Despite the efforts to simplify many sections of the Austrian legal code, it is still daunting. It becomes particularly complicated in areas in which both the federal and provincial governments have legislative powers. This is especially true of building regulations and the acquisition of real estate by non-residents, two areas subject to provincial law, not federal law. Regulations on running a trade or business and on residential and work permits for foreigners are also more complicated and stricter than in some other countries.

Foreigners’ residence in Austria is subject to the Aliens’ Act. Anyone who is not a citizen of an EEA country (European Economic Area) has to have a residence permit or a permit to settle (establish a trade or business) in Austria. A certain number of these permits are allotted annually for managers and special skilled workers and their families.

Since January 2003 non-residents have also been obligated to sign an integration agreement. It requires that they acquire a command of German and present a certificate of health not more than 90 days old. The following individuals need only have a residence permit and do not fall under the above allotment: managers at international companies and young managers coming to Austria for training who have an employment contract requiring them to be regularly assigned to different locations.

Foreigners from non-EEA countries in Austria are subject to the Foreigners’ Employment Act. Their employer in Austria must obtain for them an assurance certificate (“Sicherungsbescheinigung”) for the company and for each individual employee from the AMS (Austrian job service agency). The AMS must issue these certificates within six weeks. Once they have this certificate, foreigners can go to any Austrian embassy or consulate and apply for a permit to settle (establish a business) in Austria. With this permit and the assurance certificate they can then apply for a work permit. These requirements do not apply to employees of diplomatic or professional consular representative offices or staff at bilateral organisations and institutions, provided these individuals have diplomatic status. UN employees, however, are subject to the Foreigners’ Employment Act. Contracts for services do not fall under these rules if they differ substantially from employment contracts. Nor do EEA citizens, a spouse married to an Austrian or EEA citizen, and in some cases children of an Austrian or EEA citizen or students, priests or visiting professors. Freelance contracts and consulting contracts are subject to the Foreigners’ Employment Act unless these contracts are very short-term.

Labour law regulates employment issues. The employment relationship is set down in the employment contract made and entered into by and between employee and employer. The employment contract, in turn, is integrated into a network of labour law regulations: laws, ordinances, collective agreements and works agreements. EU labour regulations are becoming increasingly important, too. For the most part, these are directives Austria has to implement into national law.

This council representing the employees of an enterprise can be elected at enterprises with at least five employees eligible to vote for such bodies. This rule does not apply to agricultural and forestry enterprises, public authorities, agencies and other administrative offices of territorial entities (local government, etc.), the Post Office and Federal Railways, public educational institutions and private households. Employer and works councils are generally elected separately, but may be chosen jointly under certain circumstances. The number of members on the council increases with the total number of employees at an enterprise. All workers aged 18 and older are eligible to vote, regardless of citizenship except for homeworkers. The works council is elected to a 4-year term.

The works council is responsible for safeguarding workers’ economic, social, health and cultural interests at an enterprise. The goal of this institution is to achieve a balance of interests for the benefit of workers and the enterprise. The works council must monitor compliance with the legal regulations applying to employees at an enterprise and can examine files relating to this duty. It also has a say in social services institutions within the enterprise and enters into works agreements. The council must be promptly informed of personnel measures. If the employer fails to notify the council of dismissals, the latter are invalid. It assists with any major changes a company undergoes (e.g. Social Plan) and has a seat on the supervisory board at corporations. In enterprises with more than 200 workers, the council can file objections on the manner in which the business is being managed.

Members of the works council have a professional duty to maintain secrecy. They are entitled to time off to perform their duties and to undergo training for them. They cannot be fired or dismissed during their term in office except in serious cases.

Foreign natural persons are permitted to operate a trade or business in Austria only under the following circumstances:

If the trade or business involved is not explicitly reserved for Austrian citizens;

If they are residing in Austria legally and their permit to do so allows them to operate an independent trade or business;

If a government treaty exists under which Austrians are granted the same rights in the foreigner’s country of origin.

Foreign legal persons or partnerships under commercial law must furnish proof of a registered office or a branch in Austria and be entered in the Commercial Register. They must also name a managing director meeting the pertinent requirements set down in trade-and-industry law.

Stateless persons and asylum-seekers may operate a trade or business if they have a permit for doing so during their stay in Austria.

EU, EEA and Swiss citizens are exempted from visas and are free to settle and establish a business. They may register for and conduct any trade or business just like any Austrian would unless the trade or business is reserved for Austrians.

Foreigners can operate unregulated and regulated trades and businesses following their registration with the appropriate licensing / permitting authorities. However, for sensitive areas, the authorities first have to issue a legally valid decision.

Trade law in Austria has its own regulations governing proof of qualification and also includes regulations on this subject from EU directives:

Recognition of a trade or business pursued in an EEA country in accordance with the applicable EEA recognition regulation; under a special treaty with Germany, this recognition procedure is dispensed with if the person presents certain qualifying examination certificates.

Professional qualifications obtained in an EEA country are treated as equal to corresponding Austrian certificates of qualification

A request for recognition and equal treatment must be filed with the Federal Ministry for Economics and Labour.

Proof of qualification is required only for regulated and sensitive trades or businesses. For sensitive trades or businesses, the foreigner must also furnish proof of his/her reliability.

Production facilities must be approved in accordance with trade-and-industry law unless they involve no detrimental effects. This is the case for facilities used strictly as offices. Further permits might also be needed (to comply with building, labour, water regulations, etc.). The permit has to be in hand before construction can commence. The local district administrative offices are responsible for these permits (city administration, district commissioner’s office).

Every transfer of capital between residents and non-residents (for purposes of exchange control) is subject to control by the Austrian National Bank (ÖNB). However, the ÖNB generally approves all transactions, with rare exceptions. Certain transactions must be reported.

Austrian real estate law is anything but simple. Before purchasing or renting a property you should always obtain competent advice from a real estate agent, lawyer or notary public. The various provinces differ in their regulations on real estate acquisition by non-Austrian citizens. This usually requires official permission. However, most of the provinces have altered their laws to the extent that EU citizens are put on the same legal footing as Austrians. Distinctions can be found in the Builder Contract Act (Bauträger vertragsgesetz), which protects buyers of housing units in the planning stage and in the construction stage, the Law of Tenancy (Mietrechtsgesetz, MRG) covering housing dating to before 8 May 1945, the Condominium Act (Wohnungseigentums gesetz) and the Act on Housing for the Public Benefit (Wohnungsgemeinnützigkeitsgesetz) for housing that receives public subsidies. Certain spaces are not leased according to the MRG but rather according to the property law regulations of the Austrian Civil Code.

If you use a real estate agent, be prepared to pay commissions. They generally total a maximum of three months’ rent (gross) plus 20 per cent value-added tax or a maximum of three per cent of the purchase price for properties worth more than €48,448.49.

Every province in Austria has different building codes. In the building permit procedure, a project is evaluated from the perspective of construction law and zoning.

Austria has long been at the top of the European rankings in terms of tax rates (including taxes, duties, levies, and other revenue charges), with a rate of 40 per cent. The 1989 tax reform and the 2003 budget supplement law created certain tax incentives for companies. The next step was the 2005 tax reform. Effective January 2005, the corporate tax rate was reduced from 34 to 25 per cent and attractive group taxation regulations went into force. Under these regulations, Austrian parent companies are allowed to offset losses at foreign subsidiaries against their own profits and thus reduce their own basis of assessment for corporate tax in the process. This step makes Austrian the only country other than the Scandinavian countries to allow cross-border write-offs of losses. The favourable regulations already in place for holding companies will be further improved by making interest on borrowed capital tax-deductible if it is used to acquire capital shares.

A corporation is deemed resident for tax purposes and thus liable to pay taxes on its domestic and foreign income if it has its management headquarters or registered office in Austria. If this is not the case, it has only a limited tax liability. Under certain conditions, an exemption applies to income from international investment in shares of subsidiaries and associated companies if at least 10 per cent of the shares in foreign companies are held by holding companies. This applies to dividends and sales proceeds.

Natural persons permanently or habitually residing in Austria are liable to pay tax. Unlimited tax liability extends to all domestic and foreign income. If a person stays in Austria for longer than six months, he/she has full tax liability in Austria.

Company Tax (mainly on first acquisition of shares by initial takers): A company tax must be paid if a company limited by shares (AG or GmbH) is founded or a partnership with a company limited by shares acting as the personally liable partner.

This tax is equal to one percent of the value of the agreed or rendered payments by all shareholders/partners not personally liable. The same is true if the capital is increased or the shareholders’ contributions to capital are increased in an existing company limited by shares and if capital is given to an Austrian branch establishment by the main branch establishment, unless the company has its registered office in an EU Member State.

This duty applies to all real estate transactions for valuable consideration, even the transfer of real properties on the formation of a company and the consolidation of all shares in a single hand.

The tax rate is 3.5 per cent (reduced tax rate: two per cent). Effective 1 January 2001, the basis of assessment is set at three times the rateable value (i.e. standard value assessed for taxation). Exceptions are made for transformations of a company from one legal form to another. Moreover, a court registration fee is charged for entry in the Land Register, This charge amounts to one per cent of the basis of assessment for the land transfer duty.

Every businessman employing workers in Austria must pay a tax equal to three percent of the total payroll. However, this item can be deducted as an operating expense when calculating income or corporation tax.

All taxable sales (deliveries or services, for own use and imported merchandise) transacted by companies in Austria for valuable consideration are subject to value-added tax. It makes no difference whether the entrepreneur is resident in Austria or not.

The tax rate is set either at ten, twelve or twenty per cent (this last rate is the standard one). If an enterprise is liable to pay value-added tax, it is entitled to deduct from its own tax liability that amount of value-added tax which is already contained in the price of the goods and services which it receives. This exemption is not allowed if the deliveries and services received were used to transact tax-free sales.

Corporation profits are subject to corporation tax. The tax rate was reduced effective 1 January 2005 from 34 to 25 per cent. This rate applies regardless of whether or not taxable profit was distributed to shareholders.

A minimum annual tax of €1,750 is levied against GmbHs (private limited companies) with full tax liability.

Dividends and shares in profits of other kinds received by a domestic corporation for its investment in shares in a domestic AG (corporation) or GmbH (private limited company) are exempted from this corporation tax.

So too are shares in profits, sales proceeds and liquidation proceeds a domestic corporation receives from a foreign corporation if the latter is akin to a domestic AG (corporation) or GmbH (private limited company) and the domestic company has continuously held at least a 25 per cent stake in the foreign company in a direct form for two years.

An income tax rate of 25 per cent is applied to dividends a corporation distributes to natural persons.

Austria has entered into double taxation agreements with many Western and Eastern European countries.

This tax must be paid by physical persons. The tax rate is progressive, with a top tax rate of 50 per cent. Shareholders’ or partners’ shares in profits from partnerships are subject only to income or corporation tax, depending on whether the shareholder is a natural person or a legal person.

This tax must be paid on interest received from monetary deposits or other claims against banks, on capital income from certain domestic securities representing money claims and on dividends from domestic corporations.

The tax rate is set at 25 per cent but it is reduced to a level of five to fifteen per cent by most double taxation agreements.

Austria still has a reputation as a highly bureaucratic country. To enhance Austria’s competitiveness as a business location, the government is doing everything it can to improve that image. A major step in this direction was taken with the introduction of e-government.

This virtual government administration at federal and provincial level now offers a number of services over the Internet. Slowly but surely, the government has begun to offer all procedural steps online, from initial application to final decision/disposition. Some 500 forms are now available for electronic processing. They range from an application for real estate acquisition by a foreigner to the request for the licensing of a production plant, a building permit or the registration of a business. There are also a number of tax return forms. Decisions and other written documents can also be delivered electronically in many cases.

Austria has a special institution called the Social Partnership in which major economic organisations representing the interests of employers and employees cooperate among themselves and with the government. This partnership is voluntary and goes beyond the regulation of labour relations to include virtually every aspect of economic and social policy. The four major interest associations in Austria are the Austrian Trade Union Federation (Österreichische Gewerkschaftsbund or ÖGB), the Austrian Economic Chamber (Wirtschaftskammer Österreich or WKÖ), the Federal Chamber of Labour (Bundesarbeitskammer or BAK) and the Presidents’ Conference of the Austrian Chambers of Agriculture (PRÄKO-LWK). Membership in these chambers is obligatory.

Domestic agencies for attracting new businesses to settle in Austria are funded either by the Republic of Austria or the various federal provinces. Their task is to market Austria as a business location. As the first point of contact for interested international investors, they provide extensive advice on all issues surrounding the settlement of new businesses, from market opportunities and potential subsidies to assistance with official procedures. They also help in establishing contacts and in finding an appropriate site. Many of these agencies even provide real estate and operate industrial or business parks.

It is no easy task to find your way through the Austrian subsidy jungle. There are some 300 different federal and provincial grant organisations, some of which are combinable.

This year the sector was restructured to be more efficient and more effective in addressing clients’ needs. All organisations promoting economic-related research were merged into a central entity, the new Austrian Research Promotion Agency, or FFG (www.ffg.at).

You can also obtain information on grants at the addresses below and on the homepage www.foerderkompass.at