This country-specific Q&A provides an overview to tax laws and regulations that may occur in Austria.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
Austrian tax law distinguishes between unlimited income tax liability and limited tax liability. Whereas unlimited income tax liability is triggered by an individual having its domicile and/or habitual abode in Austria and encompasses the individuals worldwide income, limited tax liability only includes specific Austrian source income and encompasses individuals having neither domicile nor habitual abode in Austria.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Austrian income tax is levied by way of a progressive income tax rate ranging from 25% to 55% (for taxable income in excess of EUR 1 Mio). With respect to specific investment income, including inter alia capital gains from investments, a special flat income tax rate of 27.5% may apply. In addition, income from the sale of real estate is subject to a flat income tax rate of 30%.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
In particular with respect to investment income involving, a withholding tax applies generally amounting to 27.5% (in special cases such rate is reduced to 25%). Equally, income tax on salaries and wages is imposed by way of a wage withholding tax.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
Austria does not levy a wealth tax.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Austria does not levy a gift tax or an inheritance tax. Nevertheless, in case of specific gifts exceeding special thresholds, a notification obligation exists. Non-compliance with such notification obligations triggers fines under the Austrian Fiscal Criminal Tax Act.
In case of gifts made to a private foundation, a foundation entry tax generally falls due.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
As mentioned, Austria does not levy a gift tax. However, if gifts to specific institutions in the form of foundations are made, a foundation entry tax may fall due. Further, under specific circumstances, voluntary gifts to specific institutions (fulfilling specific prerequisites) may be tax deductible.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Rental income from Austrian located property earned by an individual having neither its domicile nor its habitual abode in Austria will generally be subject to Austrian limited income tax liability. The same applies with respect to capital gains realised upon the sale of Austrian real estate. In addition, buying and selling Austrian real estate triggers a 3.5% Austrian real estate transfer tax.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
There are specific benefits available for individuals entering Austria as a tax residence under specific circumstances.
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
First, the assets and income of the individual have to be determined. Depending on which income the individual predominantly earns, advantageous structures may be available from an Austrian tax perspective.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
In the absence of a will the entire estate goes to the heirs. Children (or grandchildren if children are also deceased) inherit 2/3, a spouse (or civil partner) inherits 1/3.
If there are no descendants the spouse (or civil partner) inherits 2/3 and the parents inherit 1/3. If there are no parents but parents’ children then these persons inherit 1/3.
If there are no other relatives the full estate of the deceased is transferred to the state.
Children and the spouse (or civil partner) are entitled to a reserved portion which is half of the portion they would get in the case there is no will (intestacy). The reserved portion is due with the death of the deceased and basically paid in cash.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
Marriage or civil partnership does not create common property except there is a common property contract between the spouses.
In principle every person holds a property on everything he/she has got (in any kind) before a marriage and will hold property on this estate during marriage.
If spouses agree on common (matrimonial) property in a marriage contract (to be executed by notarial deed) various forms of common property are possible.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
Relevant factor of the succession law of the jurisdiction is the testator’s citizenship and habitual residence.
Given the Austrian citizenship and a habitual residence in Austria then Austrian succession law would apply.
In case of an Austrian citizenship but habitual residence abroad the succession law of the habitual residence country would apply (applicable for all EU member states except Denmark, UK and Ireland). If a testator will prevent this effect, he/she has to state expressively the applicability of Austrian law.
Austrian jurisdiction applies to the movable and immovable property located in Austria but does not apply to immovable property located abroad. In case a testator without Austrian citizenship and without habitual residence in Austria owns immovable property in Austria a succession procedure (following the applicable law) would take place in Austria dealing only with an immovable property.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
EU Regulation No. 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European certificate of succession (Succession Regulation) is binding for all EU member states except the UK, Ireland and Denmark. Therefore, the applicable law to the succession is the law of the state in which the deceased had his/her habitual residence at the time of his/her death. If it is clear from all the circumstances of the case that, at the time of death, the deceased was manifestly more closely connected with a state other than the state whose law would be applicable, the law applicable to the succession is the law of that other state. A person may choose the law of a state whose nationality he/she possesses at the time of making the choice or at the time of death. The choice has to be made expressly in a declaration in the form of a disposition of property upon death according to the chosen law.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
There is no obligation to make a will, but dying without having made a will has the consequence that the intestacy rules apply.
A will must need the requirements set out in the relevant sections of the Austrian Civil Code (ABGB). If there is no will or the will does not need these requirements the intestacy rules will apply. A will can be registered in the Register of Wills.
In Austria a holographic will (entire text is written and signed by hand), a private will (executed in the presence of three witnesses) and a public will (executed by a notary or at court) exists.
A person whose only connection with Austria is that he/she owns a real property is well advised to dispose over this property in his/her will but not necessary in Austria.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
The inheritance proceedings are managed by the court with the help of public notaries. Basically the administration of the estate of a deceased is done jointly by all heirs who have proved their right of succession. All decisions in this connection have to be done anonymously unless otherwise agreed. For extraordinary transactions the consent of the court of the Austrian inheritance procedure is needed. The respective court appoints a notary as court commissioner who invites the heirs to make their declarations of inheritance.
If a conflict situation caused by conflicting declarations of inheritance or conflicts among the heirs the court has to appoint a trustee to administrate the estate.
An appointment of a trustee by will is possible but of little importance since the heirs are not bound by the appointment and are entitled to dismiss the trustee at any time.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Any natural person may establish a private foundation, a holding company or a family company in Austria. Private foundations are more often used as holding companies.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
Every limited liability company, every partnership and every private foundation is registered in the public companies register with its shareholders, partners and founder.
The beneficial owners must be entered in the register of beneficial owners. In the case of the private foundation this also includes all beneficiaries.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
According to the Act on the Register of beneficial owners in force since 1 January 2018, all limited liability companies, all private foundations are obliged to enter the shareholder as beneficial owners, members of the board of Private foundations, all trustees and all beneficiaries in the Register of beneficial owners. Failure to comply with this obligation is sanctioned by severe penalties.
Every property in Austria is registered in the public land register. It also shows the owner. However, trusteeships are possible; this can conceal a beneficial owner from the public. However, disclosure to the tax authorities is necessary.
Every other asset can be possessed in a non-public way.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
Austrian resident private foundations are generally separate taxable entities for purposes of Austrian tax law. As mentioned, gifts and contributions made to an Austrian private foundation are subject to a foundation entry tax (unless specific exemptions apply). Further, income earned by the private foundation is generally subject to Austrian corporate income tax amounting to 25%. In addition to that, tax exemptions may apply in particular to dividends distributed to the Austrian private foundations subject to specific criteria. Further, in light of in particular specific investment income as well as capital gains from the sale of real estate an interim taxation applies amounting to 25% which may be credited against Austrian withholding tax levied on distributions effected by the Austrian private foundation. Moreover, it is worth mentioning that Austrian private foundations qualify for a deferral of tax liability in light of capital gains realized on the sale of shares if a qualified re-investment in specific shares occurs.
Distributions effected by a private foundation to a beneficiary are generally subject to 27.5% Austrian withholding tax unless tax treaty exemptions apply.
Are foreign trusts, private foundations etc recognised?
Under civil law foreign trusts or foreign private foundations are recognised in Austria but in a transparent trust or in a transparent foreign private foundation the corresponding shares and/or income are allocated to the beneficiaries.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
The taxation of foreign foundations, trusts etc depends on their structure and design, in particular in light of their comparability with an Austrian private foundation. This is relevant in light of eg an Austrian resident making gifts to such foreign entity (with respect to levying foundation transfer tax) as well as a potential shielding effect of such structure. If such structure is seen as transparent for Austrian tax purposes, income earned may be attributed directly to an Austrian resident settlor, beneficiary, etc and may be subject to Austrian (corporate) income tax. This may apply irrespective of any distributions. Generally, only if the foreign structure is recognized from an Austrian tax perspective, distributions may become taxable in Austria on the level of the receiving beneficiary. It is worth noting that structures are available which may reduce/avoid the tax burden on the level of the beneficiary in light of distributions effected.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
In compliance with the relevant deadlines under insolvency law, the dedication of assets to a private foundation can be withdrawn from the creditors of the founder. If the founder has no rights in the private foundation beyond those provided by the law there is no possibility of access of a creditor against the private foundation due to the founder’s lag of property rights. By law the founder does not have any rights to assets and rights of organisation with access to assets.
What provision can be made to hold and manage assets for minor children and grandchildren?
Minors (children or grandchildren) can be appointed as beneficiaries of a private foundation. Orders to pay dividends to beneficiaries are subject to the control of the guardianship court until they reach the age of majority (normally 18 years). With regard to tax assessment there are no exceptions for minors.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
In Austria one can set up a long lasting power of attorney in which one appoints a proxy who can make all these positions over all assets including bank savings, bank accounts, real estate (but then notarised signed).
A long lasting power of attorney becomes legally effective only in connection with a medical confirmation that the giver of the power of attorney is no longer legally competent. A long lasting power of attorney has to be entered in a register of powers of attorney.
In addition there is the institute of the healthcare proxy in which it can be regulated which medical treatment in the event of illness should not be carried out if and when the patient is no longer able to express his will.
The existence of a healthcare proxy (not its contents) is also recorded in a register.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
In Austria there are two ways to establish a charitable foundation. On the one hand a genuine charitable foundation, on the other hand a private foundation with charitable character.
A charitable foundation has permanently dedicated assets with legal personality, the proceeds of which serve to fulfil charitable purposes. The minimum assets amount to EUR 50,000 and may not be less at a later date.
The pursuit of charitable purposes does not necessarily have to take the form of a genuine charitable foundation; a private foundation can also be purely charitable in nature under the private foundation act or at least combine charitable elements with those of benefit to others.
The charitable foundation is created when it is established by a declaration of foundation and when it is entered in the foundation and fund register.
The private foundation is established by a declaration of foundation and entry in the commercial register.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
Currently there are no changes in the legislation in the area of private client advice.