Austria

Corporations are subject to Austrian corporate income tax and thus taxed as separate taxable entities. The standard corporate income tax rate in Austria is currently 23% (Körperschaftsteuer). This flat rate applies to the total taxable income of corporations (residents and non-residents), regardless of whether profits are retained or distributed. Resident corporations are those having their legal seat and/or their place of management in Austria; they are taxed on their worldwide income. Non-resident corporations are those having neither their legal seat nor their place of management in Austria; they are taxed on Austrian source income only (e.g. income from Austrian permanent establishments, from Austrian real estate, or from shareholdings in Austrian companies). The legal seat of a corporation is the place defined as such by law, by contractual agreement, in an entity’s articles of association, etc. The place of management of a corporation is the place where all the measures are taken which are required and essential for the management of the corporation. Austria does not levy separate state or provincial corporate taxes; corporate income tax is exclusively a federal tax. In addition, it should be noted that Austria has a minimum corporate income tax: Companies in a tax-loss position are subject to a minimum tax of EUR 500 per year for a GmbH (limited liability company) and EUR 3,500 per year for an AG (stock corporation). The minimum tax can be carried forward and credited against future corporate income tax liabilities.

Austria has fully implemented the EU Pillar Two Directive through the Minimum Tax Act (Mindestbesteuerungsgesetz), which entered into force on 1 January 2024.

Ordinary income

For resident corporations, taxable income is determined based on statutory accounts prepared under Austrian generally accepted accounting principles (GAAP), adjusted for tax-specific additions and deductions. All income derived from a business activity is generally taxable.

Capital gains

A capital gain is generally the difference between the sales price and the acquisition cost of an asset (or a lower book value, if any). Capital gains are generally treated as ordinary income and taxed at the standard 23% corporate income tax rate, while capital losses reduce the corporate income tax base. There is no distinction between short-term and long-term capital gains for corporate taxpayers.

Exemptions

However, significant exemptions from the taxable base apply:

• International participation exemption. Dividends received from a foreign company are tax-exempt if the Austrian company holds at least 10% of the issued share capital for a minimum holding period of one year. Also, capital gains from the disposal of shares in such a foreign company are generally tax-neutral (i.e. neither are gains taxable nor are losses deductible). The parent company may, however, irrevocably opt for each individual participation to treat capital gains and losses as relevant for tax purposes (with losses to be spread over seven years). The option for tax effectiveness may be exercised separately for each participation in the corporate income tax return filed for the year in which the participation is acquired. Once the option has been exercised, it cannot be withdrawn.
• International portfolio exemption. Dividends (but not capital gains) from:
  • EU subsidiaries; and
  • non-EU subsidiaries with comprehensive exchange of information, both not falling under the international participation exemption, are generally exempt from corporate income tax.
• Domestic participation exemption. Dividends (but not capital gains) received from Austrian companies are generally excluded from the corporate income tax base (no minimum stake or holding period required).

The primary indirect tax is value added tax (Umsatzsteuer), governed by the Value Added Tax Act (Umsatzsteuergesetz), which implements the EU VAT Directive.

Key value added tax rates

• Standard rate of 20%. Applies to most goods and services.
• Reduced rate of 10%. Applies to food, books, newspapers, pharmaceuticals, passenger transport, and accommodation.
• Reduced rate of 13%. Applies to cultural events, live animals, seeds, and certain other goods.
• Exemptions. Banking, insurance, healthcare, and certain educational services are VAT-exempt.

Other indirect taxes

• Real estate transfer tax (Grunderwerbsteuer). 5% for direct transfers of Austrian real estate and 0.5% for certain indirect transfers of Austrian real estate (the rate increases to 3.5% in the case of so-called real estate companies).
• Court registration fee (Eintragungsgebühr). A 1.1% court registration fee is assessed upon registration of property in the land register, based on the fair market value of the transferred property. In cases of real estate transfers between certain relatives (such as spouses, children and siblings) a reduced base applies, namely three times the tax value, up to a maximum of 30% of the fair market value.
• Stamp duties (Rechtsgeschäftsgebühren). Applicable to certain legal transactions (e.g. lease agreements, sureties, assignments) provided that:
  • a written deed (Urkunde) is established; and
  • a certain nexus to Austria exists.

However, these stamp duties can, in many cases, be avoided by way of careful structuring.

• Insurance tax (Versicherungssteuer). Generally, 11% on insurance premiums.
• Energy taxes. Excise duties on mineral oils, electricity, natural gas, and coal.

Austrian domestic law provides for the following withholding tax rates.

Dividends

• 27.5% on dividends paid to shareholders (can be reduced to 23% in case of corporate shareholders).
• Reduction to 0% under the EU Parent-Subsidiary Directive. Requires a minimum 10% shareholding held for at least one year and that the foreign parent meets substance requirements (active business, own employees and office space).
• Reduction under double taxation treaties. Often 15% or less.
• Repayment of equity (Einlagenrückzahlung). Distributions classified as repayments of equity, as tracked in the tax equity account (Evidenzkonto), are not subject to withholding tax.

Interest

• Interest payments on loans. Not subject to withholding tax under Austrian domestic law.
• Interest on a bank account with an Austrian bank. Subject to withholding tax of 25%. Exemptions apply.
• Interest on bonds (of both Austrian and foreign issuers) held with an Austrian custodian. Subject to withholding tax of 27.5% if the bonds are legally and factually offered to an indefinite number of investors. Exemptions apply.

Royalties

• 20% withholding tax on royalties paid to non-residents.
• An exemption might be available under applicable double taxation treaties or under the EU Interest and Royalties Directive.

Relief mechanisms

Austria offers two methods for withholding tax relief under double taxation treaties, the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive:

• the refund method, where the full domestic tax is withheld and the non-resident recipient applies for a refund of the excess; and
• the relief at source method, where the reduced tax is withheld or no tax at all is withheld at source.

Austria has a statutory General Anti-Avoidance Rule (GAAR) codified in the Federal Fiscal Procedures Act (Bundesabgabenordnung):

• Taxpayers are free to arrange their economic affairs in the manner they deem most beneficial, which includes choosing those structures and approaches that incur the least tax cost.
• Nevertheless, Austrian tax law contains a GAAR provision that restricts overly aggressive tax planning. The GAAR provides that tax liability cannot be avoided by abusing legal forms and methods available under civil law.
• Abuse is defined as a legal arrangement (which may consist of one or multiple steps) or a series of legal arrangements that are non-genuine in light of the commercial objective. Such arrangements are non-genuine that — disregarding the related tax-saving effect — do not make sense, because the main purpose or one of the main purposes is to obtain a tax advantage that defeats the object or purpose of the applicable tax law. There is no abuse if valid commercial reasons exist that reflect economic reality.
• If such an abuse is established, the tax authorities may compute the tax as it would have been had a genuine legal arrangement been carried out.
• The GAAR is applied by the tax authorities and is subject to judicial review by the Federal Tax Court and the Supreme Administrative Court.

In addition to the domestic GAAR, Austria has implemented the EU Anti-Tax Avoidance Directive (ATAD I and ATAD II), which introduced specific anti-avoidance rules, including:

• Controlled foreign company rule. Applies to low-taxed passive income of foreign subsidiaries.
• Interest limitation rule. Limits the deductibility of net interest expenses to 30% of EBITDA (with a EUR 3 million safe harbour).
• Hybrid mismatch rule. Targets arrangements that exploit differences in the tax treatment of instruments or entities across jurisdictions.
• Exit taxation rule. Applies if:
  • assets of an Austrian permanent establishment are transferred abroad;
  • an Austrian permanent establishment is transferred abroad; or
  • other circumstances lead to a limitation of the taxing right of Austria vis-à-vis other jurisdictions.

Tax controversies in Austria most frequently arise in the following areas:

• Transfer pricing. Transfer pricing disputes are the most significant source of tax controversy for multinational groups. The Austrian tax authorities closely scrutinise intercompany transactions, particularly the pricing of intangibles, intra-group financing, and management services. Austria follows the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines.
• Anti-avoidance and substance requirements. The application of the general anti-avoidance rule and of specific anti-avoidance rules (e.g. the controlled foreign company rule, the interest limitation rule and the hybrid mismatch rule) frequently leads to disputes. Substance requirements for withholding tax relief under the EU Parent-Subsidiary Directive and under double taxation treaties are a particular flashpoint, especially for holding company structures.
• Value added tax. Value added tax disputes arise frequently, particularly regarding the right to deduct input VAT, the VAT treatment of cross-border supplies of services, and the classification of transactions as VAT-exempt or zero-rated. Missing trader fraud (carousel fraud) investigations also generate significant controversy.
• Exit taxation. The valuation of assets transferred out of Austria and the assessment of latent capital gains upon exit are a recurring source of disputes, particularly in the context of corporate restructurings.
• Debt v. equity characterisation. The re-characterisation of shareholder loans as equity, and the consequent disallowance of interest deductions, is a common area of dispute, particularly in the context of highly leveraged structures.
• Permanent establishment. Disputes over whether a foreign company has a taxable permanent establishment in Austria arise regularly, particularly in the context of digital business models and cross-border service arrangements.

The Austrian tax controversy framework is governed by the following key legislative instruments:

Federal Fiscal Procedures Act

The Federal Fiscal Procedures Act is the primary procedural law governing the assessment, collection, and appeal of all major federal taxes (corporate income tax, value added tax and income tax). It sets out the rights and obligations of taxpayers and the tax authorities, including rules on tax audits, assessments, appeals, and statutes of limitations.

Key features:

• Tax returns. Taxpayers have to file tax returns under certain circumstances until certain dates using certain forms. Normally, the taxes are then assessed by the tax authority and payable one month after service of the assessment notice.
• Tax audits. The tax authorities have broad powers to audit taxpayers, including the right to enter premises, inspect books and records, and question third parties (e.g. banks, employees, business partners).
• Statute of limitations. The general limitation period for tax assessment is five years from the end of the calendar year in which the tax liability arose. In cases of intentional tax evasion, the period is extended to ten years. The tax authorities can only reopen cases within the statute of limitation.
• Appeals procedure. A taxpayer may appeal a tax assessment within one month. The tax office must issue a preliminary decision (Beschwerdevorentscheidung) within six months. If unsatisfactory, the taxpayer may refer the matter to the Federal Fiscal Court (Bundesfinanzgericht), which is the specialist first-instance court for tax matters. Proceedings typically take one to three years. This court may conduct oral hearings and take evidence. Decisions of the Federal Fiscal Court can be appealed to the Supreme Administrative Court (Verwaltungsgerichtshof) on points of law and to the Constitutional Court (Verfassungsgerichtshof) on constitutional grounds. Proceedings before these two courts typically take a further one to three years.

Fiscal Criminal Act (Finanzstrafgesetz)

The Fiscal Criminal Act governs tax offences and fiscal criminal proceedings. Minor offences are handled administratively by the tax authorities; more serious offences are prosecuted before the ordinary criminal courts. Penalties range from fines of up to 200% of the evaded tax (for intentional evasion) to imprisonment in more serious cases.

Austria does not provide for general alternative dispute resolution mechanisms, such as mediation or arbitration, for domestic tax disputes. The tax assessment procedure is strictly governed by mandatory public law (the Federal Fiscal Procedures Act), and the parties cannot contractually agree to resolve disputes outside the statutory framework.

However, the following mechanisms are available in specific contexts:

• Mutual agreement For cross-border disputes involving double taxation, taxpayers may initiate a mutual agreement procedure under the applicable double tax treaty or the EU Tax Dispute Resolution Act (EU-Besteuerungsstreitbeilegungsgesetz), which implements the EU Dispute Resolution Directive. The Austrian Federal Ministry of Finance (Bundesministerium für Finanzen) is the competent authority in both cases.
• Advance pricing agreements. Taxpayers may apply for an advance pricing agreement with the Austrian tax authorities to obtain advance certainty on the transfer pricing methodology for future intercompany transactions. Bilateral and multilateral advance pricing agreements are available in coordination with treaty partners. They are a practical tool for proactively managing transfer pricing risk.
• Accompanying audit (Begleitende Kontrolle). Large companies may apply for an accompanying audit, under which the tax authorities review the taxpayer’s tax positions on a real-time basis, rather than through periodic retrospective audits. This cooperative compliance model allows taxpayers to obtain early certainty on contentious issues and reduces the risk of large retrospective tax assessments.