings – Taxpayers may request a nonbinding ruling on the tax consequences Stamp duty – Stamp duty is levied at a taxpayer’s income but are subject to a rate ranging from 0.8% to 2% on various special withholding tax of 25% or 27.5%. transactions (e.g. the assignment of Other income is self-assessed and the receivables, rent and lease contracts) if taxpayer must pay advance income tax the transactions are evidenced in a stamp in four installments. The tax return must duty-relevant deed in Austria. Loan/credit be filed electronically by 30 June in the contracts are not subject to stamp duty year following the assessment year. Filing (nor are securities for such loans). deadlines may be extended if the individual is represented by a tax advisor. Capital acquisitions tax – No Penalties – Penalties apply for failure to Real property tax – Municipalities impose an comply. annual real estate tax of up to 0.2% on up to five times the assessed value of property. Value added tax:

Inheritance/estate tax – There is no Taxable transactions – VAT is levied on the inheritance tax. There is a statutory sale of goods and the provision of services, notification requirement for gifts. Transfers and on imports. of real estate are subject to an acquisition tax of 3.5% of the consideration (2% for Rates – The standard rate is 20%. A lower transfers of agricultural and forestry land rate of 13% applies to cultural services, between close family members), with amongst other items; a 10% rate generally the fair market value being the minimum applies to accommodation, foodstuffs, (plus a 1.1% registration fee with the land pharmaceuticals, agricultural products, rent register). If there is no consideration, the for residential purposes and entertainment. real estate transfer tax and the registration Banking transactions are exempt, and a zero fee generally are based on the fair market rate applies to exports. value of the real estate. The tax rate ranges between 0.5% and 3.5%, depending on the Registration – Austrian entrepreneurs value of the real estate. whose annual turnover (reduced by certain VAT exempt transactions) exceeds EUR Net wealth/net worth tax – No 30,000 must register for VAT purposes.

Social security – Employed and self- Nonresidents that make taxable supplies employed individuals must make social of goods or services in Austria also are security contributions in an amount required to register. determined based on the individual’s salary or income from self-employment. Filing and payment – VAT returns are filed electronically on a monthly/quarterly basis. Other – A flight tax is levied on all Annual returns must be filed electronically passengers departing from an airport within by 30 June of the year following the tax Austria. The tax ranges from EUR 3.50 to year. Filing deadlines may be extended if the EUR 17.50, depending on the distance flown. entrepreneur is represented by a tax advisor.

Compliance for individuals: Source of tax law: Austrian Income Tax Act 1988, Corporation Tax Act 1998, Value Added Tax year – Calendar year Tax Act 1994, Stamp Duty Tax Act 1957, Real Estate Tax 1955, Real Estate Transfer Tax Filing and payment – Tax on employment 1987, Capital Duty Tax Act 1934, Inheritance income is withheld by the employer. and Gifts Tax Act 1955, Stability Tax Act Certain types of investment income are 2010, Flight Tax Act 2010, Transfer Pricing not included in the computation of the Documentation Act 2016 Tax treaties: Austria has concluded over 90 tax treaties. Austria has signed the OECD MLI and deposited its instrument of ratification with the OECD on 22 September 2017. The MLI entered into force for Austria on 1 January 2019.

Tax authorities: Revenue offices of the Austrian Ministry of Finance

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