There are four key reasons why Austria may be advantageous in
international tax planning over other jurisdictions.
Compared to other jurisdictions, Austria may be advantageous in
international tax planning for the following four reasons.
Holding company location
Use of Austrian private foundation
Timing and classification differences.
Austrian holding companies fall under the normal Austrian tax
system (tax rate of 25%) but dividends and capital gains are in
general exempt under the participation exemption. However, the lack
of special provisions for holding companies sets Austria apart from
In 1992, Austria set up a law on Private Foundations. Such
Private Foundations can be used for each purpose, ie. not only for
charitable purposes, and therefore especially for tax and
Austria can also be used to set up certain investment structures
involving especially partnerships or investment funds. Austrian
financial branches can be an attractive alternative compared to
Swiss finance branches. In addition, foreign investors could
benefit from special provisions under Austrian tax treaties such as
matching credits and tax-exemptions for interest payments received
from certain countries, which are not taxable in these countries
Finally, Austrian tax practice shows that sometimes timing and
classification differences arise, which lead to a double
non-taxation or to a double-dip.
Austria as a holding company location
The following facts speak for the use of Austria as an
(intermediate) holding company location:
the participation exemption under which both dividends and
capital gains resulting from foreign shareholdings on qualifying
participation are excluded from taxation
the possibility to obtain advance tax rulings, confirming the
tax treatment of a specific situation
treaty network of Austria, under which generally low dividend
withholding tax rates for substantial shareholdings of 5% or even
0% have been negotiated
the general absence of a domestic withholding taxes on interest
payments to non-residents
the generally straightforward ways to circumvent the
application of anti-avoidance provisions
the general flexibility of Austrian company law.
Against this background, Austrian holding companies are often
used in the following context:
as an intermediary holding company, whereby dividends and
capital gains can be realised tax free and can be used for
re-investments, without the need to repatriation to the ultimate
as a holding company for investments in, for example;
Eastern European countries mainly because of the favourable
tax treaties with these countries
in order to convert capital gains into dividends, in case the
home country does not provide for an exemption of capital
in combination with a private foundation in order to minimise
the overall tax burden.
Use of Austrian Private Foundations
Private Foundations are set up by declaration of the founder
while the founder is still alive or in case of his death. Neither
the founder nor the beneficiaries have ownership or membership
interest. The assets are owned by the foundation itself that has to
be seen as a separate legal entity (non-transparent).
For tax purposes, Private Foundations are regarded as
non-transparent entities and are generally subject to Austrian
corporate income tax at a level of 25%. However, many important
items of income are exempt from taxation or taxed at beneficial tax
rates. At the level of the beneficiaries, only distributions are
subject to a final withholding tax of 27.5%; if the beneficiary is
not resident in Austria, Austrian tax treaties often protect from
such withholding tax with the result of no taxation on such
distributions (e.g. for beneficiaries resident in Switzerland).
Against this background, Austrian Private Foundations are often
used in the following context:
as a holding company, by combining the benefits of the Private
Foundation with the holding regime
for succession planning because the founders and beneficiaries
of a Private Foundation can mitigate any gift an inheritance taxes
to circumvent exit taxes both in Austria and in any other
country of the world.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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