AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler and Mohamed Hemdan, Schindler Attorneys
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 must be submitted on a form provided by the Austrian Federal Ministry of Finance. On this form, a certificate of residence of the EU recipient corporation must also be obtained from the competent EU tax office promptly after the profit distribution. If proof of substance cannot be provided by the EU recipient corporation (which will often be the case with a holding company or an acquisition vehicle), relief at source is generally not possible and the Austrian corporation would have to withhold WHT on the dis - tribution and pay it to the Austrian tax office. The EU recipient corporation would then still have the option of applying to the Austrian tax office for a refund of the WHT from the following year. In such a refund pro - cedure, the Austrian tax office would check whether there actually is abuse, or whether the conditions for an exemption from WHT are met and therefore the WHT should be refunded to the EU recipient corpora - tion. As soon as a refund is granted, relief at source can subsequently be granted for three years under certain conditions (ie, for distributions of a similar size and provided that the foreign holding structure remained unchanged). The dividend WHT can also be reduced at source under the applicable DTTs in accordance with the for - mal requirements laid down in the DTT Relief Regula - tion ( Doppelbesteuerungsabkommen-Entlastungsver- ordnung ). A recipient seeking to reduce the dividend WHT will have to provide a certificate of residence issued on Austrian forms “ZS-QU1” (for individuals) or “ZS-QU2” (for legal entities). Legal entities must also satisfy the relevant substance requirements as previously mentioned. The DTT Relief Regulation lim - its the dividend WHT exemption at source in certain cases – for example, foreign foundations, trusts and
investment funds do not qualify for dividend WHT exemption at source. Austrian corporate income tax law further includes a special provision that allows a foreign entity to apply for a refund of the total Austrian WHT – including the share of WHT that Austria is entitled to tax under the relevant DTTs – if the foreign entity is unable to cred - it the Austrian WHT in its country of residence (eg, because the dividend income is exempt). At the EU level, further provisions and limitations regarding WHT are expected under the FASTER Direc - tive (effective from 1 January 2030), which should con - tribute to streamlining refunds for listed dividends. Royalties Royalties paid to non-residents are generally subject to a 20% WHT. A reduction or full exemption may be available under a DTT or the EU Interest and Royal - ties Directive. The procedures for claiming relief or a refund follow the same process as for dividends. Interest There is no WHT applicable to interest paid to non- resident corporations, unlike interest paid to non- resident individuals. Specifically, interest accrued on Austrian bank deposits or Austrian bonds received by non-resident individuals, where the paying or deposi - tary agent is located in Austria, is subject to WHT at a rate of 25% (or 27.5% in the case of Austrian bonds). 3.4 Capital Gains Capital Gains Derived by Individuals Capital gains (and losses) arising from the sale or dis - posal of business assets are taxed as ordinary busi - ness income. Where shares are part of the private assets of an indi - vidual, capital gains resulting from the sale of shares, securities or other financial assets are taxed at a flat tax rate of 27.5% (the same rate applicable to other capital income such as dividends). Capital gains on the sale of shares are also taxed at this flat tax rate if the individual’s stake is below 1%.
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