An extract from The Real Estate Law Review, 9th Edition
Because of the generally stable political and economic framework, the demand for Austrian real estate is booming, fostered by extremely low interest rates and available financing. Even though real estate prices have increased significantly over recent years, Austria is still considered to be a place for non-speculative real estate investments, in particular as the demographic development and expected urban conurbation (with Vienna being consistently ranked as one of the world's best cities to live in) results in a situation where demand exceeds supply. As a consequence, real estate investments appear attractive to foreign (institutional) investors. Nevertheless, local investors still account for a major part of the total Austrian real estate investment volume in 2019, followed by German and Asian institutional investors, whereby Asian investors are primarily interested in properties over the €100 million mark. The activities of other international institutional investors and funds remain behind expectations as these groups' interests generally lie in large-scale investments and there are rarely suitable properties available on the current market, in particular due to the limited amount of new spaces added to the market this year and the fact that a large portion of properties built in 2018 has already been sold. On a positive note, a substantially higher number of completions of new office space has been announced for 2020 (165,500m²).
The transfer of property rights to foreign investors may require an approval according to land transfer regulations. In this respect, each Austrian federal province has its own legal framework defining the applicable restrictions and approval process. As long as the necessary approval has not been obtained, the transfer of the ownership cannot be registered in the respective land register and the contemplated transaction may not be carried out (as ownership of real estate is generally only obtained by the registration of the new owner in the land register). Persons and corporate bodies of Member States of the European Union or of signatory parties to the agreement on the European Economic Area have the same status as domestic persons or corporate bodies.
Structuring the investment
The structuring of the investment for the acquisition of a property should be based on various economic, fiscal and legal considerations, whereby investments may generally be structured as asset or share deals. The advantage of an asset deal is that the investor may be better aware of the transaction scope (in particular in relation to potential tax or other liabilities of a pre-existing company). A share deal would generally be tax advantageous, as with correct structuring, real estate transfer tax can be avoided. While an asset deal generally triggers Austrian real estate transfer tax of 3.5 per cent of the consideration, only a transfer of at least 95 per cent of the shares in a company holding Austrian real estate is subject to real estate transfer tax. Under this tax situation, it has become common practice to implement a share deal structure with two acquiring entities that each have to acquire more than 5 per cent in the target company (e.g., in a 94/6 per cent structure).
Further, a share deal will not result in a change in the ownership of the property itself, which means that registration fees of 1.1 per cent of the consideration or market value of the real estate may also be avoided. Three different legal forms are typically used as real estate holding entities and acquisition vehicles:
- The limited liability company (GmbH) offers flexibility and can be set up by one or more individuals as well as legal entities, which in general are not personally liable for the liabilities of the company. The minimum share capital amounts to €35,000, of which at least €17,500 has to be paid in. (Since 2014, there is an option to limit the share capital for up to 10 years to €10,000, of which at least €5,000 has to be contributed.)
- The stock corporation (AG) is also a limited liability entity, where shareholders participate in the share capital divided into shares by means of contributions without being personally liable for the liabilities of the company. The minimum capital stock amounts to €70,000. The ongoing legal structure costs of an AG are higher than for the GmbH; in addition, it offers less flexibility except in relation to share transfers and equity transactions.
- Partnerships may be established by at least two parties either as a general partnership or a limited partnership. The difference is the limitation of the liability of at least one partner in a limited partnership, while all partners of the general partnership are personally fully liable. Besides the flexibility of a partnership (which is even higher than in the GmbH), the main advantage of the partnership is its tax transparency, allowing a direct allocation of profits and losses to its partners for tax purposes.