Austria: Related Information
Austrian V Danish Holding Companies
This page was last updated on 8 Mar 2019.
Since Denmark is currently the holding company jurisdiction that others seek to emulate, a comparative assessment of the two jurisdictions is a useful exercise.
As members of the EU with approximately equal numbers of double tax treaties, Austria and Denmark are equivalent in terms of the imposition of withholding tax by the jurisdiction from which a dividend emanates.
Withholding Tax on Incoming Dividends:
As both Austria and Denmark are members of the EU, both are bound by the terms of the Parent-Subsidiary Directive, under which dividends remitted from an EU subsidiary to an EU parent corporation which has held 10% of the subsidiary shares are free of withholding tax. So in this respect neither has an advantage over the other.
Where the EU Parent-Subsidiary Directive does not apply the only means of reducing withholding taxes levied on incoming dividends remitted by the foreign subsidiary to the holding company is through double taxation treaties. Both Austria and Denmark have more than 80 double taxation treaties in place meaning that there is no advantage for either side in this field.
Corporation Tax on Incoming Dividends:
In Denmark, dividend income a Danish holding company receives is exempted from corporation tax, regardless of the jurisdiction in which the foreign subsidiary is based – provided that the Danish holding company meets the participation exemption criteria in that for a minimum period of 12 months before the dividends are distributed it holds at least 10% (15% in 2007 and 2008) of the shares of the foreign subsidiary (which subsidiary must not be deemed a controlled foreign corporation). The same situation currently exists in Austria.
Austrian anti-avoidance provisions are not especially severe, but Denmark is more permissive, having no minimum tax rate hurdle for taxation in the originating jurisdiction in any circumstances.
Accordingly in terms of corporation tax levied on incoming dividends, the Danish holding company is considerably more flexible than its Austrian counterpart.
Capital Gains on the Sale of Shares:
A Danish holding company is exempt from any capital gains on the profitable sale of shares in a foreign subsidiary provided that it has held the foreign subsidiary's shares for a minimum period of 3 years prior to the disposal and the foreign subsidiary is not a controlled foreign corporation. An Austrian holding company is exempt from any capital gains on the profitable sale of shares in a foreign subsidiary provided that it has held at least 15% of the foreign subsidiary shares for a minimum period of 2 years prior to the disposal and the income of the foreign subsidiary is not deemed "passive income". However the crucial distinction in favour of Denmark is that in Austria anti- avoidance legislation suspends the capital gains tax exemption where the foreign subsidiary is located in a low tax or offshore jurisdiction such as Hong Kong or Gibraltar respectively.
Once again this makes the Danish holding company a considerably more flexible entity than its Austrian counterpart albeit the fact that the Danish participation exemption criteria are marginally harder to meet.
Withholding Tax on Outgoing Dividends:
The standard rate of withholding tax levied in Denmark on outgoing dividends is 25%. This rate can be reduced by both the provisions of a double taxation treaty and by the provisions of the EC Parent-Subsidiary Directive. Alternatively where the dividends are remitted by an intermediate Danish holding company to a foreign parent corporation no withholding taxes are deducted provided that there is a double tax treaty in force between the two countries, and:
- The foreign parent corporation holds a minimum of 15% (applicable in 2007 and 2008; 10% thereafter) of the shares in the intermediate Danish holding company. (N.B. If the shareholding is less than 15% then the double tax treaty rate will apply);
- The parent corporation is non-resident; and
- the shares must have been held by the parent corporation for a minimum continuous period of at least 12 months.
In Austria either reduced or no withholding taxes are levied on outgoing dividends provided that either the EU parent/subsidiary directive applies (in which case no withholding taxes are levied) or alternatively provided there is a double taxation treaty in place (in which case withholding taxes are reduced from the standard rate of 25% to between 0-15%).