Austria: Special Corporate Income Tax Regimes

Corporate Income Tax Regimes

Investment Allowances

The investment allowance (Investitionsfreibetrag), which used to be the most common tax incentive, was abolished as of 2001.

Tax incentives still available under the Austrian tax law at the time of writing include:

Research & Development Investment Allowance Deductions

An additional tax deduction of 25% is granted for expenditure incurred on research. If the research expenditure for a year exceeds the average expenditure in the preceding three years, the percentage of the additional deduction for the amount of the excess is 35%.

Thus a company spending USD3m per annum on allowable research and development could find itself deducting USD3.75m or USD4.05m from profits for the purposes of an assessment to corporate income tax. Clearly this provision represents a substantial fiscal concession.

The concession applies to expenditure on research and development of economically viable inventions. To qualify for the allowance the invention must have a certificate from the Ministry of Economic affairs unless it is already protected by patent. This is to certify that the invention is of economic value and not just a means of reducing taxable income.

The allowance does not cover all research and development expenditure. The expenditure must be directly related to research and therefore only covers expenditure incurred on raw materials, staff wages or other auxiliary materials. It does not cover expenditure incurred on fixed assets (e.g. the purchase of machinery) or expenditure incurred on administrative activities (e.g. the employment of an accountant).

Research undertaken under a contract on behalf of third parties is covered by the allowance.

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Credit Institutions Financing SME and Business Start-Ups

Qualifying Preconditions

Institutions providing credit to business start-ups & small and medium sized enterprises are subject to a special corporate income tax regime. In order to achieve this status a company must meet the following criteria:

• The business objects of the credit institution must be limited to loans secured by participating shareholdings.
  
• At least 75% of the target companies in which the credit institution invests must be based and resident in Austria.
  
• The credit institution's balance sheet must be audited annually and comply with the following criteria:
  
  • Minimum Share Capital: The minimum share capital of the credit institution must be EUR7,000 (at the time of writing). For the first 5 years after its setting-up not more than 30% of the credit institution's share capital can be owned by other credit institutions.
    
  • Participating Shareholdings in Target Companies: Not more than 70% of the credit institution's share capital must be represented by participating shareholdings in target companies. Furthermore the participating shareholding which the credit institution holds in the target company must not be a majority shareholding.
    
  • Other Assets: Other than participating shareholdings in target companies the balance of the credit institution's assets must be made up of money deposits, fixed interest securities or loans to other credit institutions.

Fiscal Incentives

Currently, a credit institution which qualifies as a credit institution which advances loans to SME and business start-ups is exempt from corporate income tax on profits for a period of 5 years.

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Roll-Over Relief

Austria allows roll-over relief for capital gains from the disposal of fixed assets (except investments in subsidiaries) that have been held for a minimum of seven years (15 years in case of real estate). However, capital gains from the disposal of an intangible may only be rolled over to the acquisition of an intangible, and a similar rule applies to capital gains from the disposal of tangible assets.

Commenting on the state of affairs with regard to CGT roll-over relief from 2004/05 onwards, Big Four firm Deloitte announced that:

"To stimulate new investment, a capital gain arising from the sale of movable or immovable property is tax-deferred if certain requirements are met. Profits made out of the sale of assets (for example, from the difference of a higher market value compared with the book value) do not have to be taxed but can be deducted from a new capital good purchased, including assets that normally are ineligible for annual depreciation (such as land). The possibility of such a rollover of hidden reserves will be eliminated for corporations with regard to gains arising after December 31st 2004 as part of the tax reform 2005."

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