We have recently published a short article on key aspects of Austrian private foundations (Privatstiftungen) from a non-tax perspective. Now we want to give some insights on the taxation of private foundations.
In connection with Austrian private foundations, there are generally three levels of taxation:
- Taxation of asset transfers to a private foundation;
- Ongoing taxation of the private foundation's income; and
- Taxation of distributions from the private foundation to beneficiaries.
Ad 1.: Gratuitous transfers of assets to a private foundation are generally subject to Austrian foundation transfer tax on the fair market value of the assets transferred. Foundation transfer tax is normally triggered at a rate of 2.5%. A tax exemption applies to transfers mortis causa of certain financial assets (particularly cash and bonds). The gratuitous transfer of non-Austrian real estate does not trigger any Austrian transfer tax.
Ad 2.: The private foundation is generally subject to Austrian corporate income tax on its worldwide income at a corporate income tax rate of 25%. As private foundations qualify as taxpayers for Austrian corporate income tax purposes, they can rely on relief under double taxation treaties concluded by Austria. While dividends received by a private foundation are generally tax exempt, a special tax regime applies to other types of income such as interest or capital gains from financial assets: these types of income are subject to corporate income tax in the form of "interim tax". Such interim tax is not payable if and to the extent certain taxable distributions are made to beneficiaries.
Ad 3.: Distributions of any kind from private foundations to beneficiaries are generally subject to Austrian withholding tax at a rate of 27.5%. However, if a double taxation treaty concluded between Austria and the beneficiary's state of residence conforms to the OECD Model Convention, then distributions to such beneficiary qualify as "other income" in the sense of Art. 21 of the OECD Model Convention, and may thus only be taxed in the beneficiary's state of residence. In that case, relief from Austrian withholding tax may be obtained directly at source (if certain requirements are fulfilled) or by way of a later refund. In contrast, distributions of substance may normally be effected tax neutrally (irrespective of treaty provisions).