Corporate income tax.
In general, all companies resident in Austria and foreign companies with Austria-source income are subject to corporate income tax. (For the scope of income subject to tax, see Foreign tax relief.) A company is resident in Austria if it has its legal seat or its effective place of management in Austria.
Rates of corporate income tax.
The corporate tax rate is generally 25%.
All companies, including those incurring tax losses, are subject to the minimum tax. In general, the minimum tax is EUR1,750 for an Austrian private limited company (Gesellschaft mit beschraenkter Haftung, or GmbH), EUR3,500 for a stock corporation (Aktiengesellschaft, or AG) and EUR6,000 for a European stock corporation (Societas Europea, or SE). For banks and insurance companies, the minimum tax is EUR5,452. Minimum tax may be credited against corporate tax payable in future years.
A reduced minimum tax applies to newly formed Austrian private limited companies incorporated after 30 June 2013. For such companies, the minimum tax is EUR500 per year for the first five years and EUR1,000 for the following five years. This is known as the “foundation privilege.”
The Austrian tax law provides for national and international participation exemptions.
Dividends (including hidden profit distributions) received by an Austrian company from another Austrian company are exempt from corporate income tax (no minimum holding is required). Capital gains derived from the sale of shares in Austrian companies are treated as ordinary income and are subject to tax at the regular corporate tax rate. In general, capital losses on and depreciation of the participation may be deducted from taxable income, spread over a period of seven years.
An Austrian company is entitled to the international participation exemption if it holds at least 10% of the share capital of a foreign corporation that is comparable to an Austrian corporation for more than one year. The one-year holding period begins with the acquisition of the participation. The international participation exemption applies to dividends and capital gains.
A decrease in the value of an international participation is generally not tax deductible, but an Austrian company can irrevocably opt for such tax deductibility in the annual tax return for the year of acquisition. If this irrevocable option is exercised, capital gains are subject to tax, and decreases in value and capital losses are tax deductible. In general, capital losses and depreciation of the participation may then be deducted from the taxable income, spread over a period of seven years. In the event of insolvency or liquidation, final losses may be deducted even if the option for tax effectiveness was not exercised. The option does not affect the tax treatment of dividends.
According to an anti-abuse rule, the international participation exemption does not apply if both of the following conditions are met:
- The subsidiary earns primarily specified types of passive income, which are interest, income from leasing property other than land and buildings and capital gains (active business test).
- The subsidiary is not subject to income tax at an effective rate of more than 15% in its home country (low taxation test).
To determine whether a company is a passive company, the Austrian corporate income tax guidelines refer to the company’s focus. The focus is determined from an economic perspective, based on the use of capital, employees and the character of the revenues. A company is considered to be a passive company if it derives more than 50% of its revenues from passive operations.
If the passive income and low taxation tests described above are not met, dividends and capital gains are taxed at the general Austrian corporate tax rate of 25%. For dividends, income taxes paid by the foreign subsidiary (underlying tax), as well as withholding taxes imposed, are credited against the income tax payable by the Austrian parent company (this represents a switchover from the exemption method to the credit method). Abuse may also be assumed if one of the criteria is “strongly given” and the second element is “almost given.” “Strongly given” means that the statutory threshold is exceeded by more than 25%. “Almost given” means that the company fails to meet the statutory threshold by less than 25% of such threshold. If the creditable foreign tax exceeds the amount of tax to be paid in Austria, the excess amount of foreign tax can be carried forward and credited in future tax periods.
International portfolio participation.
Dividends from participations that do not meet the criteria for international participations are subject to the general corporate income tax rate of 25%. However, shareholdings in EU corporations, certain European Economic Area (EEA) corporations (currently only Liechtenstein and Norway) and corporations that are resident in third countries and that have agreed to exchange tax information qualify as international portfolio participations. Dividends from such international portfolio participations are exempt from tax. Capital gains (and losses) are tax-effective (the treatment corresponds to the treatment of national participations).
If a foreign entity is subject to no corporate income tax, an exemption from corporate income tax or a tax rate lower than 15%, the exemption for dividends from portfolio participations does not apply. Instead, dividends are taxed at the general Austrian corporate income tax rate of 25%. Income taxes paid by the foreign subsidiary (underlying tax), as well as withholding taxes imposed, are credited against the income tax payable by the Austrian parent company (this represents a switchover from the exemption method to the credit method). If the creditable foreign tax exceeds the amount of tax to be paid in Austria, the excess amount of foreign underlying tax can be carried forward and be credited in future tax periods.
Dividends from international participations (including portfolio participations) are not exempt from tax in Austria if such payments are deductible for tax purposes in the country of the distributing company.
Business expenses are generally deductible. However, an exception applies to expenses that are related to tax-free income. Although dividends from national and international participations and portfolio participations are tax-free under the Austrian participation exemption, interest incurred on the acquisition of such participations is deductible for tax purposes. However, interest from debt raised to finance the acquisition of participations from affiliates is generally not deductible. In addition, interest and royalty payments to domestic and foreign-affiliated corporations are not tax deductible if the income of the recipient corporation is not subject to tax or taxed at a (nominal or effective) rate of less than 10%. If the recipient corporation is not the beneficial owner, the taxation of the beneficial owner is relevant. An exception applies to payments to entities that meet the EU law privileges for risk capital measures, which are contained in Regulation (EU) No. 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds. If these specific rules of EU law are fulfilled and if the income of the recipient corporation is taxed at a rate of less than 10%, interest and royalty payments to domestic and foreign affiliated corporations remain deductible for tax purposes.
Capital gains derived from sales of shares in Austrian companies are treated as ordinary income and are subject to tax at the regular corporate tax rate. Capital gains derived from sales of shares in non-Austrian companies may be exempt from tax under the international participation exemption; otherwise, they are treated as ordinary income and subject to tax at the regular corporate tax rate.
Withholding taxes on dividends and interest
Effective from 1 January 2016, the general withholding tax rate for dividends is 27.5% if the distribution does not constitute a repayment of capital. The withholding tax rate may be reduced to 25% if the investor is a corporation. In practice, this means that if the distributing entity lacks information on the status of an investor (corporate or individual), the 27.5% rate applies. In general, the 27.5% rate applies to dividends paid with respect to portfolio investments, including those paid to corporate investors. If the person required to withhold has information that the investor is a corporation, the 25% tax rate can be applied at source (for example, intercompany dividends). If 27.5% is withheld, corporate investors may reduce their tax burden in Austria to 25% in an assessment and refund procedure, based on their corporate status.
However, this withholding tax does not apply to dividends (other than hidden profit distributions) paid to either of the following:
- An Austrian parent company (fulfilling certain criteria) holding directly or indirectly an interest of at least 10% in the distributing company.
- A parent company (fulfilling certain criteria) resident in another EU country holding directly or indirectly an interest of at least 10% in the distributing company for at least one year.
Furthermore, the withholding tax rate may be reduced for dividends paid to foreign shareholders in accordance with double tax treaties. Depending on the situation, this reduction may be in the form of an upfront reduction at source or a refund of withholding tax.
For dividends paid to parent companies resident in the EU or EEA (if the EEA country grants full administrative assistance; currently only Liechtenstein and Norway meet this condition) that are subject to tax in Austria, Austrian withholding tax is refunded if the shareholder can prove that the withholding tax cannot be credited in the state of residence of the shareholder under tax treaty law.
Interest paid on loans (for example, intercompany loans) is generally not subject to withholding tax in Austria. A 27.5% withholding tax is imposed on interest income paid by Austrian banks, Austrian branches of foreign banks or Austrian paying agents. An exception from the 27.5% rate applies to interest on bank savings and other non-securitized loans from banks (except for compensation payments and lending fees), which are subject to a 25% tax rate. Interest paid to nonresident companies is generally exempt from Austrian withholding tax if certain evidence is provided. In addition, interest income is exempt from withholding tax if the debtor has neither an ordinary residence nor a registered office in Austria and if it is not a domestic branch of a foreign bank. EU withholding tax may apply if certain requirements are met.
Interest income earned by a company engaged in business in Austria through a permanent establishment is considered business income and must be included in the taxable income of the permanent establishment. For such companies, the withholding tax (if due) is credited against the corporate income tax. If the withholding tax exceeds the tax due, it is refunded. The withholding tax is not imposed if a declaration of exemption stating that the interest is taxed as business income is filed with the Austrian bank.
In principle, the Austrian tax year corresponds to the calendar year. However, other fiscal years are possible. The tax base is the income earned in the fiscal year ending in the respective calendar year. Annual tax returns must be filed by 30 April (30 June, if submitted electronically) of the following calendar year. Extensions may be granted. A general extension to 31 March (or 30 April) of the second following year is usually granted if a taxpayer is represented by a certified tax advisor (tax returns may be requested earlier by the tax office).
Companies are required to make prepayments of corporate income tax. The amount is generally based on the (indexed) amount of tax payable for the preceding year, and payment must be made in equal quarterly installments on 15 February, 15 May, 15 August and 15 November.
Interest is levied on the amount by which the final tax for the year exceeds the total of the advance payments if this amount is paid after 30 September of the year following the tax year. To prevent interest, companies may pay the amount due as an additional advance payment by 30 September of the year following the tax year.
Foreign tax relief.
In general, resident companies are taxed in Austria on their worldwide income, regardless of where that income is sourced. However, the following exceptions exist:
- The Finance Ministry may, at its discretion, allow certain types of income that have their source in countries with which Austria has not entered into a double tax treaty to be excluded from the Austrian tax computation, or it may allow foreign taxes paid to be credited against Austrian corporate income tax. Under a decree of the Ministry of Finance, an exemption is granted in case of active income and taxation of at least 15%. Otherwise, only a credit of foreign taxes is allowed.
- Income earned in countries with which Austria has a double tax treaty is taxable or exempt, depending on the treaty.
- Dividends and capital gains derived from participations of 10% or more in foreign subsidiaries can be exempt from corporate income tax under the international participation exemption (see Participation exemptions).
- Dividends from foreign portfolio shareholdings in companies resident in countries that have agreed to exchange tax information are exempt from tax unless the subsidiary is low-taxed (see Participation exemptions).