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Country - Austria
Taxes
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A. AVAILABLE INVESTMENT STRUCTURE
Which legal structures are available for investment in real estate in Austria?
Investors who wish to invest in real estate in Austria have various options for structuring their acquisitions. These are: direct acquisition of the real estate; indirect acquisition via a partnership; and indirect acquisition via a corporation.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
The acquisition of real estate as part of a purchase, exchange or similar transaction is subject to real estate transfer tax (Grunderwerbsteuer).
Tax is basically payable at 3.5% of the value of the real estate (2% on transactions with, in particular, a spouse, a parent, a grandchild or a stepchild). If no consideration is given, this tax rate is applied to three times the assessed value of the real estate (i.e. a value assessed for taxation purposes by the financial authorities, which is generally well below the property's market value).
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
If all the shares in the company holding the real estate are transferred, the acquisition is subject to real estate transfer tax.
The basis for calculating the 3.5% real estate transfer tax is three times the assessed value of the real estate.
Acquisitions of real estate occurring as part of a restructuring (for example new investments, amalgamations, conversion, demergers, mergers, physical partitions, etc) are also subject to real estate transfer tax.
The basis for calculating tax in this case is twice the assessed value of the real estate.
Who normally pays the transfer taxes, the buyer or the seller?
In the case of unification of all shares in a company in one hand, only the purchaser is liable for real estate transfer tax. In all other cases both parties are jointly liable for tax. However, the real estate transfer tax is usually paid by the purchaser.
Are there any other costs relating to the purchase of real estate assets or SPVs?
The cost of professional advisers, including notary fees.
There is a 1% fee for registration in the land register. The basis is the same as for real estate transfer tax.
C. TAXATION OF RUNNING INCOME
How is income generated from the letting of real estate taxed in Austria?
(a) Direct investment
Rental income from real estate in Austria is subject to non-resident income tax and is therefore taxable in Austria, even for foreign investors.
The basis of the tax calculation is the rental income minus tax deductible expenses (for example, interest, depreciation, administrative costs).
The tax rate is progressive from 0% for annual income of less than EUR 10,000, to 50% for annual income of more than EUR 51,000.
(b) Indirect investment through a partnership (a transparent entity)
Since a partnership is considered to be transparent for income tax purposes, any profits generated by the partnership are regarded as the profits of individual partners and are therefore treated as personal income.
(c) Indirect investment through a corporation (a non-transparent entity)
The tax basis is the rental income minus tax deductible expenses (for example, interest, depreciation, administrative costs).
Corporation tax is charged at a flat rate of 25%. A minimum amount must be paid each year: EUR 1,750 for companies with limited liability (GmbH) and EUR 3,500 for joint stock companies (AG).
In calculating corporation tax due, the income of financially affiliated domestic or foreign companies may, upon respective motion, be summarised, which may lead to loss compensations (group taxation). "Financially affiliated" companies are considered to be those in which the company directly holds over 50% of the nominal or registered capital and has voting rights. The tax on the group's income is levied against the holding company.
How can income generated by investment be transferred to a foreign investor?
(a) Direct investment
Once it has been subject to the applicable income tax regime, no further taxation is applied to the transfer of income to foreign investors.
(b) Indirect investment through a partnership
Where foreign investors have invested through an Austrian partnership, the partnership is treated as transparent for income tax purposes. The business profits will already have been taxed so the partners will not be taxed again.
(c) Indirect investment through a corporation
Distribution of dividends to shareholders
There is a 25% withholding tax (Kapitalertragsteuer) on distributions.
There is no withholding tax (or in some cases the withholding tax will be refunded) on distributions made to Austrian resident corporations.
Under the EU Parent-Subsidiary Directive, provisions were implemented in Austria stipulating that no withholding tax is levied on dividends paid by an Austrian company to another EU company, provided that the latter has held 10% of the shares in the former for an uninterrupted period of 12 months preceding the date of distribution of the dividends.
Are there local taxes on the possession of real estate assets?
Real estate tax is paid on the ownership of domestic real estate property. The calculation is based on the assessed value (see B above) of the property. Every nine years, tax values are reassessed and, in exceptional cases, there is also an interim assessment. The assessment is carried out according to the Austrian Valuation Act.
The rates vary among the municipalities, which are endowed with the taxing power. From our previous experience, this tax does not exceed 1% of the taxable value.
The owner of the real estate is liable for the tax.
Special rules apply to agricultural and forestry businesses.
Furthermore, parcels and land without buildings or construction are subject to a federal duty on land value (Bodenwertabgabe).
Again, the assessed value is the taxable base. The federal duty on land value amounts to 1% a year of the assessed value provided that the assessed value exceeds EUR 14,600. The purpose of this duty is to discourage offers, keeping prices low and hindering speculation on the real estate market.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
With the exception of land, most tangible assets are depreciable. The original acquisition cost is generally the basis for depreciation, and the depreciation rate is usually based on the normal useful life of the asset.
Depreciation rates for buildings are given by the Austrian Income Tax Act and range from 1.5% to 3% (depending on how the buildings are used). Under certain circumstances deviation from these rates is permitted.
Can land be depreciated?
No. Since land is considered to have a continuous useful life, no depreciation is allowed. However, if the land has permanently reduced in value, a one-off write-down of the acquisition value to the real value is possible.
Can a participation in an SPV holding real estate be depreciated?
No. A participation can, however, be subject to a write-down to fair value, provided that it has permanently reduced in value. Such a write-down could also be tax deductible under special circumstances.
Please note that the group taxation regime as described above allows amortisation of goodwill, even if a share deal took place, provided that the SPV is an operative company.
E. VAT
Is the purchase of real estate assets subject to VAT?
In principle, the sale of real estate is exempt from VAT. However, the VAT Act provides that input VAT which has been deducted by the seller during the 10 years prior to the sale must be adjusted. Such tax adjustments may be avoided by opting to treat the purchase as subject to VAT.
In this case, the seller must provide the buyer with a VAT invoice for the sale price. The seller then pays the VAT received to the relevant financial authority and the buyer is entitled to unlimited deduction of input VAT as long as he is an entrepreneur, as defined by the Austrian Value Added Tax Act.
F. LEVERAGE, THIN CAPITALISATION RULES
Are there rules which limit the deductibility of interest for third party (bank) financing?
As long as the loan granted by a third party is not secured, back-to-back interest should be fully deductible.
Are there thin capitalisation rules in Austria and, if so, how do they work?
There is no general debt to equity requirement under Austrian law. No formal thin-capitalisation rules are in force.
However, the loan has to 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.
Does Austria apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
There is no withholding tax on interest payments. Interest payments on loans secured against real estate in Austria are subject to non-resident income tax.
Please note that Austria has an extensive double taxation treaty network.
G. TAXATION OF CAPITAL GAINS
How are capital gains made on real estate in Austria taxed?
(a) Real estate held directly by a foreign investor (individual)
Capital gains made by foreign investors are subject to non-resident taxation for a period of 10 years (in special cases 15 years) from the date the foreign investor acquired the real estate.
After this 10-year ownership period, capital gains are not taxable in Austria, as long as the real estate was held as private and not business property.
(b) Real estate held directly by a foreign investor (corporation)
Capital gains made by non-resident corporations are taxable.
How are capital gains deriving from the sale of shares/interests in a corporate entity taxed in Austria?
Capital gains made by an individual on the sale of shares are taxable if the shares are sold within one year of purchase. They are taxed at the applicable tax rate (as set out above). If the seller owns at least 1% of all shares in the company and the shares are sold after one year then capital gains are taxed (privileged) at half the average tax rate.
Capital gains realised by corporate investors from the sale of shares are normally taxable but, under certain conditions, can be tax exempt.
Are there any rules regarding participation exemptions in Austria?
Yes. The sale of shares in a non-resident corporation by a corporate investor is tax exempt if the participation is at least 10% and the shares have been held for more than one year.
The sale of shares in an Austrian corporation by a corporate investor is fully taxable.
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