AUSTRIA Law and Practice Contributed by: Philipp Baubin and Stefan Weber, Weber & Co
agreement (as opposed to all finance documents). 8.2 Withholding Tax/Qualifying Lender Concepts In loan transactions, qualifying lenders and with- holding tax are crucial, especially for cross-bor- der dealings. A qualifying lender is a financial institution or entity that meets certain criteria under tax laws or treaties, allowing them to ben- efit from preferential tax treatment. For example, if a country has a tax treaty with the lender’s home country, the lender might receive interest payments with reduced or no withholding tax. This is beneficial for both the lender and the bor- rower as it reduces the overall cost of borrowing. Withholding tax is a tax imposed on interest payments made by a borrower to a lender, typi- cally in a different country. The tax rate varies depending on the jurisdiction and any applica- ble tax treaties. However, in Austria, repayments of principal and interest under loan agreements are generally not subject to withholding tax. These payments are instead treated as part of the lender’s corporate income tax. The excep- tions include interest on bank deposits, non- securitised claims against banks and publicly offered debt instruments like bonds, which are subject to a withholding tax of 27.5%. This rate is reduced to 25% for corporate lenders. There are several exceptions where no withhold- ing tax is levied on interest payments in Austria: • payments to foreign corporate taxpayers without a permanent establishment in Austria; • payments to foreign individual taxpayers without a permanent establishment in Austria, provided there is an automatic exchange of information with Austria and the lender sub - mits a valid tax residence certificate; and
• payments to Austrian corporate taxpayers who submit a valid exemption declaration. Austria has a robust network of double taxation treaties with other countries, which often allow for the withholding tax to be credited or refunded. If withholding tax is applied, the taxpayer can file for a refund, either partially or fully, depending on the treaty terms. Additionally, capital gains from the sale of loans or bonds are only subject to Austrian withholding tax if an Austrian custodian or paying agent is involved in the transaction. Qualifying lenders benefit from favourable tax treatment, often reducing or eliminating with- holding tax on interest payments. Austria’s tax system, particularly its broad double taxation treaty network, ensures that cross-border loan transactions are treated in a tax-efficient manner for both foreign and domestic lenders. 8.3 Thin-Capitalisation Rules There are no specific thin-capitalisation rules in Austria. The Austrian tax authorities, in general, accept a debt/equity ratio of 4:1 (even higher in a holding context). If the transaction involves a regulated Austrian target, particular regulatory requirements under Austrian law must be taken into account. These include the following. • Certain funds: the financing of the regulated target must be firmly committed and largely unconditional by the time regulatory filings are made. Respective legal requirements are set out, eg, in the BWG, the Austrian Takeover Act ( Übernahmegesetz ) and the Investment 9. Takeover Finance 9.1 Regulated Targets
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