News & Events.

Why choose Austria for International Business and Private Investments

16.10.2009

In the past, Austria’s location in the Centre of Europe has highly benefited international investors. Austria offers optimal access to the growing markets of Eastern and Southeastern Europe. It further provides a highly educated and motivated workforce; a banking system strongly linked with emerging markets and one of the most reliable and sophisticated legal systems in Europe. Its moderate corporate and foundation taxation as well as its banking secrecy, guarantee an effective legal framework for business transactions and investments for private purposes. Austria as a member of the European Union disposes of a banking secrecy which is not affected by OECD standards, contrary to Belgium and Luxembourg. Additionally capital investment structures, such as the Austrian Private Foundation, allows a fiscally privileged and anonymous retention of capital assets similar to Liechtenstein and thereby combine the advantages of, both, Switzerland and Liechtenstein.

Group Taxation

One of Austria’s fiscal advantages is the group taxation scheme. Under the group taxation scheme two ore more companies exercise their option to form a tax group. The taxable results of the domestic group members are attributed to their parent company and will be taxed on this level. Therefore, tax losses of group members can be consolidated with the taxable profits of other group companies. Profits can be attributed for tax purposes. In order to qualify for a tax group one company must participate in more than 50 % of the share capital of the other company. Holding companies may participate in a tax group without active business. Fulfilment of additional criteria’s such as organizational and economic integration, as well as a profit and loss takeover agreement are not required. Depreciations of participations within a tax group are tax neutral. Foreign losses of a tax group may also involve foreign group members and therefore, losses of foreign subsidiaries within a tax group can be accumulated with profits in Austria. Furthermore, profits realised by foreign subsidiaries are not subjected to taxation in Austria.

Private Foundations

Another advantage worth mentioning is the benefits that come from the Austrian Private Foundation Act. According to the Act a private foundation is a legal entity and is in the ordinary course established during founder’s lifetime. The establishment of a private foundation avoids division of family business and can also serve as a shareholder in a corporate structure. The establishment of a private foundation is an appropriate way to ensure that the founder’s lifework will be preserved beyond his death and will be managed in accordance with his directives.

Until recently, the abolished Austrian Gifts and Inheritance Tax Law provided the basic legal framework for the taxation of natural persons as well as donations to private foundations in Austria. Contributions of capital to Austrian Private Foundations are now taxed at a flat rate of only 2.5 %.

Subsequent distributions to beneficiaries are subject to 25 % capital gains tax. Contrary to Liechtenstein, the Austrian Private Foundations are deemed to be vested with legal capacity and their income is therefore fiscally not attributed to the foreign founder within the European Union. Similar to Liechtenstein, the identity of the founder is not publicly disclosed. Additionally, in comparison to other jurisdictions within the EU, Austria provides for an effective protection of assets as the Austrian time limit for claiming the legal portion in inheritance matters or in view of other creditors is very short.

Summary

Numerous factors speak in favour of investments in Austria. As a centre for international private banking activities, Austria offers a wide and diversified range of investment categories. In a world in which traditional bastions of private banking are coming under increasing international pressure, with erosion of banking secrecy and changes in the tax and legislative environment, Austria has successfully positioned itself as an European financial centre of international importance.

The stability and reliability of Austria as a banking centre, the attractive tax conditions for international investors, true banking secrecy and the highly educated workforce have helped make Austria an unostentatious alternative to more conventional banking locations. The succinct advantages of Banking in Austria are an outstanding political and economic stability, advantageous tax climate for non-residents, banking secrecy, strong legal framework, strictly regulated financial markets, large number of double taxation agreements and the advantageous geographical location at the heart of Europe.

Florian Pröll

The Austrian Taxation Act 2008 for Private Foundations

20.10.2008

Until recently, the Austrian Gifts and Inheritance Tax Act provided the basic legal framework for the taxation of natural persons as well as donations to private foundations in Austria. Gratuitous...

Until recently, the Austrian Gifts and Inheritance Tax Act provided the basic legal framework for the taxation of natural persons as well as donations to private foundations in Austria. Gratuitous donations between natural persons were taxed at between two per cent and 60 per cent of the amount donated, depending on the degree of kinship; while donations to Austrian private foundations regularly triggered a flat rate equal to five per cent of the asset contributed. As a consequence of this advantageous tax rate, contributions to beneficiaries of a private foundation were, in addition, subject to capital gains tax at a flat rate of 25 per cent. The establishment of a private foundation enabled the avoidance of the regular gifts and inheritance tax rates and foundations which retained profits rather than distributed assets enjoyed largescale tax privileges. In 2007 the Austrian Supreme Court having jurisdiction over constitutional cases repealed the Gifts and Inheritance Tax Act of 1955 on the basis that valuation regulations did not apply equally to real estate assets and set a deadline for revision of the law by 1 August 2008. The Austrian legislature decided to dispense with the gifts and inheritance tax for natural persons, but to continue taxing donations to foundations under a new law which is supplementary to the general regulations on the taxation of private foundations. The Donations Tax Act came into force on 1 August 2008 and regularises the taxation of donations to Austrian private foundations in compliance with the Austrian Private foundations Act 1993 and in particular, the taxation of donations to foreign foundations In future, contributions of capital to and trusts. Austrian private foundations and donations to foreign foundations and trusts which are ‘comparable’ to an Austrian private foundation will be taxed at a flat tax of two and a half per cent instead of five per cent.

European Commission proposes the creation of a European Private Company (SPE)

06.08.2008

Small and medium-sized enterprises (SMEs) represent 99.8% of all companies in the European Union and account for 70% of employment. However, unlike large companies, small businesses remain mostly within national borders. Problems related to setting up and doing business abroad, in particular language barriers and cultural differences and differences in company law, tax and labour systems create difficulties and generate costs to the extent that they discourage entrepreneurs from expanding their business to other Member States.

The SPE is a company form designed for SMEs. Entrepreneurs will be able to set up their business in the form of an SPE following the same company law rules throughout the EU. Thus they can set up an SPE instead of a 'GmbH' in Germany, an 'sp. z o o' in Poland and an 'SAS' or 'SARL' in France. The advantages of the SPE are the following:

• it exists in all Member States

• it is a light and flexible yet transparent company form

• it allows entrepreneurs to set up all their companies and/or their subsidiaries with the same management structure, regardless where they are located

• it offers a European label that is easily recognisable throughout the EU

These features allow entrepreneurs to save time and reduce costs, especially legal costs related to setting up different company forms in different Member States. However, the SPE Statute will not solve all the problems businesses face when they want to set up a company abroad. It does not address questions related to tax and employment.

The SPE will only make a difference compared to national company forms if it exists in the same form and shape in every Member State. The only way to ensure this is that the SPE is adopted as a company form at EU level. The European Private Company is referred to as 'SPE' after its Latin name Societas Privata Europaea that allows the use the abbreviation SPE without needing to translate it to national languages

• its shareholders liability is limited to the contribution they provide for the SPE

• its shares may not be publicly traded on any market

• it may be set up by any individual or legal entity, from scratch, or by the transformation, merger or division of existing companies

• it may have its registered office in one Member State and conduct its activities in another; it may also transfer its registered office to another Member State

• application to set up an SPE may be made by electronic means, in the language of the Member State of registration

• to ensure that the SPE is accessible to all entrepreneurs, the proposed SPE may be set up with a capital of only €1

shareholders enjoy a broad freedom to determine the manner in which shareholders take their decisions (meeting, telephone or video conference)

free to determine the rights attached to shares such as voting rights and rules on share transfers protect the interests of creditors and pre-existing rights of employees.

The proposed SPE Regulation will have to be adopted by a unanimous decision of the Member States in the Council of Ministers of the European Union. It will also require the approval of the European Parliament. The European Commission proposes that the SPE Regulation enter into force on 1 July 2010, but this will depend on the progress of the negotiations.

KERRES | PARTNERS www.kerres.at

Proposed New Law on the Liechtenstein Foundation

11.06.2008

Already for many years the Liechtenstein government intends to ratify a new Liechtenstein Law about Private Foundations. The first draft was presented in the year of 2004 and has been submitted to various institutions and scholars for comments. After a discussion process the government made a new attempt to revise the Liechtenstein Foundation Law which should now become effective in the beginning of 2009.

One of the main issues, which will be addressed by the new law, refers to the definition of the founder and the registration of the Liechtenstein Foundation. In the past a Liechtenstein Foundation usually has been founded by a professional trustee or trustee company. This resulted in problems concerning the question of who actually qualifies as the founder of the foundation, either the person who has been setting up the foundation or the person who actually provided the assets to the foundation. The new law will clarify this issue and defines the founder as the person, who actually provides the assets to the foundation. Therefore only the “economic founder” will qualify as the founder in the future and will have the right to revoke the foundation or to change the articles of the foundation.

Traditionally many private foundations in Liechtenstein have not been registered in any trade register or public registry usually kept with the courts. Many inquiries about such foundations have therefore been unsuccessful and the existence of a legal entity without any proper registration has raised many legal questions in the past. Still, the new law of the Liechtenstein Foundation will not clarify this issue as it will also in the future allow the establishment of a non registered foundation. The new law provides that the public register will only receive a notification about the establishment of a new foundation and thus the public registry will not contain any publicly available information about the founder or the beneficiaries of the foundation. The new law shifts the burden of a proper documentation of a newly established Foundation to the professional advisors and thus to the lawyers community within the trustee offices.

The new law, however, will enhance the rights of the beneficiaries of a Liechtenstein Foundation: Contrary to the present situation the beneficiaries shall in the future have a right to receive certain information about the foundations from the trustees and the administration of the foundation. The right to receive specific information also enhances the position of future or only potential beneficiaries and the will thus allow such beneficiaries to raise their claims in connection with pending disputes. It is the intention of the new draft law to provide the beneficiaries with a stronger position in order to secure their rights and oversee the trustees and the administration of the foundation.

Presently the Liechtenstein Foundation Law is inserted in the Company Law of Liechtenstein and contains only 18 articles within this law. As many high net worth individuals used the institution of a Liechtenstein Foundations in the past there has also been an increasing number of disputes and legal proceedings in connection with the Liechtenstein Foundation. It is the intention of the Liechtenstein government to enact a new law in order to clarify the sometimes barely regulated legal questions in connection with foundations. It will have to be seen, however, if the newest draft of the Liechtenstein Foundation Law will become effective in the beginning of next year as anticipated.

Data privacy in Austria

11.04.2008

Data privacy has been a major topic within the EU for years. In order to ensure a high level of data protection with the EU, data protection legislation has been harmonised by an EC Directive which sets forth rules for legitimate data processing. The basis for every person’s right to secrecy regarding the personal data concerning him/her is both provided in the European Convention on Human Rights and as an Austrian constitutional right.

The EC Directive, incorporated into the Austrian Data Protection Act 2000, established strict guidelines for the processing of personal information to protect persons and legal entities. The law requires that any processing including any operations involving personal information be processed fairly and lawfully.

Aside from a defined legitimate purpose for the data processing and the compliance with the legal requirements by the controller itself, a ground of justification for the infringement of the right to secrecy must be given. One of the most important grounds of justification in business life is the person’s consent to process his/her personal data. As every person could dispose of his/her right to secrecy, the Austrian Supreme Court is very strict in applying the law.

According to Austrian Supreme Court practice, a person’s consent to process his/her personal data is only valid if he/she is aware of which of his/her data is used for which purpose. Furthermore, the consent must not be hidden somewhere in the company’s Terms and Conditions, but should be in bold print and must contain the information that this consent is revocable at any time.

Pursuant to the Austrian Data Protection Act, infringements of the constitutional right to secrecy by processing and/or transferring personal data without any legal basis would entitle a person or legal entity to file a claim against the company for damages.

Under this section we want to inform our clients regularly about developments with regard to the Austrian law. The short reports comprehend information about new acted laws, recent decisions of the high courts as well as general issues in the legal developments in Austria. We would be pleased to provide you with our newsletter on a regular basis and therewith inform you about the news to the Austrian law. If you are interested, please fill out the underlying field by inserting your e-mail address.

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