AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler and Mohamed Hemdan, Schindler Attorneys
3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Closely held local businesses are mostly structured as limited liability companies in Austria. 3.2 Individual and Corporate Rates Individual professionals earn income from self- employment (ie, business profit), which is subject to an overall progressive income tax rate of up to 55%. Corporate profits are subject to a 23% corporate income tax, while distributions to individual share - holders are taxed at 27.5%, resulting in an effective combined tax burden of around 44.18% when profits are not retained within the corporation. Thus, in cases of full distribution, the effective rates are broadly com - parable. Nonetheless, the following general rules apply. • If the shareholder also acts as a managing director of the corporation, the director’s fees are subject to the progressive tax rate and only an arm’s length remuneration is deductible at the level of the com - pany. Excessive fees (eg, directors’ or manage - ment fees) or benefits to shareholders or affiliates are treated as non-deductible hidden profit distri - butions. • Austria applies a general anti-abuse rule (Section 22 of the Federal Fiscal Code), under which abu - sive legal structures that lack sufficient business reasons and are mainly tax-driven may be disre - garded for tax purposes. 3.3 Restrictions on Retention of Earnings by Closely Held Corporations In Austria, there are currently no measures in place to prevent corporations from accumulating earnings for investment purposes. 3.4 Taxation of Individuals on Shares in Closely Held Corporations There are no special taxation rules for closely held corporations in Austria. The general rules apply.
3.5 Taxation of Individuals on Shares in Public Corporations Where shares are part of the private assets of an indi - vidual, capital income from dividends and the alien - ation (eg, sale) of shares are taxed at a flat rate of 27.5%. Capital gains on the sale of shares are also taxed at this flat rate if the individual’s stake is below 1%. These rules also apply for shareholdings in privately held corporations. 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes Dividends The withholding tax (WHT) is principally levied on divi - dends at the applicable tax rate for individuals (27.5%) or corporations (23%). EU corporations that are subject to a limited tax liabil - ity benefit from the EU Parent-Subsidiary Directive, under which they may obtain a 100% tax exemption for dividends. There is no obligation to withhold and pay WHT in Austria (so-called relief at source) if: • a profit distribution is made by an Austrian corpo - ration; • the EU recipient corporation (parent company) has a form listed in the Directive; • the EU recipient corporation holds at least 10% of the share capital of the Austrian subsidiary; and • a minimum holding period of one year is observed. There is nevertheless an obligation to withhold and pay WHT in Austria if there are reasons to suspect abuse. Abuse is assumed, in particular, if the EU recip - ient corporation has no function and its sole purpose is to avoid Austrian WHT. In order to rule out such a suspicion of abuse, the EU recipient corporation must submit a written declaration to the Austrian corpora - tion that it carries out an activity that goes beyond the scope of asset management, employs its own staff and has its own business premises (so-called proof of substance). These declarations can be submitted
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