In a totally globalised world more cross-border transactions are carried out every day than ever before. For the international entrepreneur it is therefore crucial to find a stable and robust jurisdiction which can build from the platform for such an international business.
The requirements for such a jurisdiction are of course to have a stable and predictable law system, to provide an extensive tax treaty network as well as a tax system which supports or even enhances the repatriation of profits in a tax efficient way and where a company can be established easily.
Fortunately such a jurisdiction does not need to be created; it already exists, in Austria.
Located in the centre of Europe at the cross-roads between East and West Austria perfectly serves the needs of international entrepreneurs and investors.
Austria currently has 90 double tax treaties with other jurisdictions and is well known for having tax treaties with countries frequently cited as ‘off-shore’ jurisdictions.
Austria has Double Tax Treaties with Belize and Barbados, enjoys the pleasure of having a marvellous tax treaty with the UAE as well as with Bahrain, Kuwait, Qatar and Saudi-Arabia and with Hong Kong and Singapore and of course has tax treaties with Liechtenstein, Malta and Cyprus, just to name but a few of these 90 tax treaties.
In addition to that Austria currently has 59 Investment Protection Treaties with other countries, which protect investments made via an Austrian structure from nationalisation in the other countries.
Austria has been a member of the European Union since 1995 and is a member of the Euro Zone. It has access to all EU Directives and therefore according to the Parent Subsidiary Directive, dividends from subsidiaries in EU Member
States are not exposed to any withholding tax at source nor are interest or royalty payments made from subsidiaries located in the European Union.
The modern business orientated Austrian tax law provides additional support for international investors.
Some of the key features of the Austrian tax system, especially within regard to the tax treatment of foreign source income can be found below.
The key features are:
- No inheritance tax
- No gift tax
- No net wealth tax
- No debt / equity ratios
- No thin cap rules
- No duties levied upon loans
- No withholding tax levied upon interest payments to domestic or foreign lenders (also in case of lenders in non-treaty or offshore countries)
Austria is also famous for its holding regime and any corporate entity, subject to unlimited tax liability in Austria meeting the requirements in Table A, can obtain foreign source dividend income and foreign source capital gains resulting from the sale of shares of the foreign subsidiary tax exempt.
Tax Treatment of Foreign Partnership Income
Also of significance is the fact that the income achieved via a foreign partnership or a foreign permanent establishment can obtain tax exempt status in most cases.
According to the Austrian Income Tax Act losses suffered by a foreign permanent establishment or a foreign partnership of an Austrian taxpayer are tax deductible in Austria as shown in Diagram A.
In 2005 Austria implemented a new group taxation system which is second to none. – is tool leads to material tax savings and unrivalled tax planning opportunities provided that:
- an Austrian corporate entity holds more than 50 per cent of the shares of its subsidiary;
- has the majority of voting rights; and
- the group members stay in the group for at least three years.
The Austrian corporate entity enjoys the following tax benefits:
- No taxes levied upon profits of domestic group members (subsidiaries). Such profits are only taxed in the hands of the group parent.
- Losses of foreign and domestic group members (subsidiaries) are allocated to the group parent and are tax deductible and thereby compensating other taxable income.
- Nevertheless, profits of foreign group members distributed in form of dividends are tax exempt in Austria.
- 50 per cent of the acquisition price paid for shares in a operative domestic corporation can be amortised over a period of 15 years, and this amortisation is tax deductible. This makes a share deal equal to an asset deal.
The following case study will demonstrate how tax efficient such an Austrian structure can be for an international investor, who not only wants to enjoy a low tax burden but also wants to enjoy the privileges of operating from a platform built in a reputable jurisdiction.
Case Study: Illustrated in Diagram B
An Austrian company, GmbH A, holds shares in a South African corporation, which is exploiting mining rights in an Angolan corporation, which is carrying out an industrial activity, and in a Spanish corporation, which is engaged in the fruit trade. It also holds shares in another Austrian company, GmbH B, which is rendering consulting services to customers in Africa and Eastern Europe. The Austrian company, GmbH A, has formed a group with its subsidiary in Austria, GmbH B, and therefore the profits achieved by GmbH B are no longer taxable at the level of GmbH B but only in the hands of GmbH A.
The dividends distributed by these South African, Angolan and Spanish companies are tax exempt in Austria and the losses of the factory in Mozambique are tax deductible in Austria. Provided that the factory will make profits in later years, these profits would be tax exempt in Austria. The profits from the hotel business in Botswana are tax exempt in Austria.