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Finance Focus
Harald Manessinger Partner of LBG Austria
Email: h.manessinger@lbg.at Web: www.lbg.at.
New Tax and Legal Framework for Subsidiaries in Austria
The Austrian budget for the coming years is characterized by the guideline to achieve an annual zero deficit by 2016. In order to reach this ambitious target the Austrian parliament passed a tax reform which will have significant impacts on the legal and tax framework for both local companies and subsidiaries of international companies in Austria. The following article gives a short summary of the new regulations for limited liability companies to be effective as of March 1, 2014.
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arald Manessinger is head of the Tax Department and Partner of LBG Austria with responsibility for tax restructuring issues all over Austria. Harald’s career as a Tax Consultant
started in 1996 at Deloitte. He is a tax expert for national and international tax structuring of small and medium sized enterprises, mergers and acquisitions of companies, real estate transactions and appeals up to the supreme court of administration.
What is the legal frame for subsidiaries in Austria?
When establishing a new business entity in Austria the choice of the proper legal form may be crucial. Although commercial partnerships may be attractive as far as tax structuring is concerned they have a significant disadvantage in
international business: due to tax
transparency of partnerships (foreign) shareholders will become taxable in Austria. This is the reason why the most common legal form of foreign investments in Austria is the limited liability company (Gesellschaft mit beschränkter Haftung – GmbH).
The GmbH requires at least one shareholder. From March 1, 2014 the minimum share capital of the GmbH will be EUR 35.000 which might be contributed either in cash or in kind. If contributed in cash only 50% thereof need to be paid in before registration. Unless required
by a shareholder resolution the remaining amount will have to be contributed only in case of insolvency. There are reliefs for companies during the first 10 years after foundation limiting the required paid in share capital as well as the shareholder liability to only EUR 5.000 and EUR 10.000 respectively. Although there are no thin capitalization rules neither for tax nor for legal purposes it may be advisable to provide for an adequate share capital, otherwise the liability of the shareholders might go beyond the share capital in case of insolvency due to structurally insufficient capitalization.
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How are intercompany dividends treated?
Dividends received by an Austrian limited liability company from other Austrian corporations are exempt from corporate income tax irrespective of the percentage of holding.
Dividends from investments in foreign subsidiaries are exempt from corporate income tax if;
• The subsidiary has a legal form listed in the annex to the EU Parent-Subsidiary Directive or
• The foreign company is legally comparable to an Austrian corporation (i.e. separate legal entity, fixed share capital, limited responsibility of the shareholders, etc.) or
• The Austrian parent company holds a least 10% of the share capital in a foreign operating subsidiary and the participation has existed for a minimum period of 1 year prior to the receipt of the dividends and the profits of the foreign subsidiary are subject to a local corporate income tax rate of at least 15%.
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What is the taxation of capital gains and losses?
The national participation exemption does not extend to capital gains and liquidation proceeds; they remain fully taxable at the corporate income tax rate of 25%.
The tax regime for capital gains and losses of international participations is twofold:
• Tax exempt status: both capital gains and losses realized upon the sale of an
international
participation and the impairment of the participation are tax neutral. In this case capital gains realized remain
tax free. Losses realized
on the liquidation of the foreign subsidiary are still deductible to the extend they exceed the previous five-years’ tax exempt dividends
• Tax effected status: as an alternative to the tax exempt status of the international participation an option model has been implied allowing the taxpayer to opt for tax deductibility of capital