Austria offers start-ups and investors a good environment for development in various phases. In the following, a few essential aspects for start-ups and investors regarding Austria as a start-up location are summarized.
1. Foundation privileged company with limited liability
An Austrian GmbH (company with limited liability) generally has a statutory share capital of TEUR 35, at least half of which must be raised at the time of incorporation. In this context, there is the possibility to take advantage of a foundation privilege and thus to establish the GmbH with a reduced share capital of TEUR 10, whereby at least TEUR 5 has to be paid in. Within 10 years, an increase to the legally standardized share capital must be made.
2. Research Funding
Generally, R&D costs are fully tax deductible at the time they accrue. The tax-free research premium of 14% can be claimed for research and experimental development expenditures. Both in-house research (performed in Austria) and contractual research (contractor must be based in the EU/EEA region and be a company or institution [e.g. a university institute] involved in such research) are eligible for this bonus. However, the R&D premium cannot be claimed by both principal and contractor (the contractor is just able to apply for the premium if the principal does not). In case of contract R&D, the privileged R&D costs are capped at EUR 1 million per year. The R&D premium is ideal for start-ups, as it is being paid out also in a loss situation of the company.
Beneficiary expenditures are:
- Wages and salaries for employees in research and experimental development, as well as fees from corresponding work contracts
- Direct expenditures and direct investments (including the acquisition of real estate), insofar as they serve sustainable research and experimental development
- Financing expenses to the extent that they occur due to research and experimental development
- Overhead costs to the extent that they are attributable to research and experimental development (e.g. payroll accounting costs, insofar as they are attributable to research personnel, pro rata administrative costs, but no distribution costs)
3. Liberal group taxation regime
For a tax-optimal result pooling of coporations, the establishment of a tax group can be considered. Both domestic and comparable foreign corporations can be included in a group (comprehensive administrative assistance is required for third countries). The prerequisite is the existence of sufficient financial participation (participation > 50%, holding period > 1 year) over the entire fiscal year, the timely submission of a group application and the conclusion of a tax allocation agreement. The tax group must exist for at least 3 years.
4. Attractive regime for cross-border investments
Dividends received from a foreign company are tax exempt at the corporate shareholder level independent of the amount and duration of participation.
Furthermore for qualified international participations (participation > 10%, holding period > 1 year), both capital gains and capital losses derived are basically tax neutral (only exception for liquidation losses). However, the parent company (in the tax return of the year of acquisition) can exercise an irrevocable option for each single participation acquired to treat both capital gains and capital losses as taxable (losses and depreciations are spread over a period of seven years). The option refers to capital gains (losses) only and does not affect the tax treatment of ongoing dividend distributions.
5. Start-up Support
Various institutions offer interesting support programs for start-ups (eg INITS, aws, FFG, etc…). This will provide the best possible support for startups in the various phases. So far, fast help for startups has also been guaranteed during the Corona period (e.g. support from the start-up aid fund, investment premium, etc…).
6. Unlimited ability to carry forward losses
At the level of an Austrian GmbH tax losses can be carried forward without any time limit. However, tax loss carryforwards generally can be offset against taxable income only up to a maximum of 75% of the taxable income (some exceptions apply, e.g. in connection with tax groups, in the case of liquidations or the recapture taxation of foreign losses, etc…), allowing a company to offset tax loss carryforwards up to 100% of annual taxable income.
The Austrian tax law does not provide for a carryback of tax losses (except the temporary loss carryback for 2019 and 2018 due to COVID-19 under certain conditions).
Authors:
Christoph Puchner, Managing Director and Tax Advisor & David Gloser, Partner, Chartered Accountant and Tax Advisor from ECOVIS Austria.
