Corporate Taxes in Austria

These are the highlights if you want to know more about the essential the Corporate Taxes in Austria. This entry was drafted by Kraft & Wildenhofer Rechtsanwälte. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Kraft & Wildenhofer Rechtsanwälte is an excellent option in Austria.

Taxes on corporate income

The profits of a corporation are taxed at the company level at a flat rate, while profits of individuals (and partnerships) are taxed at a progressive rate (exceptions see below).

Since 2005 the rate of the corporate income tax is 25 per cent (previously being 34 per cent). Therefore, the level of corporate income tax in Austria is now comparatively low.

The profits of a corporation are taxed whether the profits are paid out to the individual shareholders or retained in the company. Dividends paid to individual shareholders are subject to a withholding tax of 27.5% since January 1st, 2016. (Therefore, profits of a corporation which are paid to their shareholders are taxed in all with a rate of 45.63 per cent). Corporations have to pay a minimum tax related to the minimum capital. For Stock Corporation this amounts to EUR 3,500. For existing companies with limited liability the tax amounts to EUR 1,750. For companies with limited liability founded after June 30th, 2013 the minimum tax for the first five years is EUR 500 per year, during the next five years EUR 1,000. As of the 11th year the full tax has to be paid.

The minimum corporate income tax has to be paid even if no profit is generated.

The taxation of private foundations differs from the taxation of other legal entities: the dedication of assets to a foundation is, generally, taxed with 2.5 % (the tax rate is 25%, e.g., if the documentation is not disclosed or the foundation is not comparable to an Austrian one). Some types of incomes, e.g., income from bank deposits, debt securities or from the sale of participations are subject to a tax rate of 25 % (interim tax) as long as they are retained (this tax is credited when the amount is paid to the beneficiary). Dividends from participations in an Austrian corporation and – under certain circumstances – from a participation in a comparable foreign corporation are tax exempt. Benefits to the beneficiary from the substance are tax-free, whereas such from the proceeds are subject to the capital gains tax of 27.5%.

Corporate Residence

A company is resident in Austria if it has its legal seat (as designated in its statutes) or its place of effective management in Austria.  A company with its residence in Austria is taxed on its worldwide income. A company with no residence in Austria is taxed on its income earned through the activities of a permanent establishment in Austria and its incomes from immovable property located in Austria, capital gains on the sale for shares in resident companies (if the shareholding has amounted at least 1 % at any time during the last 5 years) and royalties (see below).

Other Taxes

Other relevant taxes are:

Value added tax:  The rate is in general 20 %; 10 % are charged for leases of land and buildings for residential purposes, transport of passengers (except airfares), foodstuff, books;  13 % are services rendered by film-theatres, artists, sale of livestock, plants, camping and hotel accomodation.

Real estate transfer tax (Grunderwerbssteuer): rate 3,5 % (until December 31st, 2015 the tax rate was 2 %, if the real estate is transferred between close relatives and/or spouses, as of January 1st, 2016 the tax rate is staggered).

Capital transfer tax (Kapitalverkehrssteuer): none (until December 31st, 2015 the rate was 1 % in particular for issuing shares in a domestic corporation (company with limited liability and stock company).

Stamp duties: e.g. for lease agreements, suretyships, assignments etc.

Energy taxes on natural gas, electricity, coal, petroleum

There is no property tax in Austria, only the possession of real estate is taxed with an annual rate of app. 1 % of the assessed value (Einheitswert), which is regularly beneath the actual value.

Since 2008 no inheritance and gift tax is imposed any longer due to a ruling of the Austrian Constitutional Court.

Branch income

A company with its residence in Austria is taxed with its worldwide income (including the incomes of a foreign branch). A company with no residence in Austria is taxed on its income earned by a branch in Austria. Austria is party to a number of tax treaties which seek to avoid double taxation.

Income determination

Inventory generally has to be valued at the lower of cost and market value. If inventory is valued according to cost, the FIFO method is generally accepted. The LIFO method is allowed only if it is in accordance with the company’s actual practice.

Capital gains from the sale of business assets are generally included in taxable income and are taxed at the standard rate.

Participations

Capital gains (dividends) from a shareholding in domestic subsidiaries and foreign companies (under certain circumstances, e.g., EC companies or other foreign companies comparable to Austrian companies from countries providing Austria with full administrative assistance) are exempt from taxation. This exemption applies irrespective of the amount of holding and the holding period. Withholding tax is levied for dividends from domestic participations not exceeding a 10% participation. Gains from the sale of participations or from liquidation of the company are taken into account.

Dividends from international participations (parent company is subject to unlimited income taxation in Austria, subsidiary is comparable to an Austrian company, the participation exceeds 10% of the subsidiary’s capital and is held for more than one year) are tax-free. This also applies to gains from the disposal or liquidation of such participations unless the parent company irrevocably opts into taxability (including the possibility for depreciation to the shares’ fractional value).

The above mentioned exemption does not apply if the foreign company is either not subject to a comparable company tax abroad or tax-exempt due to special foreign provisions or the foreign tax rate is below 15%. In such cases Austrian Law changes the system: instead of the exemption method the credit method is applicable.

Furthermore no exemption applies if foreign capital gains are deductible abroad.

Deductions

Generally, all expenses being caused by running a business are deductible. The costs for business lunches are deductible with 50% if made for promotion purposes. Since March 2014 costs for personnel exceeding EUR 500,000 per year and person are not deductible anymore. Compensation payments for supervisory board members are only deductible with 50%.

The basis for depreciation is the cost price or production cost. Only the straight line method of depreciation is permitted by tax laws (no progressive or diminishing balance depreciation is allowed). The depreciation period is from 5 to 10 year for machines, at least 8 years for passenger cars, 15 years for the goodwill, 33 1/3 years to 66 2/3 years for buildings depending on the use of the building. Excess write down to the lower going concern value (= fraction of the total purchase price that a buyer of the whole company would pay for a certain asset assuming the buyer intends to continue the business) is only possible in case of technical or economic obsolescence. Some assets cannot be depreciated, in particular real estate.

Net profit losses may be carried forward without any time limit. The former provisions that only loss carry forwards can only be set off against 75% of the income applies only to companies after the year 2014. To avoid misuse of losses carried forward a change in ownership of the company shares under certain circumstances, namely a substantial change of the shareholders (more than 75 per cent), a substantial change in the organization and a substantial change in the economic structure without reorganization reasons (so called “Mantelkauf”), lead to a loss of the ability to carry forward the net profit losses of the previous years.

Although there are no statutory provisions specifically dealing with transfer pricing the arm’s length principle is applied in Austria because of general rules of the Austrian tax law.

The income tax and the corporate income tax are not deductible.

Group taxation

Since 2005 Austrian tax law allows the building of a tax group. The group parent needs an equity participation of more than 50 per cent (directly or indirectly) including the majority in voting rights. It is also possible to build a group where one company holds at least 40% and another at least 15% (Mehrmüttergruppe). Such participation has to last for at least three years and an application with the tax office has to be filed. Irrespective of the participation held, 100 % of the profits and losses of Austrian group members will be attributed to the group parent, as of January 1st, 2015 75 % of losses of foreign group members will be attributed. Undistributed profits of foreign group members are not attributed to the parent company, distributed profits are tax-free (international participation). Foreign group members resident in countries without administrative assistance cannot become members anymore, with 2015 such existing foreign group members are excluded from the group by law.

Tax Incentives

There are several tax incentives in Austria, e.g., different forms of research tax allowances, an education allowance and an education premium, or an apprentice premium.

An invention allowance for example is granted for expenses incurred in the development or improvement of inventions valuable for the economy. An education allowance is granted for expenses incurred for the education and training of employees. It amounts to 20 % of these expenses.

Since 2010 individuals can participate from the new profit tax allowance (Gewinnfreibetrag): a differentiated rate of the profits can be deducted as notional operating expenses, in total up to EUR 45,350. A part of EUR 3,900 can be set off without any further requirements; the other parts depend on the actual investment in securities and certain assets.

Withholding taxes

A withholding tax of 27.5 % (since January 1st, 2016) is levied on dividends distributed by a resident company to its Austrian shareholders. For natural persons, generally, the taxation is final (Endbesteuerung). No withholding tax is levied if the parent company holds more than 25% of the capital, for lower participations the withholding tax is credited. Dividends of resident companies to its foreign shareholders in the EC/EEA are tax-free if the participation exceeds 10% and exists for more than one year.

Double taxation treaties can contain lower tax rates.

Interest income from other sources is subject to standard corporate income tax (or individual income tax)

Royalties paid to non-residents are subject to a final withholding tax of 20 % unless a reduced rate applies under a tax treaty.

Tax rate on dividends, interest and royalties according to tax treaties (selected countries):

Tax administration

A company must file the annually corporate income tax return by April 30 (by June 30 when filed electronically) of the subsequent calendar year (no matter when the financial year ends). If the company is represented by a tax advisor the period for filing the return may be extended.

Prepayments of Corporate Income tax must be made in four equal payments by February 15, May 15, August 15 and November 15 in accordance with the assessment notice issued by the tax authorities (based on the previous year’s tax payments). If the Corporate Income Tax is more than the prepayments the difference must be paid within a month after receiving the tax statement. Excess prepayments are refunded.