Business in Austria
The easiest way to establish a business is to set up as a “sole proprietor”. What this means is that a natural person forms a business and operates that business as its sole owner, bearing full personal liability.
Sole proprietorships can be created by any person holding Austrian citizenship or the citizenship of an EEA country or Switzerland. A permit will also be issued to any person holding a residence permit for Austria authorising him or her to carry on a trade. Persons from other countries will only be permitted to carry on a trade in Austria if there is reciprocity in granting such permits between the person’s home country and Austria.
With respect to certain professions (e.g. attorneys, tax advisors and the like) there are in part more restrictive rules on professional practice.
Sole proprietors wishing to operate a business covered by the Austrian Trade and Industry Regulation Act (German acronym: GewO) (e.g. sales, commercial sector trade, industry) require a trade licence, and they must notify the Austrian tax office of their entrepreneurial activity.
Registration of sole proprietorships with the Austrian Commercial Register (Firmenbuch) is only legally required if, during two successive fiscal years, the sole proprietorship generated a turnover of more than € 700,000 per fiscal year. However, sole proprietorships may in any event voluntarily register with the Commercial Register even where this requirement does not apply.
Sole proprietorships that are not registered with the Commercial Register may determine their income (profits/losses) by recording their payments and receipts. If, by contrast, they bear a statutory obligation to have the business registered on the Commercial Register, then, as a rule, they will be obliged to.
Branch of foreign business
Foreign entrepreneurs or business entities wishing to perform entrepreneurial activities in Austria may establish a branch office (“branch” or “Zweigniederlassung”)1. In terms of citizenship status as a condition precedent to obtaining a license to carry on a trade, the criteria described above in apply analogously.
Formation of a company in Austria
Any Austrian citizen or foreign national may establish a business in Austria. As noted above, a business operated subject to the entrepreneur’s full personal liability (i.e. without any further partners or shareholders) is referred to as a “sole proprietorship”. As an alternative, there is the option of forming a partnership or company through which the business can be operated. To form a partnership entity or Personengesellschaft, at least two partners are required. By contrast, one individual is sufficient to establish an incorporated entity or Kapitalgesellschaft (GmbH, AG).
Frequently, foreign business owners wish to establish a subsidiary in Austria, which is legally independent from its parent; the foreign parent company thus does not bear direct and unlimited liability for the subsidiary’s obligations. The corporate forms typically chosen for such subsidiaries are the Gesellschaft mit beschränkter Haftung or limited liability company (German acronym: GmbH) and the Aktiengesellschaft or joint-stock company (German acronym: AG). An alternative is the “European Company” (also referred to as “Societas Europaea” or SE).
In terms of partnership entities, the Offene Gesellschaft or general partnership (German acronym: OG) and the Kommanditgesellschaft or limited partnership (German acronym: KG) may be used. Alternatively, business owners may establish a GmbH & Co KG (which is a form of partnership entity that combines characteristics of each of the two aforementioned entity types).
Austria is also popular as a location for holding companies. In practice, holding companies are usually incorporated entities (i.e. a GmbH, AG, SE) or in certain circumstances private foundations: even though private foundations cannot issue shares, there are legal constellations that may nevertheless make it advantageous to form a private foundation in Austria.
We will not delve in any further detail into other corporate forms such as the civil-law partnership or Gesellschaft bürgerlichen Rechts, the silent partnership and the corporate entities of the co-operative (Genossenschaft) and the legal association (Verein), because they are of little practical significance to foreign investors.
Austria offers companies an attractive taxation system. To avoid double taxation there are double taxation treaties with numerous foreign countries.
Taxation of companies:
- Corporate Income Tax
In Austria, companies - especially stock corporations and limited liability companies - are subject to corporate income tax on their entire income and their profits at a standard tax rate of 25%. Levies such as trade tax and net worth tax, which are common in other countries, do not exist in Austria.
Regarding the effective tax burden of companies, Austria is one of the top ranked countries in Europe. Compared to other EU nations, Austria offers one of the lowest tax rates for companies - on the same level as the Eastern European neighbour countries.
- Group taxation is a big plus for headquarters
In the view of the tax experts at the global accounting firm KPMG, companies benefit most from the new group taxation provisions included in the 2005 tax reform package. Both international companies but also smaller foreign firms with subsidiaries can reap enormous advantages from the new rules in relocating operations to Austria, especially in establishing headquarters for the Eastern European region.
Under group taxation provisions, the profits and losses of domestic group members, along with the losses of foreign subsidiaries, are offset, reducing the basis for calculating corporate tax. Companies can capitalize on group taxation with an equity share of 50% plus one share in a subsidiary. In the case of an acquisition, goodwill can be written off over a period of 15 years, a further advantage not currently available in other countries.
A range of tax deductions lower the effective tax burden to 23%.
The effective tax burden of limited liability companies in Austria is at a level of 23.1%, according to a recent study published by the Center for European Economic Research, located in Germany. This advantage is attributable to numerous available tax writeoffs, including the investment exclusion of 9%. Also providing for significant tax reductions are research and training exemptions, exemptions for apprentices, deductions for losses and the carryover of silent reserves. All of these provisions bring the corporate tax burden in Austria about 40% below the level in Germany.
The research allowance: up to 35% of research expenditures are excludable if applied to the development or improvement of inventions with macroeconomic value. This provision makes Austria’s tax system the most attractive in Europe in the area of research and development. Companies not making a profit in the year they make the research expenditures are granted a bonus of 8% of their expenditures.
The training allowance: allows for exclusion of up to 20% of employee training and retraining expenditures. As alternative an education bonus of 6% of the expenditures can be claimed.
Capital Gains Tax:
Interest earnings, bank interest and interest from securities held in Austrian deposit accounts and derived by an individual resident in Austria are subject to the 25% withholding tax. With this withholding tax deduction income tax is frequently deemed to be satisfied (final or definitive taxation).
Austrian Employment Law
Traditionally, employment law is broken down into individual and collective employment law. Individual employment law refers to the bilateral relationship of the parties to an employment agreement (employer and employee) i.e. the employment agreement. Collective employment law covers, in particular, the law pertaining to collective agreements and works constitutions.
The contract of employment imposes a mutual obligation upon employer and employee, which consists not only in providing services once, but implies a conduct which prevails for some time.There is generally no specific form requirement for a contract of employment; this means that it can be concluded orally, in writing or through conclusive action. If the employment contract is not put into writing, the newly-hired employee must be given information in written form (‘Dienstzettel’) which outlines his most important rights and responsibilities.
A one month trial period can be arranged. During this time, both the employer and the employee can terminate the contract of employment without explanation.
For reasons of labour market policy, employment of (non-EU) aliens in Austria is subject to various restrictions and controls under the Austrian Employment of Aliens Act (German acronym: AuslBG). As a basic principle, all persons are deemed aliens if they do not possess Austrian citizenship.
An entrepreneur in Austria may only employ an alien if an employment authorisation or secondment authorisation has been issued for that employee or if a confirmation of notice or an EU secondment confirmation (for seconded aliens; see also subsection 3.4) has been issued or the employee holds a valid work permit or exemption certificate. The public authority in which jurisdiction is vested is the regional office of the Austrian labour market service (German acronym: AMS).
Exceptions: The Employment of Aliens Act does not apply to employment of EU/EEA citizens (with an exception currently still applicable to Romania and Bulgaria).
Acquisition of Immovable Property
Before purchasing a property you should always inspect the government land register for any legal requirements, rights and restrictions including the seller’s ownership title, mortgages, liens, pre-emption rights, rights of way, canals, lines, brooks.
For this purpose you should obtain a current extract from the government land register about every Austrian property available from every district court or mapping office (Vermessungsamt).
Notaries public, lawyers and other people or authorities dealing with the transaction of property also have access to the property database.
The government land register is also available on the Internet. Requests, however, are not free. You can access the respective billing centers via the website of the Federal Ministry of Justice (www.justiz.gv.at).
Many legal and complex issues are at stake when it comes to purchasing properties which is why we advise you to commission a notary public or a lawyer to draw up the contract and proceed with land register registration.
On principle, it is also possible that you draw up your own purchase contract (including a consent to the transfer of ownership [Aufsandungserklärung]) based on model agreements and then go together with the other party to a notary public or a district court to have your signatures officially certified.
Principal of Registering with the Land Register
The ownership of a property is not obtained by signing the purchase contract, taking possession of the property, and paying the purchase price. What is rather needed for acquiring ownership is your application to have your property right entered, i.e. the registration in the land register as the new proprietor.
Principal of Priority
The order of registration in the government land register is determined by the date of the receipt of the respective application. The reason why you should inspect the land register in detail before the purchase (and in particular before transferring the purchase price) is that all rights entered in the order of registration before the purchaser’s property right is registered must generally be assumed by her/him or are effective upon her/him.
If foreigners purchase a right to a property or an apartment, a mandatory approval is required. Citizens of an EU member state are excluded from the approval and enjoy equal status as local citizens. The approval procedure only has to be done by third-country-citizens.