Austria is one of the most desirable destinations for investors from Commonwealth of Independent States (CIS) countries. It is frequently chosen as a country for investment or as a hub for doing business in Eastern and Southern Europe. In addition to Austria’s attractive economic and political environments, investors can benefit from Austria’s legal environment, in particular (a) the general accessibility of its market; (b) Austria’s flexible corporate law, which has a lot of similarities with CIS corporate law; (c) the country’s comfortable tax regime; and (d) benefits the country extends to startups. Below we briefly consider these benefits.
First, CIS investors are free to hold assets in Austria, except in a few very specific cases, which are almost identical to CIS countries’ regulations (e.g., strategically important objects and land, where an individual would require special structures).
Second, Austrian corporate law is similar to CIS corporate law. The main legal forms for investments are limited liability companies (GmbHs) and joint stock companies (AGs). Investment can flow through a joint venture vehicle or an Austrian subsidiary. Though in CIS countries the minimum charter capital is much lower, in Austria, at EUR 35,000-70,000, it is still manageable, and the funds can be used for business activities and maintenance of the company. Only 50% needs to be paid prior to registration for a GmbH and 25% for an AG. As in CIS countries, GmbHs have a flexible two-tier or one-tier management structure. Information on participants and management of GmbHs is available in the Firmenbuch (similar to the Unified State Register of Legal Entities in the CIS). Conversely, in an AG the identity of the shareholders remains confidential. The public shareholders’ agreement or confidential syndicate agreement are the key documents to regulate voting rights, lock-ups, options, and financing. Provided that options and lock-ups are stipulated in the shareholders’ agreement, they are enforceable against third parties. CIS investors will benefit from developed court practice related to warranties and representations in Austria.
Third, disputes resolved in Vienna’s arbitration court can be enforced in Russia, which adds comfort to joint venture partners.
Fourth, CIS investors can benefit from Austrian private foundations, which have flexible regulations and provide certain tax benefits. They are broadly used to manage both real estate and shareholding in other companies.
Fifth, the Austrian tax regime is investor-friendly. Austrian law acknowledges group (where a parent company has more than 50% in the affiliate and a tax group exists for at least three years) taxation, which means that losses incurred by individual members of the group can be offset by profits from other group members. There is no limitation for directly-held foreign subsidiaries to be included in the group. Losses may be carried forward for an unlimited number of years and be offset by later gains. The corporation flat tax rate (for GmbHs and AGs) is 25%, and this will be reduced to 21% in the near future. Dividend distributions received from Austrian companies by Austrian or foreign subsidiaries are, in general, not subject to corporation tax. Gains from the sale of shares in foreign subsidiaries are also not subject to corporate income tax. As a rule, the distribution of dividends from an Austrian company to its Austrian or EU parent company are generally not subject to withholding tax; the same applies to interest and royalty payments. The withholding tax for distribution to individuals in Austria or to non-EU companies is 25-27.5%. It can also be reduced to 0% if the dividend is paid in the form of a share premium repayment. The distribution of profits to non-Austrian shareholders or companies outside the EU is subject to tax in accordance with the terms of the applicable double tax treaty agreement, and Austria has double taxation treaties with more than 80 countries, including Cyprus, Luxembourg, the Russian Federation, Ukraine, the Republic of Kazakhstan, and other CIS countries.
Lastly, Austria welcomes business startups by exempting startup shareholders from a number of stamp and court duties and transfer taxes, subject to certain requirements. There is a research premium system in the form of a tax credit; this leads to a payment of 14% of the research expenses to operative researching entities in Austria (and in the EU). In addition, companies with fewer than 250 employees are entitled to an investment growth bonus of up to EUR 67,500.
This list of benefits is by no means exhaustive and there are many more advantages to investing in Austria.
By Ekaterina Larens, Senior Associate, and Christoph Mager, Partner, DLA Piper Weiss-Tessbach
This Article was originally published in Issue 7.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.