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
- Investment structures
- 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 tax havens.
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 succession planning.
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 either.
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
- the extensive 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 shareholder
- 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 gains
- 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 in future
- to circumvent exit taxes both in Austria and in any other country of the world.