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Profits Tax for foreign Companies/International Companies
If the foreign company does not pursue a place of business operation in Austria (a permanent place of business such as a workshop, studio, etc.), profits will not be taxed in Austria. The rental of studios, offices, hotel rooms, etc. can be regarded as a place of business operation, if the space is rented for more than one production, if the production company has unlimited access to the rental object, etc. In case the international production company disposes of the office of the Austrian production partner for an extended time period as part of an international co-production, it can also be regarded as a place of business operation.
Should such a place of business operation exist in Austria, limited taxation is mandatory. Income is only taxable if it can be attributed to the place of business operation. The tax liabilities are identical to those of branch offices (see next paragraph).
Branch Offices
Foreign corporations can establish branch offices in Austria. Any branch office has to designate a permanent representative and must be registered in the official Company Registry (Firmenbuch). The branch office may engage in the same activities as any domestic company. Profits of branch offices are taxed in Austria, which means, their income is subject to limited taxation in Austria. Depending on the existence of a DTC, the income will be tax-exempt in the home country or taxes paid in Austria will be accredited to taxes owed in the home country. If there is no DTC, any additional taxation depends on the tax laws of the respective home country.
If the company’s legal structure is comparable to an Austrian proprietorship (Offene Handelsgesellschaft OHG; Kommanditgesellschagft KG; Erwerbsgesellschaften OEG or KEG), the company is not subject to profits tax (but it is subject to sales tax, see paragraph 3). Profits from branch offices are attributed directly to the associates who in return will have limited income tax liability in Austria. For natural persons, profits generated by the branch office will be taxed according to general tax rates (see paragraph 1.2.).
If the foreign company’s legal structure is similar to an Austrian corporation (Gesellschaft mit beschraenkter Haftung GmbH; Aktiengesellschaft AG), the foreign corporation is subject to limited taxation in Austria. Profits from the branch offices will be taxed at the uniform corporate tax rate of 34% (starting 2005 this rate will be 25%).
Subsidiaries
If a subsidiary takes the form of a proprietorship, profits will be directly attributed to the proprietors (natural or legal persons) and taxed as income (general income tax rates or corporate rates apply). Advantages of establishing a proprietorship are simpler founding procedures and possibly lower operational costs.
If a subsidiary is founded as a capital corporation (Kapitalgesellschaft), it is subject to unlimited corporate taxation. Profits will be taxed at a uniform 34% corporate tax (25% starting 2005) with minimum corporate tax payments between € 1,092.00 and € 5,448.00 which can be accredited towards future tax obligations without expiration dates. The minimum corporate tax rate, except for the founding year, amounts to 5% of the capital stock:
a) € 1,092.00 in the first year of taxation (founding year).
b) € 1,750.00 thereafter for a limited liability corporation (Gesellschaft mit beschraenkter Haftung).
c) € 3,500.00 thereafter for a stock corporation (Aktiengesellschaft).
d) € 5,448.00 thereafter for credit institutes and insurance companies in the form of a capital corporation (Kapitalgesellschaft).
Thereafter, sharing of dividends with the parent company headquartered in an EU member country is not subject to further taxation according to the EU’s “parent-subsidiary” directive, provided specific qualifications are met (25% shareholding, holding duration two years). Capital gains taxation at 25% applies in Austria to sharing of dividends with parent companies located in other countries which, based on DTCs, is reduced to 5%–15% as a general rule. To an extent, taxes retained by Austria are accredited to the foreign parent company, thus reducing taxes to be paid there.
Holding Privilege
Sharing of dividends by a foreign subsidiary with its parent company in Austria is tax-free (“International Affiliate Privilege” under Austrian corporation income-tax law), under the same conditions (25% shareholding, holding duration two years). Although such holding revenues are tax-free in Austria, 5%–15% withholding tax may possibly be retained by the subsidiary’s home country, depending on the existing DTC. Naturally, the latter does not apply to EU member countries since, in this case too, the EU’s “parent-subsidiary” directive applies and thus taxation is only permissible in the subsidiary’s home country.
As of 2005, group taxation replaces the existing corporation taxation which means that as of 2005, Austrian parent companies can accredit losses from foreign subsidiaries to alleviate tax liabilities.
The Austrian Business Agency is available as a contact for information concerning the founding of a company in Austria (branch office of subsidiary).
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