Robert Schneider

Austria Equity Repayment

Austrian companies are taxable on their worldwide income, including capital gains, at a flat tax rate of 25%. Independent of the taxable income, an annual minimum tax of €1,750 is levied for limited liability companies; these tax payments can be set off against higher tax burdens in the future without limitation. Dividends received by an Austrian company from another Austrian company; or a corporation resident in the EU; or a country which has entered into a comprehensive mutual administrative and enforcement assistance agreement with Austria, are tax exempt disregarding the extent or period of holding the participation. The tax exemption for dividends from foreign companies is not granted if the foreign entity is not subject to a tax system comparable to Austria; the tax rate is less than 15%; or the foreign entity is subject to comprehensive tax exemptions. In these cases, the dividends paid are not tax-exempt but foreign tax paid is credited against Austrian tax (switch-over). Capital gains from the sale of a domestic or non-qualifying foreign company are not tax exempt, but are subject to tax at the standard rate of 25%. Gains realised upon the liquidation of the subsidiary are treated as capital gains and not as dividends, with the result that the domestic participation exemption does not apply. A foreign company that is comparable to an Austrian company is a qualifying international participation if the Austrian company holds at least 10% of the share capital for a minimum period of one year. Qualifying international participations are tax-exempt both with regard to dividend payments and capital gains derived from it. Capital gains or losses from the sale of shares or from the liquidation of a qualifying international participation are not included in the tax base. On the other hand, a write down of the value of the participation is not tax-deductible. As a general principle, costs relatingto tax-exempt income are not tax deductible in Austria. However, interest payments (but not other costs) connected with the financing of (domestic or international) shareholdings are deductible, despite the fact that income deriving from such participations is tax-exempt. Generally, dividends paid by an Austrian company to non-resident shareholders are subject to withholding tax at a rate of 25%. Dividends paid by an Austrian company to its EU-resident parent are tax-exempt if the parent company holds directly a participation in the Austrian subsidiary of at least 10% for a minimum period of one year. Tax has to be withheld in cases suspect to abuse. Abuse is assumed if the parent company is not actively engaged in business, does not have a number of employees or its own office. In such cases, withheld tax is refunded on application of the parent company provided that the abuse suspicion is rebutted. Non-resident shareholders are generally subject to taxation on the disposition of shares in an Austrian company if the shareholder has held 1% or more of the share capital for any time during the preceding five years (if the participation has not exceeded this threshold, capital gains are not taxable). For corporate shareholders, corporate tax is levied at the regular corporate tax rate of 25% on the realized gains. Gains realised on the liquidation of an Austrian company aresubject to corporation tax regardless of the extent of the shareholding. Royalties paid by an Austrian company to non-residents are generally subject to withholding tax at a rate of 20%; expenses are generally not deductible. However, under most tax treaties the withholding tax is reduced or eliminated altogether (eg Germany, Poland, Hungary and Croatia). Expenses directly connected to the royalty may be deducted from the tax base if the receiving company is resident within the European Economic will then increase to 25%. Interest payments to non-Austrian residents are generally not subject to tax. This exemption from taxation extends to income from debt-claims that carry a right to participate in the Austrian debtor’s profits unless the contractual relationship is characterised as a silent partnership. (Source: www.taxdirectorshandbook.co.uk)

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