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INTRODUCTORY NOTE
Investment in real estate can be made either as a direct investment or by means of one of the corporate vehicles described below. Income derived from real estate in Austria is taxable in Austria, regardless of whether it is held directly or through a permanent establishment.
A. DIRECT INVESTMENT
Rental income earned by non-resident individuals or legal entities in Austria, and capital gains derived from the sale of real estate, are subject to non-resident income tax. For individuals, capital gains are not taxable after a 10-year (in some cases 15-year) period from purchase. In the case of corporations, since 2006 capital gains have been taxable.
B. INDIRECT INVESTMENT THROUGH CORPORATE VEHICLES
The following two types of corporate vehicles can be used for investments in real estate: the limited liability company ("GmbH") and the joint stock company ("AG").
1. Limited Liability Company (GmbH)
Minimum capital
EUR 35,000.
Set-up costs
Approximately EUR 5,000.
Time required to become operative
Approximately 15 days after all relevant documents have been filed with the company registry.
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities and the number of employees. Annual costs, including audit fees, start from EUR 5,000.
Corporate governance
Considerable flexibility on corporate governance is possible through the company's articles of association. Voting and profit rights can be freely allocated. The shareholders may appoint and dismiss directors and may have approval rights on management decisions, but management makes day-to-day business decisions. The company can be managed by one or more directors with single or collective representation authority. A sole shareholder may also act as a sole director.
Regulatory control
Not applicable.
Taxation of current income in Austria
Corporation tax is payable at a rate of 25% on net income. A minimum amount of EUR 1,750 must be paid annually even if the company does no business.
Taxation of distribution of current income to investors
For tax-resident shareholders there is normally a 25% withholding tax on dividends. For individuals, there is no further tax burden. If the shareholder is a tax-resident corporation, then either there is no withholding tax on dividends or the withholding tax is refunded.
For non-tax-resident shareholders dividend income is subject to non-resident tax and there is a 25% withholding tax on dividends. Withholding tax may be reduced if the Parent-Subsidiary Directive is applicable, or in case an OECD double tax treaty provides for a withholding tax of of 0% to 25% (usually between 5% and 15%).
Taxation of capital gains
Sale of real estate
For a GmbH capital gains are fully taxable at the 25% corporate income tax rate.
Sale of a participation in a GmbH
Assuming a participation of 1% or more, capital gains derived from the sale of shares are subject to non-resident taxation.
Capital gains made by individuals are taxable at the full tax rate during the first year after the purchase of the shares. Following this capital gains are taxed at half the average tax rate payable by the shareholder. For corporate shareholders capital gains are taxed at the 25% corporate income tax rate.
Capital gains resulting from the sale of a participation of less than 1% are tax free if owned by an individual.
According to the OECD model double tax treaty, tax is normally payable in the shareholder's country of residence.
Real estate transfer tax
If 100% of the GmbH holding the real estate is transferred, a 3.5% real estate transfer tax is payable.
In this case the tax basis is triple the assessed value ("Einheitswert") of the real estate. The assessed value is calculated in accordance with the Valuation Act ("Bewertungsgesetz") and is usually much lower than the current market value. However, real estate transfer tax may in this case be avoided by, for example, transferring 1% of the shares to a third party.
2. Joint stock company (AG)
Minimum capital
EUR 70,000.
Set-up costs
Approximately EUR 7,000.
Time required to become operative
Approximately 15 days (after all relevant documents have been filed with the company registry).
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities and the number of employees, but will normally start from EUR 20,000.
Corporate governance
Considerable flexibility on corporate governance can be agreed in the company's by-laws. It is possible to create different categories of shares with different rights. Voting and profits rights can generally be diversified.
Joint stock companies are managed by a sole director or a board of directors, in each case appointed by the supervisory board.
Joint stock companies must have a supervisory board with at least three members, which must hold meetings at least four times a year.
A board of statutory auditors is mandatory.
Regulatory control
Not applicable.
Taxation of current income in Austria
Corporation tax is payable at a rate of 25%. A minimum amount of EUR 3,500 must be paid annually, even if the company does no business.
Taxation of distribution of current income to investors
For tax-resident shareholders there is normally a 25% withholding tax on dividends. For individuals, there is no further tax burden. If the shareholder is a tax-resident corporation, then either there is no withholding tax on dividends or the withholding tax is refunded.
For non-tax-resident shareholders dividend income is subject to non-resident tax and there is a 25% withholding tax on dividends. Withholding tax may be reduced if the Parent-Subsidiary Directive is applicable, or in case an OECD double tax treaty provides for a withholding tax of 0% to 25% (usually between 5% and 15%).
Taxation of capital gains
Sale of real estate
For an AG capital gains are fully taxable at the 25% corporate income tax rate.
Sale of a participation in an AG
Assuming a participation of 1% or more, capital gains derived from the sale of shares are subject to non-resident taxation.
Capital gains made by individuals are taxable at the full tax rate during the first year after the purchase of the shares. Following this capital gains are taxed at half the average tax rate payable by the shareholder. For corporate shareholders capital gains are taxed at the 25% corporate income tax rate.
Capital gains resulting from the sale of a participation of less than 1% are tax free if owned by an individual.
According to the OECD model double tax treaty, tax is normally payable in the shareholder's country of residence.
C. INDIRECT INVESTMENT THROUGH PARTNERSHIPS
1. Limited Partnership (Kommanditgesellschaft - "KG")
The KG is a partnership which has one partner with unlimited liability (general partner) and at least one partner with limited liability. Very often a GmbH acts as the partner with unlimited liability.
Minimum capital
Not applicable.
Set-up costs
EUR 3,000 to 8,000 depending on the nature of the partner with unlimited liability.
Time required to become operative
Approximately 15 days after all relevant documents have been filed with the company registry.
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities and the number of employees. Annual costs start from approximately EUR 5,000.
Corporate governance
Considerable flexibility on corporate governance can be agreed in the KG's by-laws.
Voting and profit participation rights can be freely allocated.
The general partner is, by law, the managing partner. Limited partners may have certain limited approval or veto rights in relation to management decisions. However, too much influence by limited partners over the partnership's management may result in the limited partners becoming treated as unlimited partners, so that the partnership loses its limited liability status.
Regulatory control
Not applicable.
Taxation of current income in Austria
The KG is treated as transparent for tax purposes so that it does not itself pay tax. The income is allocated directly to the partners who are taxed individually (tax transparency). For income tax purposes, partners are treated as if they hold the real estate themselves.
Since rental income is subject to non-resident taxation, the partners are taxed at their full personal income tax rate. The income tax rate for individuals is progressive, depending on the total amount of income, and ranges from 0% to 50%.
Taxation of distribution of current income to investors
There is no taxation on distributions: income is simply allocated to the partners who pay personal income tax on the amount.
Taxation of capital gains
See current income tax above.
Sale of real estate
Where the partner of the KG is an individual, capital gains derived from the sale of real estate are fully taxable within a 10-year (in some cases a 15-year) period from the date of purchase. After this 10-year period, capital gains are no longer taxable.
Where the partner of the KG is a corporation, since 2006 capital gains have been taxable.
Sale of a participation in a KG
If the KG is an asset manager, rather than an operator, for income tax purposes, the sale of the participation works in a similar way to the sale of the real estate itself.
2. Unlimited partnership (Offene Gesellschaft - "OG")
The OG is a partnership which has at least two partners with unlimited liability.
Minimum capital
Not applicable.
Set-up costs
EUR 3,000 to EUR 5,000.
Time required to become operative
Approximately 15 days after all relevant documents have been filed with the company registry.
Costs per annum for corporate and accounting compliance
Costs depend on the size of company, its business activities and the number of employees. Annual costs start from approximately EUR 5,000 upwards.
Corporate governance
Considerable flexibility on corporate governance can be achieved through the OG's by-laws. Voting and profit participation rights can be freely allocated.
The company is managed by all of its shareholders unless otherwise agreed in the by-laws.
Regulatory control
Not applicable.
Taxation of current income in Austria
The OG is treated as transparent for tax purposes so that it does not itself pay tax. The income is allocated directly to the partners who are taxed individually (tax transparency). For income tax purposes, partners are treated as if they hold the real estate themselves.
Since rental income is subject to non-resident taxation, the partners are taxed at their full personal income tax rate. The income tax rate for individuals is progressive, depending on the total amount of income, and ranges from 0% to 50%.
Taxation of distribution of current income to investors
There is no taxation on distributions: income is simply allocated to the partners who pay personal income tax on the amount.
Taxation of capital gains
See current income tax above.
Sale of real estate
Where the partner of the OG is an individual, capital gains derived from the sale of real estate are fully taxable within a 10-year (in some cases a 15-year) period from the date of purchase. After this 10-year period, capital gains are no longer taxable.
Where the partner of the OG is a corporation, since 2006 capital gains have been taxable. However, tax on capital gains realised from the sale of land can be avoided.
D. INDIRECT INVESTMENT THROUGH COLLECTIVE INVESTMENT VEHICLES
1. Open-ended real estate investment fund ("Fund")
Management company
A real estate Fund may only be set up by an investment company specialising in real estate (Kapitalanlagegesellschaft für Immobilien - "KAG"), which holds and manages the assets of the Fund on behalf of the shareholders as a trustee.
Only a stock corporation (AG) or a company with limited liability (GmbH) may operate as a KAG. A supervisory board is mandatory.
Minimum capital
The initial stated capital of the KAG must be at least EUR 2,500,000.
Set-up costs
KAG: for a standard set-up, costs are from EUR 10,000, depending on the complexity of the structure.
Fund: for a standard set-up, costs are from EUR 15,000, depending on the complexity of the structure.
Time required to become operative
KAG: up to three months.
Fund: up to three months.
Costs per annum for corporate and accounting compliance
KAG: approximately EUR 10,000.
Fund: approximately EUR 15,000 to 20,000.
The value of the real estate must be assessed once a year by two independent experts. Costs depend on the size and quantity of assets.
Corporate governance
The KAG must be supervised by a public commissioner (Staatskommissär) and needs to have a licence in accordance with the Austrian Banking Act.
The company management of the KAG (managing director of a GmbH; board of management of an AG) appoints the custodian bank with the approval of the supervisory board. Only banks which are entitled to carry out portfolio management may be appointed as custodian banks. The approval of the Austrian Financial Market Authority is required.
Regulatory control
Not applicable.
Taxation of current income in Austria
No taxation of income at the level of the Fund.
Taxation of distribution of current income to investors
The taxation of Funds is artificial. The annual profit is divided into three types:
The total annual profit is treated as if distributed, even when profits are retained, and is subject to a 25% withholding tax.
Taxation of capital gains
Sale of a participation
For individuals: capital gains are fully taxable for a period of one year from purchase. Following this, capital gains are no longer taxable.
For corporations: capital gains are taxable at the 25% corporation tax rate.
E. RULES OF LEVERAGE
Are there any rules which limit the deductibility of interest for third party (bank) financing?
No.
1. Thin capitalisation rules
There are no general debt/equity ratios for tax purposes under Austrian law. No formal thin capitalisation rules are in force.
However, the loan must be made on an arm's-length basis. If a third party has not granted the loan it is treated as hidden equity. The interest paid on this hidden equity is treated as hidden distribution and not tax deductible.
2. Withholding tax on interest
Generally there is no withholding tax on interest payments. Interest payments on loans secured against immovable property in Austria are subject to non-resident income taxation.
Please note that Austria has an extensive double taxation treaty network.
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