SIGNIFICANT DEVELOPMENTS
In 2000, a tax reform was enacted with the main aim to consolidate the budget. Most of the provisions will become applicable for the first time in the year 2001. The most significant changes apply to restrictions on tax loss carryforwards, repeal of the investment allowance, as well as
lower depreciation for buildings (for details see Deductions” and “Other incentives”).
TAXES ON CORPORATE INCOME
Corporation tax (Korperschaftsteuer)/Profits are taxed at a flat rate of 34%. There is also a minimum corporate income tax, payable by companies in a tax loss position. The minimum corporate income tax amounts to EUR 437,50 for limited liability companies (GmbH) and EUR 875 for stock corporations (AG) for each full quarter of a year. To promote the
foundation of new companies, the minimum corporate income tax is in both cases reduced to EUR 272,52 for the first four quarters. The minimum corporate income tax is credited against future taxable profits.
CORPORATE RESIDENCE
A corporation is resident for tax purposes if it is either registered in Austria or its center of effective management is in Austria.
OTHER TAXES
Value added tax (Mehrwertsteuer)/VAT is chargeable on the sale of most goods and services, except exports. The standard rate is 20%; a certain limited range of goods and services is taxed at 10%. Normally, VAT is wholly recoverable for corporations, except those engaged in special business activities, that is, banking, insurance, and holding companies.
Capital transfer tax/Capital transfer tax is imposed at a rate of 1% on the initial contribution of capital, other contractual or voluntary contributions in cash or kind, and certain hybrid instruments.
BRANCH INCOME
Branches of foreign corporations are taxed in the same way as Austrian corporations, except that intercompany dividends received by branches of non-EU corporations are not tax exempt (see below), and tax losses can be carried forward only under certain circumstances.
INCOME DETERMINATION
Inventory valuation/In general, inventories are valued at the lower of cost or market. If specific identification during stock movements is not possible, other methods (e.g., LIFO and FIFO) are permitted only if it can be shown that they accord with the facts. Conformity between commercial
book and tax reporting is required.
Capital gains/No special treatment applies to capital gains, except as stated below.
Intercompany dividends/Dividends received from an Austrian corporation are excluded from the tax base. Under the foreign participation exemption, dividends received from shares in foreign corporations and capital gains realized on their sale are tax exempt, provided the investing company held
at least 25% of the issued share capital for at least two years. Dividend distributions received and capital gains realized within the two-year period are taxed on a preliminary basis, with a tax refund available upon completion of the holding period.
In general, write-offs of a participation in an Austrian or qualifying foreign corporation are deductible up to the lower of going-concern value or losses from the sale of such participations, but they must be spread over a seven-year period. No deduction is allowed if write-offs are directly caused by profit distributions.
In the case of presumed tax avoidance, the participation exemption for dividends is replaced by a tax credit. The credit system will be applied in particular where the foreign subsidiary does not meet an active-trade-or-business test and a “subject to tax” condition. However, tax evasion will generally not be deemed to exist where an Austrian company is (directly or indirectly) more than 50% owned by individuals
resident outside Austria. A deduction of the financing costs for the tax-exempt investment is not allowable. The domestic and foreign participation exemptions are available only to Austrian resident corporations and to branches of EU corporations, not to branches of non-EU corporations.
Foreign income/Resident corporations are taxed on their worldwide income.
If a double taxation treaty is in force, double taxation is mitigated either through an exemption or by granting a tax credit equal to the foreign withholding tax at the maximum. However, if the source of the income is a nontreaty country, exemption or a tax credit may be available, based on unilateral relief, at the discretion of the tax authorities.
Dividend income from foreign subsidiaries is taxed at the ordinary tax rate if it is not exempt under the foreign participation exemption or according to a double taxation treaty.
Special rules for taxing undistributed income of foreign subsidiaries are applicable only in the case of foreign investment funds.
Stock dividends/A conversion from revenue reserves/retained earnings to capital by a company does not lead to taxable income for the shareholder.
Howeve
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