The following selected aspects of taxation in Austria are not intended to be an exhaustive account of the tax considerations relevant to the acquisition, ownership and disposal of shares. The following summary is based on the tax legislation in force in Austria in September 2006, and is subject to any changes in Austrian law occurring after that date, including changes which may have a retroactive effect. It focuses on the tax treatment of the dividends, which the Company may distribute in the future, and in particular on withholding tax on investment income. The income and corporate tax consequences of the disposal of shares and the inheritance and gift tax consequences of the transfer of shares by inheritance or by way of gift are also described.
Dividends distributed by a corporation resident in Austria for tax purposes to its shareholders are subject to withholding tax (Kapitalertragsteuer), levied at a rate of 25%. Thus, the tax is withheld by the company paying the dividend, unless an exemption or a reduction in the tax rate applies.
If the beneficial owner of the dividends is an individual resident in Austria for tax purposes (unbeschränkt steuerpflichtige natürliche Person) this 25% withholding is flat and final (Endbesteuerung), i.e., neither income tax due over and above the amount withheld nor dividends have to be included in the shareholder’s income tax return. If the income tax rate applicable to the shareholders’ income is below 25%, then the beneficial owner of the dividends may file an income tax return including the dividends received and apply for assessment of his income tax liability based on the filed income tax return. Expenses incurred by the shareholder in connection with the shares (including interest expenses) may not be deducted for tax purposes.
Dividends received by a corporation resident in Austria for tax purposes (unbeschränkt steuerpflichtige Körperschaft) from another Austrian resident corporation are exempt from Austrian corporate income tax under the Austrian participation exemption. The tax withheld is credited against the corporate income tax assessed. No withholding tax obligation is triggered in the case of a direct participation of at least 25% in the share capital of the Austrian dividend-paying corporation. Apart from interest expenses, no expenses incurred by the shareholder in connection with the shares may be deducted for tax purposes.
Dividends received by a private foundation — in principle — are not subject to withholding tax. However, on the level of the private foundation, the dividends are subject to a 12.5% interim tax. When the private foundation distributes allocations to its beneficiaries the 12.5% interim tax can be credited against the 25% withholding tax.
In case of individuals and corporations not resident in Austria for tax purposes and not maintaining an Austrian permanent establishment the 25% withholding tax may be reduced under applicable double taxation treaties.
Austria has concluded such treaties with more than 60 countries. Many of these treaties provide for a reduced treaty rate of 15% on portfolio dividends. In order to obtain a reduced rate under an applicable tax treaty, a non-resident shareholder generally has to provide a certificate of residence issued by the tax authorities of the shareholders’ country of residence. Claims for refund of the Austrian withholding tax can be made by using the form ZS RD 1 (German) or ZS RE 1 (English). Reduced treaty rates on dividends may be available at source if the requirements set out under an ordinance of the Austrian Federal Ministry of Finance dated June 17, 2005 (DBA-Entlastungsverordnung, BGBl III 2005/92) are met. To obtain the reduced treaty rates at source the beneficial owner of the dividends must complete and forward to the dividend-paying corporation form ZS-Q1, or ZS-Q2 if the beneficial owner is a legal entity. The forms may be obtained from the Austrian Ministry of Finance (www.bmf.gv.at/service/formulare/steuern/detail.htm?FTYP=zws). Finally, under the Austrian provisions implementing the EC Parent/Subsidiary-Directive (90/435/EEC, as amended), an exemption from withholding tax applies to dividends paid to qualifying EC corporations holding directly at least 10% of the shares in the Austrian dividend-paying corporation for a minimum holding period of one year.
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Capital gains realized by an individual resident in Austria for tax purposes from the sale of privately held shares in an Austrian corporation are subject to the following regime:
If the shares are sold within 12 months after purchase (so-called speculative transactions), capital gains are taxable at the applicable progressive income tax rate of up to 50%. Capital gains from speculative transactions (in total) are exempt up to an amount of €440 per year.
After a holding period of 12 months, capital gains from the sale of privately held shares are not subject to Austrian income tax unless the shareholder has, at any point in time during the last five years prior to the sale, directly or indirectly held a participation of at least 1% in the corporation. In this case, the capital gains are taxed at half the average income tax rate of the shareholder.
The same terms that apply to individuals also apply to capital gains that are realized by a private foundation.
If the shares are held by an individual as business assets, capital gains from the sale of the shares are subject to income tax at progressive rates up to 50% if sold within 12 months after their acquisition. All other capital gains are taxed at half average income tax rate of the shareholder.
If shares in an Austrian corporation are held by a corporation resident in Austria for tax purposes, capital gains realized upon the sale of the shares are subject to corporate income tax rate of 25%.
Individuals and corporations not resident in Austria for tax purposes are subject to Austrian income tax at half the average income tax rate of up to 50% (except if the shares are sold within the 12 month speculation period in which case the average income tax rate of up to 50% applies), or corporate income tax at a rate of 25%, respectively, only if either the shares are held as assets attributable to an Austrian permanent establishment or the non-resident individual or corporation has, at any point of time during the last five years prior to the sale, directly or indirectly held a participation in the corporation of at least 1%. However, unless the shares are attributable to an Austrian permanent establishment, most Austrian tax treaties provide for an exemption of capital gains from the sale of the shares from taxation in Austria.
If in respect of a shareholding that at any time within the five years preceding the sale represented at least 1% of the relevant company’s share capital, a shareholder takes steps which lead to the loss of Austria’s right of taxation in favor of other countries (e.g., by transferring his/her residence for tax purposes outside of Austria), such step is treated as a deemed disposal resulting in capital gains amounting to the difference between the acquisition cost and the fair market value of the shares. Taxation of such capital gains shall be deferred, however, if the shareholder moves to an EU member state or to an eligible EEA member state. The deferred tax shall be levied upon actual disposal of the shares as well as upon transfer of the shareholder’s residence for tax purposes to a state other than an EU member state or to an eligible EEA member state. However, this deferred tax cannot be effectively levied after ten years after the end of the year in which the loss of Austria’s right of taxation in favor of other countries is effected.
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With regard to insurance companies, it is important to point out that it is possible that the minimum taxation according to Art 17 sec 3 Corporate Income Tax Act applies. Pursuant to Art 17 sec 3 CIT-Act at least 20% of the tax profit (before deduction of the reimbursement - rate for the insurants) of the insurance companies that is generated within the different classes of business is taxable. Therefore, under certain circumstances a (pro rata) taxation could arise.
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