Insight
Austria – a dynamic business location
October 2022
A landlocked country sitting in central Europe, Austria has been a member of the European Union since 1995. Of the eight nations that have borders with Austria, Germany is by far the largest.
German is also the official language of Austria. The population of Austria numbers around nine million people, of which around two million live in the capital Vienna.
Economy
Austria is one of the most prosperous EU member states and offers ideal conditions for investment. While possessing a developed industrial sector based around key industries such as steel, engineering, and chemicals, it is also supported by a successful service economy. Tourism plays a large part with renowned city destinations such as Vienna and Salzburg attracting hordes of visitors. Add to this Austria’s geographical position among the Alps, which makes it one of Europe’s top ski destinations, and it’s no surprise that prior to the pandemic tourism contributed 7.5% to Austrian GDP.
Personal taxation
The income of employed and self-employed people triggers compulsory social security contributions towards pension, health, accident, and unemployment insurance. These contributions are paid by employer and employee and together total almost 39.35%, split currently at 21.23% employer contribution and 18.12% employee contribution. Only the first €5,550 of monthly income attracts social security contributions.
Anyone who is resident in Austria pays income tax on all income whether earned or unearned. Income tax starts once income exceeds €11,000 and rises progressively from 20% to 55%.
A withholding tax of 27.5% applies on the disposal of shares and other financial assets; a higher rate of 30% applies to the sale of real estate.
Corporate taxation
A limited liability company resident in Austria pays corporate income tax on its entire domestic and foreign income. Companies pay tax at a rate of 25% (reducing to 23% by 2024) on profits. Businesses also withhold tax on profit distributions at 25% for corporate shareholders and 27.5% for all other shareholders.
Value added tax (VAT)
Austrian VAT law follows EU VAT directives. Businesses must charge 20% VAT on the goods and services they provide to customers. Reduced rates of 10% or 13% apply to some goods and services such as food, books, and public transport.
Investing in Austria
Austria is a socially and politically stable country, renowned for its high quality of life. The quality of education in Austria is high, producing a pool of well-educated talent. The majority of Austrians speak English as well as other European languages.
Apart from needing to meet EU-wide business requirements there are few barriers to entry. Labour costs are among the highest in Europe, largely because of social welfare costs, but this does produce a well-motivated workforce, and unemployment is low.
As for opportunities, Austria’s economy is strong and diverse. Austria can attribute around 20% of its GDP to manufacturing, of which about 60% goes to export. This makes Austria one of the biggest exporters in Europe; it is also one of the easiest countries in which to conduct business – in the last World Bank Doing Business Report, Austria ranked 27 out of 190 for ease of doing business.
As well as manufacturing, other attractive areas for investment include:
• pharmaceuticals and medical devices
• cyber security
• education and training
Setting up a business in Austria
Austrian businesses exist in one of four forms:
• Partnerships – the partners share all profits and all liabilities
• Limited partnerships – one partner has unlimited liability while all other partners have limited liability
• Limited liability company (GmbH) – the most common business structure in Austria and can be set up with only one shareholder and a minimum capital requirement of €35,000
• Publicly quoted limited company (AG) – listed on a stock exchange and subject to strict requirements and a minimum capital requirement of €70,000.
A limited liability company (GmbH) is the most common approach for foreign businesses looking to invest in Austria. A GmbH can be created with relative ease and the whole process takes around five weeks.
Incentives to invest
The Austrian government offers a range of incentives to attract investment. They change frequently but include:
• industry specific cash incentives
• tax incentives
• subsidies
• export guarantees
• preferential loans
As well as financial incentives, Austrian company law aims to make it as simple as possible to set up a business in Austria. Foreign investors are treated no differently to Austrian nationals when setting up a company in Austria, they are governed by the same regulations, and the process for setting up a company can be completed remotely.
Austria offers many advantages
Austria’s strategic location in Europe, its membership of the EU, all-round stability, and positive attitude to foreign investment are all good reasons to consider Austria as a business location. Add to this the ease of both setting up a business and doing business, and the access to a highly educated, skilled, and motivated workforce, and Austria becomes an attractive option for businesses looking to expand overseas.
About the author
Alexander Hofer
Graz, Austria
Alexander is the managing partner at Russell Bedford’s Graz, Austria member firm Hofer Leitinger Steuerberatung GmbH.
He is a tax advisor and management consultant, specialising in social security and taxes of freelancers, medical professionals, the selfemployed and business owners.
Alexander also advises international artists, professional athletes and wealthy private clients, as well as business start-ups, specialist authors and lecturers.
alexander.hofer@hoferleitinger.at