Austria: Related Information
Corporate Income Tax on Dividend Income Received
As things currently stand, income received by Austrian holding companies from foreign subsidiaries is subject to the standard rate of Austrian corporate income tax unless the Austrian holding company meets the criteria known as the "International Participation Exemption rules" in which case a special fiscal regime applies. To qualify for the fiscal benefits flowing under the "international participation exemption rules" the Austrian holding company must meet the following 4 criteria:
- Corporate Form: The foreign subsidiary must be a corporate body as per the definition set out in the EU Parent-Subsidiary directive whereas the Austrian holding company must be a corporate body as per the definition set out in national laws.
- Direct Shareholding: The Austrian holding company must directly own the shares in the foreign subsidiary. If the dividend income is dividend income from a subsidiary of the foreign subsidiary then the international participation exemption criteria are not satisfied.
- 10% Shareholding: The Austrian holding company must hold a minimum of 10% of the shares of the foreign subsidiary (at the time of writing).
- 12 Months Time Period: The Austrian holding company must hold its 10% shareholding in the foreign subsidiary for a minimum period of 12 months prior to the distribution of dividend.
Dividend income paid by a foreign subsidiary to an Austrian holding company which meets the "international participation exemption rules" is treated in one of two ways:
- The Exemption Method: Under the exemption method no further tax is payable in Austria on the dividend income received irrespective of how much tax was paid in the foreign jurisdiction.
- The Credit Method: Under the credit method the dividend income received in Austria is assessed to Austrian tax but any tax paid in the foreign jurisdiction is credited against the final Austrian corporate tax liability. If the foreign tax exceeds the Austrian tax so that there is a tax credit in Austria this tax credit cannot be carried forward in the balance sheet and set off against future tax liabilities arising in Austria.
- Clearly the exemption method is preferable. The credit method however automatically applies if the following conditions of anti-avoidance legislation are saatisfied:
- Passive income: The foreign subsidiary's main source of income is "passive income" (interest, royalties, rental and lease income, capital gains from the disposal of shareholdings).
- Holding Company Ownership: More than 50% of the holding company's shares are owned by Austrian tax residents.
- Low Foreign Tax: The corporate income tax paid by the subsidiary in the foreign jurisdiction on the profits out of which dividends are paid is less than 15%.
(N.B. Dividend income received by an Austrian holding company from a resident subsidiary is exempt from corporate income tax in Austria and is subject to considerably less stringent criteria than the requirements applying to dividend income received by an Austrian holding company from a foreign subsidiary. Thus for example there is no minimum percentage shareholding requirement, no minimum time period requirement and no requirement that the shareholding should be direct).