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Real Estate
Going Global
Austria

Tax and legal aspects of
real estate investments
around the globe
2012

Real Estate Going Global – Austria 1

Contents

Contents

Contents ............................................................................................................................... 2
Real Estate Tax Summary − Austria................................................................................... 3
Contacts............................................................................................................................... 11

All information used in this content, unless otherwise stated, is up to date as of
11 July 2012.

Real Estate Going Global – Austria 2

Real Estate Tax Summary − Austria

Real Estate Tax Summary −
Austria

General

A foreign individual or corporate investor may invest in Austrian property directly or
through a local company, such as an Aktiengesellschaft (AG) or Gesellschaft mit
beschränkter Haftung (GmbH) or a partnership.

Business income vs. rental income

Generally, in Austria, income earned from the leasing of real estate will be classified
as rental income. Income earned by legal entities (corporations, limited liability
companies) is always classified as business income. Income earned by a local
partnership is also classified as business income, provided the partnership performs
business activities other than pure rental activities.
From 1 January 2006 onwards, any income earned by a non-resident corporate
investor holding real estate in Austria is classified as business income. The same
applies to a non-resident individual, holding Austrian real estate in a business abroad.

Income taxation

The income tax rates for non-resident individuals range from 0% on the first
EUR 2,000 of taxable income to 50% on income in excess of EUR 60,000, i.e.
a progressive rate.
Foreign legal entities are taxable on their income at 25% corporate income tax. If the
investment is classified as a real estate investment fund under Austrian tax law,
a special tax regime is applied (see comments below on ‘ImmoInvFG’).
Rental income is measured by the excess of receipts over income-related expenses.
Expenses are deductible provided they are related to Austrian real estate. The following
deductions among others are allowed:

• maintenance and repairs
• expenses for administration
• financing costs and interest payments for financing loans
• insurance premiums for the real estate
• depreciation and
• real estate tax.

Real Estate Going Global – Austria 3

Real Estate Tax Summary − Austria

A withholding tax (WHT) of 25% is levied on interest paid on deposits with Austrian
banks, and on interest paid on bonds. If the foreign corporation declares that
the interest is part of its taxable profit, it will be exempt from the WHT.

There is no existing legislation that specifically foresees thin capitalization rules.

Group taxation model

If two or more companies fulfil the requirements for the group taxation model and
exercise the option to form a tax group, the taxable results of the domestic group
members will be attributed to their respective parent company and will be taxed at
the level of the group parent. As a result, tax losses of (also foreign) group companies
can be consolidated with taxable profits of other group companies. The requirements
for the group taxation concept are:

• a participation of more than 50%,

• a written application to form a tax group, which has to be filed with the competent
tax office.

In the case of a domestic tax group, the whole income is attributed to the parent
company, irrespective of the holding quota. With regard to foreign group members,
only negative income to the extent of the capital ownership percentage is attributed to
the parent company. Therefore it is necessary to “recalculate” the foreign losses in
accordance with the Austrian tax law requirements. Beginning with the tax period of
2012 the possibility to deduct foreign losses will be capped with the amount actually
suffered based on foreign law. Generally, an appropriate system of tax allocations
between the group companies has to be established, mainly to ensure that the minority
shareholders are neither advantaged nor disadvantaged.

The use of losses is recaptured if and to the extent that such losses can be used in the
subsidiary’s state of residence or the foreign subsidiary ceases to be a member of the
Austrian tax group. From July 2009 a new recapture taxation mechanism was
determined. The amendment provides for a recapture, not only if the subsidiary ceases
to be a member of the group, but also if the loss generating business unit is sold, closed
down, or has materially decreased in scope since, when the losses were generated.
According to the Austrian tax authorities the materiality threshold requires a 75%
decrease in scope.

Depreciation

The basis of depreciation includes the acquisition costs of the building, but not
the value of the land. Tax depreciation must be calculated using the straight-line
method, according to which the annual depreciation is a fixed percentage of cost. If
a non-resident investor holds the building directly or as private property, depreciation
can be carried out at a rate of 1.5% a year. If the building serves as an asset of a
business, depreciation rates vary between 2% and 3% (4% for buildings in lightweight
construction). A higher depreciation rate can only be applied in case of providing
a corresponding expert opinion.

Furthermore, an accelerated depreciation for certain tangible assets, newly acquired or
produced in 2009 and 2010, was introduced. The accelerated depreciation amounts to
30% of the acquisition or production costs (including the ‘normal’ straight- line

Real Estate Going Global – Austria 4

Real Estate Tax Summary − Austria

depreciation) and is available in the year of the acquisition or production. The
accelerated depreciation and the ‘normal’ depreciation may not exceed the historical
acquisition or production costs. However, real estate and buildings as well as leasehold
investments, passenger cars (with exceptions), aircrafts, used assets, etc. are excluded.

Goodwill depreciation of domestic
participations

For share deals involving an Austrian company after 31 December 2004, the goodwill
including the hidden reserves in depreciable assets (e.g. buildings) must be deducted
for tax purposes over a period of 15 years, subsequent to the formation of an Austrian
tax group. The depreciation basis is limited by 50% of the total share purchase price.
The acquired company must be engaged in active business, it must be resident for tax
purposes in Austria and it must be acquired from a non-related party. The goodwill
depreciation for share deals is only available within the Austrian group taxation model.

Capital gains on the sale of property

Up to 31 March 2012 capital gains derived from the sale of real estate by non-resident
(corporations or individuals) direct investors was only treated as taxable income if they
qualify as speculative gains or business income.

Business income is derived from either an Austrian PE, an Austrian permanent
representative, Austrian real estate held by a non-resident corporate investor, or a non-
resident individual having a business abroad.

Up to 31 March 2012 capital gains of non-resident individuals, having no PE in Austria
and holding the real estate as private property, were only taxable if real estate and
related rights were disposed of within 10 years, or within 15 years under certain
circumstances (speculative gains).

Starting from 1 April 2012, the speculation period will be abolished. Gains from the sale
of properties which were acquired as from 31 March 2002 will be taxed at 25%. In
certain cases, already acquired assets as from 31 March 1997 are also treated as new
assets. The tax assessment base will be the profit calculated using sales price less
acquisition costs. After a holding period of 10 years an inflation reduction can be used
to decrease the capital gain by 2% per year, limited with a maximum 50% deduction.
This deduction is only possible if the tax regime for new assets applies, thus only if
the full 25% real estate revenue tax is applicable. Real estate property that is already
beyond the speculation period under the old regime (“old real estate assets”) will be
subject to special transition rules. “Old” properties (acquisition before 31 March 2002)
which were rededicated from land sites to building sites after 31 December 1987 will be
taxed at 15% of the sales price. “Old” properties without rededication will be taxed at
3.5% of the sales price. However, in both cases the new regulation provides the option
to tax the gains similarly to “new real estate assets”. The amount of real estate revenue
tax thus depends on the time of acquisition of the property.

Gains arising from the sale of real estate that was held for at least seven years as
business property by individuals (not corporate investors) are not taxed under
the condition that such gains are used to reduce the book value of fixed assets

Real Estate Going Global – Austria 5

Real Estate Tax Summary − Austria

purchased or manufactured in the same year, or within the following 12 months.
The minimum holding period is increased to 15 years under certain circumstances.
As of 2012 the rollover relief for the hidden reserves is only available in cases where
the replacement asset is used within a domestic PE. Hidden reserves from the sale of
land may only be used to reduce the valuation basis of land and buildings. Hidden
reserves from the sale of buildings may only be used to reduce the valuation basis of
buildings. If the reserve is not used within this 12-month period, or 24 months under
certain circumstances, it has to be added back to taxable income.

Corporations are not eligible for the rollover credit system through which realised
hidden reserves can be withdrawn from an immediate taxation in case of
a reinvestment. Individuals who hold real estate through a partnership can still benefit
from this rollover credit system.

In Austria, the sale of shares in a company whose assets mainly consist of Austrian
property is not treated as the sale of the property owned by the company. With regard
to real estate transfer tax, a transfer of Austrian property is assumed where an investor
obtains the 100% share in a domestic property owning company (see below under
the section ‘Real estate transfer tax’).

Participation exemption/withholding tax
on dividends

Dividends received by a resident corporation from its domestic subsidiary are exempt
from corporate income tax on the basis of the national participation exemption.
Dividends received by a resident corporation from a foreign subsidiary are exempt
from corporate income tax on the basis of the international participation exemption, if
the conditions regarding seniority and participation are fulfilled and the anti-abuse
provisions are kept.

Dividends received by a resident corporation from a foreign subsidiary in an EU
Member State, a member state of the European Economic Area (EEA) or of a third-
party country are also exempt from corporate income tax on the basis of the
international participation exemption, if the participation is at least 10% and Austria
has concluded a double tax treaty with comprehensive administrative assistance.

However, if the foreign subsidiary is taxed at 15% or less the participation exemption is
not applicable. In this case a tax credit system is applied. Dividends paid by an Austrian
company to its domestic or foreign shareholders are generally subject to 25% dividend
WHT under domestic law. For direct or indirect participations over 10%, no WHT has
to be deducted. For foreign subsidiaries a holding period of more than one year and
the application of the EU Parent-Subsidiary Directive is provided. In those cases,
dividends can be paid from the asset owning company to the EU parent company free
of WHT. The WHT exemption is subject to anti-abuse legislation in Austria. Dividends
paid to non-resident individuals are subject to the full WHT rate, although this rate
might be mitigated or eliminated by existing double tax treaties.

Following the European Court Decisions on the ‘Amurta’ and ‘Aberdeen Property
Finivest’ cases, the general possibility of a reclaim of Austrian WHT was introduced in
the latest amendment to the Austrian Corporate Income Tax Act. Corporations resident
in other EU Member States or Norway are entitled to a refund of the WHT on dividends
received from Austrian companies if and to the extent the foreign company provides

Real Estate Going Global – Austria 6

Real Estate Tax Summary − Austria

evidence that no tax credit will be granted for the Austrian WHT in its country
of residence under an existing tax treaty. The new reclaim provision is applicable,
irrespective of the extent of participation as well as the holding period and will be
of interest for corporations not fulfilling the tight prerequisites of the EU Parent-
Subsidiary Directive.

Loss carryforward/tax credit
carryforward

Operating losses from businesses may be carried forward without time limit if the
losses have been calculated according to proper bookkeeping practices. From
2001 onwards, losses carried forward may only be used to offset income of
the following years to the amount of 75% of the respective income each year. There is
no loss carryback available. No loss carryforwards are available for rental income.

A change on crediting foreign taxes paid for foreign sourced income taxable in Austria
has taken place. Foreign taxes comparable to the Austrian corporate income tax that
cannot be credited in Austria in one year, due to tax losses, may be carried forward by
the Austrian company, if the Austrian company provides an accurate documentation
of the economic double taxation and no foreign tax credit forward is granted to
the company. Foreign WHTs can still not be carried forward.

Real estate transfer tax

A real estate transfer tax is levied on the acquisition of real estate, including buildings
on land owned by third parties, situated in Austria. The tax rate is basically 3.5%.
However, in certain cases, the rate is 2% of the purchase price. An additional
registration duty of 1.1% is also due. If there is no purchase price (e.g. gifts), or in case
one shareholder holds 100% of the asset-owning company, the taxable base is three
times the assessed standard value. The assessed standard value is calculated only for
taxation purposes and usually far below the market value.

Value added tax (VAT)

In principle, sale, rental and lease transactions are VAT-exempt, with no input VAT
credit. However, rental for accommodations, such as apartments and family houses, is
taxable at the rate of 10% with input VAT tax credit. In the case of the sale of real
estate, or rent or lease of offices, industrial premises, plants and other non-residential
real estate, the supplier, i.e. the lessor, may opt for taxation at a rate of 20% with input
VAT tax credit. In this respect the Stability Act 2012 comes up with restrictions for lease
contracts concluded after 31 August 2012. Regarding those lease contracts it is only allowed
to opt for taxation with the possibility to deduct input VAT in case the tenant himself is
performing VAT-able turnovers. With regard to sales subject to VAT, the VAT amount
forms part of the basis for real estate transfer tax.

If input VAT was credited according to the provisions of the Austrian Value Added Tax
Act, this amount has to be adjusted if circumstances decisive for input VAT tax credit
change. With respect to real estate, an observation period of nine years from the year
the asset has been used for the first time has to be taken into account. A change taking
place within this period leads to a pro rata adjustment of one-tenth of the input VAT
credited. In the course of the Stability Act 2012 the observation period of nine years has

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Real Estate Tax Summary − Austria

been extended to nineteen years for those properties used for business purposes for
the first time after 31 March 2012. In case of lease contracts, the extended observation
period applies for contract concluded after 31 March 2012.

Reverse-charge regarding construction
services

To tackle VAT fraud in the real estate industry, the VAT liability resulting from the
supply of construction services, i.e. work on buildings, is passed from the subcontractor
to the general contractor (reverse-charge mechanism for construction services). Work
on buildings cover all services in connection with construction, restoration,
maintenance and demolition of buildings, as well as alterations to constructions and
cleaning performances. The secondment of personnel to render such services is
considered as construction services, too.

According to the VAT regulation regarding construction services, the tax liability passes
over to the recipient of the services under the following conditions:

• If construction services are performed by an entrepreneur, who is subcontracted to
perform a construction service (e.g. by a general contractor); or

• If construction services are performed by an entrepreneur who habitually renders
construction services himself.

If the tax liability passes over to the recipient of the services, the invoice has to be
issued without VAT. In addition, the invoice has to include the following:

• The VAT identification number of the recipient of the services.

• Reference that the recipient of the performance is liable for the VAT payable by
indicating ‘reverse charge’.

Inheritance and gift tax

An individual non-resident in Austria directly owning an Austrian real estate property
used to be subject to Austrian inheritance and gift tax.

In 2007, the Austrian Supreme Constitutional Court abolished the legislation with
regard to inheritance and gift tax, after having declared it a violation of constitutional
principles. According to this decision, the Austrian inheritance and gift tax finally
phased it out on 31 July 2008, i.e. beginning 1 August 2008 there is no inheritance and
gift tax in Austria.

However, a Gift Announcement Law 2008 was published, which stipulates a
compulsory obligation to notify asset transfers due to a gift transaction to the Austrian
Tax Authorities. The disclosure obligations apply for securities, cash, shares in
companies and tangible assets if certain thresholds are exceeded. However, the transfer
of real estate due to inheritance or gift is excluded from this announcement obligation
as these transactions will be subject to 2% or 3.5% real estate transfer tax.

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Real Estate Tax Summary − Austria

ImmobilienInvestmentfondsgesetz
(ImmoInvFG)

The ImmoInvFG, which came into effect on 1 September 2003, aims at establishing
legislation for real estate investment funds in Austria.

According to the ImmoInvFG, a real estate investment fund is a pool of commercial
and residential real estate property, held in trust by a capital investment company
(legal owner) on behalf of the unitholders (beneficial owners). To increase security for
the investors, the emission and management of the shares in the fund is controlled by
both the depositary bank and the Financial Market Supervision Authority.

The real estate investment fund itself is not subject to corporate income tax. It is
treated as transparent for Austrian income tax purposes. Taxation is triggered at
the level of the investors.

The real estate property must be valued yearly by two experts on a net asset value basis.

A real estate investment fund under Austrian tax law must invest according to
the principle of risk diversification. Risk diversification is assumed under the following
conditions:

• An investment into at least ten properties (five in certain cases) must be targeted
with an initial investment period of four years.

• The gearing ratio must not exceed 50% on a long-term basis.

• One single real estate investment must not be larger than 20% of the fund’s volume.

The qualification is done on an overall perspective; however, if one of these criteria is
not met, the fund would not, according to current interpretation of the law, qualify as
a real estate investment fund.

The real estate fund can invest within the EU/EEA on an unlimited basis, and outside
the EU/EEA up to 20% of the fund’s volume. Under new legislation, real estate
investment funds can also invest in property holding companies, in Austria or abroad,
up to 49% of the real estate fund’s volume.

The yearly income includes the rental income of the fund plus the realised capital
gains, minus capital losses. Additionally, the income must include 80% of the changes
in value resulting from the expert’s valuation. This percentage is increased to 100% if
the fund is not publicly offered. Instead of depreciation, a reserve is allocated.

All income of the fund is deemed to be distributed to the investors, regardless of
whether the fund actually makes a distribution or not, and is subject to an Austrian
25% WHT (final tax for Austrian private investors) as far as the fund is publicly traded.
If the fund has been privately placed, all income is subject to standard taxation at
the normal tax rate.

For non-resident corporate or individual investors, the WHT can be reduced or
eliminated by the Austrian Double Tax Treaties. In case of non-publicly offered real
estate investment funds, the WHT of 25% has to be retained at source without

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Real Estate Tax Summary − Austria

an immediate reduction of the WHT. The non-resident investor will subsequently have
to file an application for repayment of the taxes withheld at source.
The redemption of shares, as well as an actual sale of the shares, is a disposal for tax
purposes. If the shares were privately held, this disposal is only taxed if effected within
one year after acquisition (applicable for all shares purchased until 31 December 2010).
For shares purchased after 31 December 2010, realised increase in value due to a sale is
subject to tax, irrespective of the holding period. If the shares were held as Austrian
business property, a disposal is taxable regardless of the holding period.
The sale of the shares is not subject to real estate transfer tax.
Under certain circumstances, foreign entities that hold real estate according to the
principle of risk diversification, qualify as real estate investment funds under
the Austrian ImmoInvFG. In this case the tax treatment of investments in Austrian real
estate of such foreign entities must be checked in detail as some of the above-
mentioned provisions are basically applicable to the Austrian investments.

Real Estate Going Global – Austria 10

Contacts − Austria

Contacts

Advisory
Hannes Orthofer
Tel: +43 (1) 501 88 2930
E-mail: [email protected]

Wolfgang Vejdovsky
Tel: +43 (1) 501 88 1150
E-mail: [email protected]

Assurance
Peter Pessenlehner
Tel: +43 (1) 501 88 1424
E-mail: [email protected]

Tax & Legal
Margit Frank
Tel: +43 (1) 501 88 3200
E-mail: [email protected]

Erik Malle
Tel: +43 (1) 501 88 3734
E-mail: [email protected]

Real Estate Going Global – Austria 11

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