We have already showed you the first steps for setting up a company in Austria, but what happens when you do not want to create a separate entity? The first thing you need to know is that the most common legal forms of doing business from outside of Austria are the branch office and the subsidiary.
Setting up a branch office
The branch office is like a local establishment of your foreign enterprise. It is not a separate legal entity but it needs to be registered with the Austrian commercial register. The name of the branch must include the name of the parent company. Several documents have to be submitted by the parent company for the registration, including the articles of association, and certificate of corporate registration.
The author Gernot Jakobs of Vienna CityTax; Photo credit: CityTax
The branch of a foreign company has a limited tax liability in Austria which means that only the profits of the branch are subject to 25 per cent corporation income tax (CIT). If the parent company is a partnership (general partnership or limited partnership) profits are not subject to CIT. In this case the branch will distribute the profits directly to the partners who in turn have limited tax liability in Austria. Those profits will be taxed according to the general tax rates which are up to 50 per cent (read more here).
Establishing a subsidiary
You can run a subsidiary in the form of a partnership or – much more commonly – as a limited liability company (GmbH). In case you require more details on how to register a GmbH or on how to form a partnership you can find them in our first “How To“-article on the topic.
If your subsidiary is a partnership, it has to distribute the profits directly to the partners (natural or legal persons) who will pay taxes on this profits (general tax rate or CIT). If, however, the subsidiary is a limited liability company, its profits will be taxed with 25 per cent CIT. In case of losses there is a minimum CIT of 1,750 euros per year, which is credited against CIT in subsequent years.
The distribution of dividends to the parent company with headquarters in EU country is under certain circumstances (10 per cent share, one year holding period) not subject to any further taxation. If the headquarters are outside the EU the dividend payouts are subject to 25 per cent capital gains tax. Depending on the relevant Double Taxation Treaty capital gains tax will be reduced to 5 -15 per cent (read more here).
Be aware that the activity performed should be truly ‘representative’…”
If you think those alternatives are too complicated or cost intensive you still have the opportunity to engage a business/sales representative in Austria. If you do so, the revenue generated by those representatives is considered to be revenue of the headquarters.
But be aware that the activity performed should be truly “representative”; otherwise a permanent establishment may be created which has a major impact on taxation. For example the representative must not have the authority to conclude local sales contracts, he must not be substantially involved in negotiating the terms of the contract etc. (read more).
About the author:
In partnership with Vienna CityTax
Gernot Jakobs is Managing Director and Partner of Vienna CityTax Steuerberater GmbH, a Vienna based tax advisory firm. He has more than 10 years of experience in financial consultancy for local and foreign small and medium-sized companies. He is a specialist in the fields of legal forms for small and medium-sized companies as well as mergers & acquisitions, company foundation and company succession. He started his professional career in his parents’ firm followed by a couple of years in a medium sized Vienna based firm.