Investment in Austria.KPMG.2012

Investment in Austria

2012

Investment in Austria Contents 1.Business environment 1.1. Facts and Figures 1.1.1. Geography and climate 1.1.2. Economy 1.1.3. Political system 1.1.4. Austria as a member of the EU 1.1.5. Working and living in Austria 1.2. Business Climate

6 6 6 6 7 8 9 10

1.2.1.Banking in Austria

1.2.2.Stock exchanges

1.2.3.Environment for foreign investments

2.Starting or acquiring a business in Austria

2.1. Starting a business

2.1.1. Choice of legal form 2.1.1.1. Limited liability company 2.1.1.2. Stock corporation 2.1.1.3. Comparison: Stock corporation vs limited liability company 2.1.1.4. Partnerships 2.1.2. Other types of businesses 2.1.3. Austrian private foundation 2.1.4. Permanent establishment/ branch 2.2. Acquiring a business

13 13 16 20 21 21 22 23 23

2.2.1. General considerations of acquisitions 2.2.2. Tax aspects of acquisitions 2.2.2.1. Asset Deal 2.2.2.2. Share Deal 2.2.2.3. Pre-acquisition losses 2.2.3. Tax aspects of corporate restructurings 2.2.3.1. Basic principles 2.2.3.2 Types of restructurings 2.2.3.3 Capital duty 2.2.3.4 VAT 2.2.3.5 Stamp duty 2.2.4 Due diligence reviews 2.3 Funding

23 24 24 25 26 27 27 28 30 31 31 31 31

2.3.1 Acquisition of a corporation 2.3.2 Acquisition of a partnership

3.Incentives

31 32

3.1 Government incentives/ funding instruments

3.1.1 Federal, regional and EU funding instruments 3.1.2 EU investment grants 3.2 Tax incentives

33 36 36

3.2.1 R&D premium 3.2.2 Education allowance/ education premium

36 36

3.2.3 Basic incentive for apprenticeship training (“Basisförderung”) 3.2.4 Tax allowance for business profits (“Gewinnfreibetrag”)

4.Reporting

37 37

4.1 Austrian accounting principles

4.1.1 4.1.2 4.1.3 4.1.4 4.1.5 4.2 IFRS

37 39 40 40 43 45

General principles Capitalization and valuation Record keeping Financial statements Consolidated financial statements

5.Business Taxation

5.1 Corporate tax

5.1.1 General system and rates 5.1.1.1 Type of tax system 5.1.1.2 Taxable persons 5.1.1.3 Residence 5.1.1.4 Rulings 5.1.2 Computation of taxable income 5.1.2.1 Basic principles 5.1.2.2 Determination of taxable income 5.1.2.3 Tax administration 5.1.3 Special regimes 5.1.3.1 Tax treatment of intercompany-dividends and capital gains/ losses 5.1.3.2 Taxation of groups 5.1.3.3 Taxation of partnerships 5.1.3.4 Permanent establishment 5.1.4 Transfer pricing rules 5.1.5 Thin capitalization rules 5.1.6 Tax loss carry forward 5.1.7 CFC 5.1.8 Anti-Avoidance 5.1.9 Relief from Double Taxation 5.1.9.1 Tax treaties 5.1.9.2 Domestic provisions 5.2 Withholding tax

46 46 47 47 47 48 48 50 54 56 56 59 62 63 63 63 64 65 65 65 65 66 67

5.2.1 5.2.2 5.2.3 5.2.4 5.3 VAT

67 68 68 68 69

Dividends Interest Royalties Other income

5.3.1 General system and rates 5.3.2 Taxpayer and registration 5.3.2.1 Taxable persons 5.3.2.2 VAT registration 5.3.2.3 Foreign entrepreneurs 5.3.2.4 VAT withholding procedure 5.3.2.5 Reverse charge 5.3.2.6 VAT refund procedure for foreign Non-EU-entreprenuers 5.3.2.7 VAT refund procedure for foreign EU-entrepreneurs

69 70 70 71 71 72 72 73 73

5.3.2.8 Other reporting requirements 5.3.3 Taxable transactions 5.3.3.1 Place of taxable transactions 5.3.3.2 Zero-rated supplies and VAT Exemptions 5.4 Other taxes 5.4.1 Stamp duties 5.4.1.1 Principle of documentary evidence (Urkundenprinzip) 5.4.1.2 Domestic documents 5.4.1.3 Foreign documents 5.4.1.4 Witnessing documents (rechtsbezeugende Urkunden) 5.4.2 Real estate transfer tax 5.4.2.1 Taxable events 5.4.2.2 Tax base 5.4.2.3 Tax rate 5.4.2.4 Filing requirements 5.4.3 Energy duties 5.4.4 Insurance tax 5.4.5 Capital duty 5.4.5.1 Taxable events 5.4.5.2 Exemptions from capital duty 5.4.5.3 Tax rate 5.4.6 Inheritance and gift tax 5.4.6.1 Donation Declaration Act 5.4.6.2 Exemptions

6.Logistical services and customs

74 74 75 77 78 78 79 79 80 80 81 81 82 83 83 83 84 84 84 87 87 87 87 88

6.1 Introduction

6.2 The Austrian Customs Code

6.2.1 Subject - Basics 6.2.2 Base and tariff of the customs 6.2.3 Miscellaneous 6.3 Import VAT

89 90 90 91

6.4 Anti-Dumping and countervailing duties

6.5 Product-Piracy

7.Immigration, Employment and Personal tax

7.1 Employment regulations

7.1.1 Labour regulations and work permits 7.1.2 Collective agreements 7.2 Personal income tax

92 92 93

7.2.1 Personal income tax liability 7.2.2 Taxable income 7.2.3 Determination of taxable income 7.2.3.1 Business income 7.2.3.2 Salary income 7.2.3.3 Dividends 7.2.3.4 Interest income 7.2.3.5 Capital gains 7.2.4 Specific Deductions 7.2.5 Filing requirements and payment of tax 7.3 Social security and payroll taxes

93 93 95 95 95 96 96 96 98 99 100

7.3.1 Social security system 7.3.2 Wage tax 7.4 Expatriates

100 101 102

7.4.1 Social security 7.4.2 Taxation 7.5 Taxation of private foundations

102 102 103

7.5.1 7.5.2 7.5.3 7.5.4

Establishment Income taxation of the private foundation Taxation of payments to the beneficiaries Termination of private foundation 7.5.4.1 Dissolution 7.5.4.2 Revocation

8.APPENDIX I

103 103 104 105 105 105

106

8.1 Tax treaties/ Withholding tax rates

106

8.2 Individual income tax rates 2012 (unlimited tax liability)

111

9.APPENDIX II KPMG offices in Austria

112 112

1. Business environment 1.1. Facts and Figures 1.1.1. Geography and climate The Federal Republic of Austria is situated directly in the heart of Europe. With an area of approx. 84,000 square kilometers (32,000 square miles) and a population of approx. 8,4 million (in 2010), Austria is one of the smaller European countries. Neighboring countries are Germany, the Czech Republic, Slovakia, Hungary, Slovenia, Italy, Switzerland and Liechtenstein. The official language is German. In addition a good portion of the Austrian citizens speak one or two foreign languages (especially English, French, Italian and some languages of Eastern Europe). Vienna is the largest city and at the same time the capital of Austria with about 1,7 million (in 2010) inhabitants. Austria's landscape ranges from the mighty mountains of the eastern Alps to the vast, gentle plains of the Danube Basin. Located at the intersection of international trade and travel routes, Austria has been traditionally known as an interface between the different European economic and cultural zones and as a connection between Western and Eastern Europe. In Austria, a moderate continental climate predominates. Generally Austria enjoys warm summers and winters with frequent snowfalls and temperatures that can decline to -20 째C. During spring and autumn the climate could be described as mild, with moderate rainfall. 1.1.2. Economy Austria is considered one of the wealthiest nations in the EU and the world. It places 6th in the EU (only behind Luxembourg, Norway, Switzerland, Ireland and the Netherlands) and 15th in the world. Key economic indicators Year

2006

2007

2008

2009

2010

GDP (in billion EUR)

256,95

272,01

283,09

274,32

284,40

Inflation

1,5%

2,2 %

3,2 %

0,5 %

1,9 %

Unemployment quota in % (Statistic Austria)

4,7 %

4,4 %

3,8 %

4,8 %

4,4 %

The Austrian economic model is described as an exemplary functioning social market economy, in which free market economics are blended with solidarity and social

compromise. This combination forms the sustainable and reliable basis of Austria's internationally revered social peace. One of the main reasons for this social (labour) peace lies in the specifics of the Austrian social partnership (Sozialpartnerschaft), a cooperation of the representatives of employer associations and employee associations. The resulting economic stability is reflected in low unemployment rates and strike statistics. 1.1.3. Political system Legislation Austria is a democratic republic established as a federal state. The legislative and executive powers are divided between the federation and the nine provinces, namely Burgenland, Carinthia, Lower Austria, Salzburg, Styria, Tyrol, Upper Austria, Vienna and Vorarlberg; the federation holds a dominant share of legislative powers. The legislative bodies comprise the Federal Parliament - consisting of the Nationalrat and the Bundesrat - and the provincial assemblies (Landtage). The Nationalrat is elected by direct popular vote for a term of four years, on the basis of proportional representation and equal, direct, secret and universal election. Before the end of its term, the Bundesrat can decide its dissolution by simple law; subject to certain conditions, the Federal President can also dissolve it. The Bundesrat represents the interests of the individual provinces in the sphere of federal legislation. By international comparison, the position of the Bundesrat as a representative assembly may be regarded as rather weak. Its members are elected by the provincial assemblies in accordance with the individual provinces' share in the Austrian population. Each province has a single legislative chamber, which is elected based on the same principles that apply to elections to the Nationalrat. The Constitutional Law on Austria's Permanent Neutrality was enacted in 1955. Executive Power The Federal President, the Federal Government and the Federal Ministers are the major executive bodies of the federal state. The Federal President is elected by direct popular vote for a six-year term. His main functions include the appointment and dismissal of the Federal Government, the convening and dissolution of the Nationalrat, the supreme command of the Austrian Federal Army as well as the representation of the Republic abroad. The remaining federal administrative functions are vested in the Federal Chancellor, the Vice Chancellor and the Federal Ministers; these, as a body, form the

Federal Government. The Federal President traditionally nominates the Federal Chancellor. The Federal President nominates also the Vice Chancellor (on the advice of the Federal Chancellor) and the Federal Ministers. At the provincial level, executive power is vested in the provincial government, which is presided over by the Provincial Governor. Besides the provinces, the individual municipalities represent a further level of decentralization. They are local authorities with the power of self-government and are headed by a local council and a mayor. Jurisdiction Complete independence is the first and foremost principle of jurisdiction in Austria. The Constitution expressly provides that judges are independent in the exercise of their judicial function; they can be neither dismissed nor transferred. Generally, civil and penal jurisdiction is affected at three levels. The highest court of appeal is the Supreme Court in Vienna. The Constitutional Court and the Administrative Court (in fact two other supreme courts) review the activities of the various administrative bodies and of the independent administrative senates in the federal provinces. The Constitutional Court's main task is to examine whether laws (e.g. tax law) are in conformity with the Constitution. The Administrative Court is mainly concerned with examining whether individual acts of administrative bodies (e.g. assessment by a tax office) are in conformity with the respective law. 1.1.4. Austria as a member of the EU The European Union (EU) is a supranational union and comprises at present 27 states of Europe. Since the establishment of the EU, its importance and influence has been constantly increasing. Austria joined the Union in 1995. The foundation pillars of the EU were allowing freedom of movement, of capital and of labour within the Union. The Union is one big single market with high capability for the future. Thus it is making it easier for citizens of member states to travel, live, work or invest in other member states. Another goal is to harmonize economic policies, the legal and taxation systems and social conditions. At the moment, Turkey and Croatia are in a dialogue with the EU. As a result of the different member states, the EU stands for multinational, multicultural and multilingual links and in this spirit the EU wants to continue the process of European integration. Furthermore through joining the EU all member states gain a greater influence on the world stage, as a result of the joint incidence. The individual EU institutions and bodies that play an important role are: ď&#x20AC; The main role of the European Commission is to propose and implement new laws and to keep an eye on the compliance with several treaties that provide the legal

cornerstone for the EU. Therefore the European Commission is designated as the executive body of the EU.  The European Council appoints the political goals, the guidelines and the development of the EU. Furthermore the European Council is in charge of the common foreign and safety policy.  The European Parliament is together with the European Council responsible for acceptance of laws which have been submitted by the European Commission. In addition the European Parliament supervises the European Commission, as it has to approve all appointments.  The European Court of Justice is based in Luxembourg City and is the highest court of the EU. The role of the European Court of Justice is to safeguard that all the member states stick to the Community Law and that it is interpreted integratively.  As regards the European central bank (see 1.2.1). 1.1.5. Working and living in Austria Working conditions EU and European Economic Area (EEA) nationals are basically entitled to live and work in Austria without a work or residence permit. Thus, citizens of the EU or the EEA working in Austria have the same rights as Austrian citizens concerning pay, working conditions and access to housing, vocational training, social security and trade union membership. Citizens of non-EU countries require work and residence permits for all types of employment. Work permits have to be applied for by the future employer in Austria and must be obtained prior to departure from the country of residence. Once a work permit is granted, it must be presented together with an application for residence permit. The form can be obtained from the Embassy. As a rule, first application for a residence permit must be submitted from abroad directly to the competent authority by means of the Austrian Diplomatic Mission. Opening hours Overall the business hours of companies in Austria are from Monday to Friday from 8.30 am to 5.00 pm. The majority of shops are open from 9.00 am to 6.00 pm. Generally a trend towards more liberalization of business hours could be assessed at the moment in Austria. In this context in some regions and especially in bigger cities of Austria the business hours have been expanded on one day during the week. Nonetheless not all shops take advantage from this opportunity. The usual office hours of banks are from 8.00 am to 3.00 pm from Monday to Wednesday and on Friday, while on Thursday banks are basically

open till 5.30 pm. With regard to most of the public authorities the office hours are from Monday to Thursday from 8.00 am to 4.00 pm and on Friday from 8.00 am to 12.00 am. Cost of living and quality of life As in most countries the cost of living in Austria varies in a broad range and depends mainly on the standard of living and the region. In this context living in a city as for example Vienna, would be basically more expensive than living on the countryside. In general the high quality of life in Austria results from a prosperous economy, political stability, glamorous cities and beautiful countrysides.

1.2. Business Climate 1.2.1. Banking in Austria European influence Austria is a member of the European Monetary Union. The European Central Bank (ECB) is the central bank for Europe's single currency, the Euro and was established in 1998. The ECB is based in Frankfurt (Germany) and is an independent institution. Since January 1, 1999, the ECB has been responsible for conducting monetary policy of the euro zone. The ECBâ&#x20AC;&#x2122;s main task is to maintain the euro's purchasing power and thus price stability within the euro zone (i.e. to keep inflation low). Austrian banking system The Austrian banking system is under the broad direction of the Austrian Central Bank (Nationalbank) in coordination with the Austrian government. Austrian banks are full-service banks, which are generally engaged in the full range of banking activities. Savings banks (Sparkassen) and credit cooperatives for trade (Volksbanken) as well as for agriculture (Raiffeisenkassen) are organized mainly on a local level with central institutions serving as clearing houses. The large credit institutions offer additional services through their subsidiaries, such as leasing, factoring, investment funds/real estate property funds, insurance as well as travel facilities, credit cards and building society activities. Banks play the central role in the Austrian financial system, especially in corporate finance. They carry out not only regular deposit and lending activities but also other functions such as portfolio management and investment advice. Since most savings are deposited in banks, banks are the principal source of funds for business. Austrian banks tend to maintain close relations with industry, especially with the firms to which they have granted loans. Banks are often represented on supervisory boards or play prominent roles in

advising firms with respect to business and investment decisions. Austrian financial markets reflect this situation. 1.2.2. Stock exchanges The only stock market in Austria is the Vienna Stock Exchange (Wiener Bรถrse). The Vienna Stock Exchange is a modern customer and market oriented financial service company that plays a pivotal role in the Austrian capital market. In addition to the traditional cash market (equity market, bond market), it offers an innovative derivatives market and warrants market. It is under the supervision of both the Ministry of Finance and the Federal Agency (Bundeswertpapieraufsicht).

the

Supervision

Investment

Services

1.2.3. Environment for foreign investments The Austrian political system is generally characterized by an atmosphere of mutual agreement and compromise, as well as cooperation between the various interest groups and political parties. Austria's main advantages are its economic and political stability, social and labour peace, its highly skilled workforce, the high standard of living, the reliable internal security and its well-established business ties to Central and Eastern Europe and far-reaching integration in the world economy. Austria is a member of the European Union and the euro zone. In 1955, Austria became a member of the United Nations and Vienna was selected as the United Nations' third conference centre. Austria is a party to the WTO and has been a member of the OECD and the World Bank since 1948, of the International Finance Corporation since 1956 and of the International Development Association since 1961. Additional benefits are well developed cultural attributes, a dependable legal system and a low crime rate. Apart from that, Austria is an attractive location from a tax perspective as it provides a competitive corporate income tax rate (25 %) and several tax incentives, most notably for R&D-expenditure, education expenditure and incentives for groups of companies (see 5.1.3.2). Exchange control There is no limitation on converting or transferring funds related to foreign investment. In Austria, all cross-border capital transactions for non-residents and residents, including the acquisition of Austrian securities, debt service, and the repatriation of profits, interest payments, dividends, and proceeds from the sale of investment are fully liberalized. Since March 1st, 2002, the euro, a freely convertible currency, is the only legal tender in Austria. Investors are shielded from any exchange rate risk in the entire euro zone.

Business regulations A number of business activities in Austria are subject to an application for a business license (Gewerbeschein). Evidence of proficiency is required for some businesses; usually the passing of an examination or evidence of prior experience in the field is sufficient. For business activities which do not require proof of proficiency, the business license is granted automatically upon registration of the business. Information about businesses which require proof of proficiency is available at the Chamber of Commerce of the province where the business will be located (http://portal.wko.at/). Most plants and business premises must be approved by the district administration. Premises without potential negative effects on the environment (like offices) are not subject to the approval procedure. The authority examines possible effects of the plant on its environment (e.g. waste water, noise, dust, odours, emission of dangerous substances). New building projects or changes in existing buildings must be approved before starting the construction work by the community administration.

2. Starting or acquiring a business in Austria 2.1. Starting a business 2.1.1. Choice of legal form In the course of establishing a new enterprise, choosing the proper legal form is crucial. A foreign investor has a wide range of options. If the activities on the Austrian market are only intended to be short-term, it is likely that an investor will select a business form which does not involve a physical presence. Under Austrian tax legislation, a tax liability does not arise unless the foreign investor constitutes a permanent establishment in Austria. Exporting directly from abroad to Austria itself does not trigger any income tax consequences in Austria. If business activities are intended to be of a long-term nature and require a physical presence in Austria, the foreign investor can establish a branch, a partnership or a corporation. Austrian Commercial Law offers a variety of legal forms of running business. As a first step investors have to decide whether they wish to start business as a branch of a foreign entity or in a form that is legally separated from the home country's business. If the investor opts for an independent entity, he may conduct business via a corporation or a commercial partnership. The most common forms in which foreign enterprises operate in Austria are the limited liability company (Gesellschaft mit beschr채nkter Haftung (GmbH)) and alternatively - the stock corporation (Aktiengesellschaft (AG)). 2.1.1.1. Limited liability company The company with limited liability (GmbH) is a corporation and the most popular legal form for business enterprises in Austria. It is permissible to establish GmbHs for almost all business purposes. The GmbH is an incorporated enterprise; the shareholders' liability is basically restricted to the full amount of the share capital. With respect to creditors, only the company itself (with its assets) is liable for the debts of the company. One or more shareholders can set up a GmbH. Individuals, corporations and partnerships, Austrian or foreign citizens and foreign corporations can be founders and shareholders. The minimum share capital of a GmbH amounts to EUR 35,000. At least half of the minimum share capital has to be contributed in cash.

The shareholders' liability is limited to the (total) share capital. Shares of a GmbH can only be transferred by means of a notarial deed. Shares in GmbHs cannot be traded on the stock exchange. Since the transfer of the participation in a GmbH is more complicated than that of shares in a stock company (AG), the GmbH is less suitable for widespread ownership or frequent transfer of shares. On the other hand, the articles of association of a GmbH offer more flexibility than those of a stock company. Unless it is intended to raise funds on the Austrian stock market, the GmbH would be the most convenient form of organization due to the relative flexibility it offers. Most foreignowned businesses in Austria are operating in this legal form. The GmbH offers the possibility to customize the articles of association to the needs of the owner and provides the opportunity for shareholders to formulate general guidelines for management and to stipulate specific instructions for particular areas of business. Formation One or more shareholders can establish a GmbH. They may be individuals or legal entities, resident or non-resident, Austrian or foreign citizens. The formation of a GmbH starts with the drafting of a deed, in which the founders (single founder) issue(s) a declaration of formation, undertake the obligation to pay in the share capital (Stammkapital) and lay down the articles of association of the GmbH. The articles need to stipulate the company's business name, the place of business, the type of business activity, amount of the nominal capital etc. The articles of incorporation (together with the by-laws) must be established by notarial deed. The articles also frequently contain provisions as to the number of managing directors (GeschĂ¤ftsfĂźhrer). They must be individuals but do not have to be citizens or residents of Austria. A GmbH comes into legal existence when it is registered with the Commercial Register (Firmenbuch). Between the date of signing of the articles and the registration of the GmbH, the company is referred to as a company prior to registration (Vorgesellschaft). Such a company takes a specific legal form of an independent temporary organisation, which is entitled to act via its representatives. Any person acting in the name of the company at this stage therefore becomes personally liable. The costs for establishing a GmbH in Austria in principle depend on the amount of share capital. In case of a share capital of EUR 35,000 the overall cost for establishing the company will amount approx. EUR 6,000 (rough estimate) and include: ď&#x20AC; Capital transfer tax: 1 % of each shareholder's initial contribution, namely from the

real paid-in amount in cash.  Fees for consultation and drafting of documents, particularly those of the legal counsel and the tax adviser. These fees reflect the time and amount of work involved.  Cost of notarization charged by the notary public according to the fee schedule. In principle, the company to be formed may bear the incorporation cost, but it is required to include a respective provision in the articles of the company; otherwise, the expenses are not deductible and constitute a forbidden repayment of capital (return of contribution). Share capital The statutory minimum share capital, amounts to EUR 35,000 for a GmbH, EUR 70 per share as a minimum. At least 50 % of the share capital (min EUR 17,500) has to be paid in in cash before registration. The Austrian commercial law also provides for contributions in kind, if several conditions are met. Legislation does not foresee share certificates; shares in a GmbH cannot be traded on the stock exchange. Accordingly, a valid transfer of the ownership of shares is only possible by means of notarial deed. Management The

managing

directors

(Geschäftsführer)

manage

and

represent

the

GmbH.

Representation includes responsibility in- and outside of court. In case the articles of incorporation do not stipulate specific rules, the principle of collective management and representation applies. Therefore, all managing directors must act jointly. Furthermore, the power of representation is not restrictable vis-à-vis third parties. The management authority can be restricted only internally and the shareholders can exercise their right to fix guidelines and instructions regarding any particular business etc. Supervisory board A supervisory board (Aufsichtsrat) is mandatory e.g. if the amount of the share capital exceeds EUR 70,000 and the GmbH has more than 50 shareholders, or if the GmbH has more than 300 employees (on average per year). The board's purpose is to control and supervise the board of management. General (annual) meetings A general meeting of shareholders (Generalversammlung) must be held at least once a year (ordinary meeting) and, in addition to the cases expressly referred to in the law or the articles, it shall be called in (by the managing directors) whenever required in the interest

of the company. Furthermore, a minority of 10 % of the share capital is entitled to call a general meeting. In particular, a general meeting is compulsory, if one half of the share capital has been lost. The meeting shall be held at the registered domicile of the company unless the articles determine otherwise. Decisions shall be made at the shareholders' meeting, unless all shareholders agree in writing to the provision to be adopted or agree in each particular case to a written vote (“Umlaufbeschluss”). The shareholders decide on e.g. appointment of managing directors, the auditor, approval of the annual financial statements, the distribution of net profits and the release of the managing directors and members of the supervisory board (if any). The resolutions with respect to the annual financial statements shall be adopted within the first eight months of each financial year. Insolvency, liquidation A GmbH is considered insolvent if and when it cannot pay all its debts at maturity, and/or if the company is in excessive indebtness. In both cases, the managers are required, immediately (within 60 days at a maximum), to file for bankruptcy proceedings (“Konkurs”) or for a settlement with creditors (“Ausgleich”). Failure to initiate the appropriate proceedings can cause personal liability for the managers. Any creditor of the company may also file a petition of bankruptcy. Liquidation procedures are initiated by a simple majority of the voting stock. The general meeting can appoint liquidators. Usually one of the (former) managers is appointed liquidator, who must file a relevant notification with the Commercial Register. The registration has to be announced in the official gazette Wiener Zeitung; it must be accompanied by a request to all creditors to submit their claims. After realisation of all assets of the company and settlement of all the creditors' claims, the remaining assets are distributed to the shareholders, but not earlier than three months after the public notification to the creditors. A realisation of the company’s assets by sale of the assets as a whole shall only be effected pursuant to a resolution of the shareholders which has been adopted with a majority of three quarters of the votes. After the company has been finally liquidated, the Commercial Court has to be notified about the termination. Finally, the GmbH is erased from the Commercial Register. 2.1.1.2. Stock corporation As well as the GmbH, the Aktiengesellschaft (AG) is a corporation. The most important advantage of the AG is the flexibility in transferring the shares, thereby enabling the AG to raise funds on capital markets. However, in contrast to the GmbH, a supervisory board is

compulsory for the AG and shareholders' assemblies are subject to stricter formal requirements. Formation The articles of association of an AG must be established by means of a notarial deed. Austrian legislation also allows the formation by a single founder, where additional specific criteria are provided. Besides the name, legal seat, purpose of the enterprise and total amount of share capital, the Articles must also particularly include the different types of shares to be issued and specify the gazette in which the audited annual accounts etc. are to be published. The founders of the stock corporation appoint the auditor for the first fiscal year and the supervisory board (Aufsichtsrat), which in turn appoints the board of management (Vorstand). The members of the boards must be individuals but do not have to be citizens or residents of Austria. The stock corporation comes into legal existence with its registration in the Commercial Register. For this purpose the Articles of Incorporation as well as evidence that the capital was paid in and the 1 % capital transfer tax has been settled must be filed with the Commercial Register (for the incorporation see 2.1.1.1). Special requirements must be complied with if shares are issued against contributions in kind. Share capital The statutory minimum capital stock of an AG is EUR 70,000. Before registration in the Commercial Register, at least 25 % of the capital subscribed and, if the shares are issued at a premium, the full premium amount has to be paid in. Shares must not be issued at a discount. A company may issue par-value shares (Nennbetragsaktien) or non-par-value shares (St端ckaktien). Up to 2011, normally bearer certificates have been issued; registered shares (Namensaktien) have been required as long as the shares are not fully paid in. According to new legislation published in 2011, bearer certificates may only be issued by stock corporations listed at a stock exchange. For existing corporations, there is a transition period ending 31.12.2013. For non-listed stock corporations, registered shares are obligatory from 2011 onwards. In principle, one common share entitles its holder to one vote in the general meeting. Preferred shares (Vorzugsaktien) without voting rights may be issued up to one third of the common stock. Shares with multiple voting rights are not permitted. Legislation governing AGs is designed to ensure that the share capital is paid in and maintained (basically for GmbHs the same principles are applied). In particular, it is not

permitted for a company to repay share capital to the shareholders, without accompanying legal steps (formal capital reduction etc.). The cost of formation of a stock corporation in principle depends on the amount of its capital stock. The cost items referred to (see 2.1.1.1) also apply to stock corporations. For a stock corporation with a stated capital of EUR 70,000 total formation cost of EUR 10,000 up to EUR 15,000 (rough estimate) must be envisaged. Board of directors The board of directors, the supervisory board, the auditor and the general meeting are mandatory in Austria. Additional boards may be appointed. The members of the board of directors (Vorstand) are the representatives of the corporation and are responsible for its management. The board of directors is not bound to the orders of the shareholders - it acts independently. They have legal power for representation, which cannot be limited towards third parties. Unless otherwise specified in the articles, all members of the board of management must act jointly in both managing the corporation and representing the corporation vis-Ă -vis third parties. The management's power of representation may only be restricted internally (e.g. for specific transactions, which require approval of the supervisory board). The board of managers periodically reports to the supervisory board and submits the annual financial statements for the supervisory board's approval. The board members are appointed by the supervisory board for a maximum term of five years and can only be dismissed during this time for important reason. Supervisory board The statutory supervisory board (Aufsichtsrat) consists of at least three members who are elected by the shareholders' meeting. According to a specific Labour Act, member(s) of the labour council (Betriebsrat) are delegated to the supervisory board as representatives of the employees. The main functions of the supervisory board are to appoint and remove the members of the management board, to give pre-approval (for specific transactions of major interest to the company), to supervise and, as appropriate, give advice to the management board, to safeguard the shareholders' interest. The supervisory board recommends an auditor to the general meeting, where the auditor is elected, and has to close the contract with the appointed auditor. The supervisory board is responsible for approving the audited annual financial statements unless the supervisory board and the board of managers decide to submit the statements to the shareholders' meeting. Furthermore the supervisory board checks the management report and the distribution of profits and must give a report to the shareholders' meeting.

Annual meetings A general meeting of the shareholders (Hauptversammlung) is to be held annually within eight months after the balance sheet date of the previous year. In the ordinary annual meeting the shareholders decide on the distribution of profits, the formal discharge of the supervisory board and board of management from legal responsibility and the appointment of the auditors. For fundamental decisions, e.g. increases or reductions of capital or amendments of the articles of incorporation, mergers, liquidation, etc., the approval of 75 % of the votes is required. As a rule, the board of management calls the shareholders' meeting. In addition, the supervisory board or shareholders, holding at least 5 % of the voting common stock, are entitled to call an extraordinary shareholders' meeting. The decisions of a general meeting must be certified by a notary public, in order to become legally binding. Insolvency, liquidation As regards insolvency, see 2.1.1.1. Liquidation proceedings for an AG are, in principle, the same as for a GmbH, except a) that the liquidation procedures are initiated by a 75 % majority of the shareholders meeting and b) that the request to all creditors to submit their claims must be published three times and that the liquidation proceeds must not be distributed earlier than twelve months after the latest publication of such request.

2.1.1.3. Comparison: Stock corporation vs limited liability company Comparison of stock corporation and limited liability company Stock corporation

Limited liability company

Minimum share capital EUR 70,000, -

EUR 35,000, Shares

Share certificates issued Quotation on stock exchange possible Anonymity of shareholders only for listed corporations Assignment of shares by physical transfer

No share certificates issued Quotation on stock exchange not possible List of shareholders must be filed with the Commercial Register Assignment of shares by notarial deed of assignment

Management Managing board members appointed by supervisory board Appointment for a maximum period of 5 years Not bound by direct orders of shareholders Revocation for import reason only

Managers appointed by shareholders Appointment for indefinite period of time possible Bound by direct orders of shareholders Appointment revocable at any time without giving reasons

Formation A single shareholder (individual or legal person) may establish the corporation

A single (individual or legal) person may establish the corporation

Supervisory board Obligatory Number of members at least three, maximum 20 (if regulated in the articles of association) Shareholders entitled to elect the members of the board The representative Participation is intended (Par 110 รถArbVG; delegated by the staff association)

Obligatory under certain conditions only Number of members unlimited, at least three

Shareholders entitled to elect the members of the board. The representative Participation is intended (Par 110 รถArbVG; delegated by the staff association

Minority protection 5 % of capital stock entitle share-holders to exercise most of the minority rights

10 % of capital stock required for exercising minority rights

The concentration of all the shares in the hands of a single owner does not affect corporate existence and the corporation remains a legal entity apart from the person of the shareholder; the latter is not liable for the corporation's debt.

2.1.1.4. Partnerships Partnerships may take the legal forms of a general partnership (Offene Gesellschaft, OG) or a limited partnership (Kommanditgesellschaft, KG). In the OG, all partners are fully liable for the partnership's debts, whereas in the KG there are general partners with unlimited liability and limited partners whose liability is restricted to their fixed contributions (Haftsumme) to the partnership. Partnerships (general partnership, limited partnership) are not legal entities but they have full legal capacity. Therefore they are - from this aspect - very similar to corporations, except the liability for the debts of the company. A general partnership (OG) is a company whose shares are held by at least two individuals or corporations. Each partner is personally and fully liable for the OG's debts. The liability with regard to creditors cannot be limited. Its partners represent the OG. The OG can be constituted for any allowed purpose. A limited partnership (KG) consists of at least one general partner (Komplement채r) with unlimited liability and of at least one limited partner (Kommanditist), whose liability is restricted to the amount of his contribution registered in the Commercial Register (Haftsumme). The general partners are responsible for the management of the limited partnership. The GmbH & Co KG is a limited partnership (in its narrowest form), the sole general partner of which is a limited liability company. It can thus combine the advantages of a partnership with those of the limited liability of a corporation. 2.1.2. Other types of businesses A sole proprietorship (Einzelunternehmer) must register with the local Commercial Register, if he is bound for accounting under Par 189 sec (1) Austrian Commercial Code (UGB). Liability for any debts of the owner of the business is unlimited. A civil-law association (Gesellschaft b체rgerlichen Rechts) is not a legal entity itself and therefore cannot sue or be sued. It is often used for single joint ventures (e.g. construction projects) and ends when the joint project has been completed. A dormant partnership (Stille Gesellschaft) comes into existence if a person contributes mainly cash to an existing enterprise (company, partnership, sole proprietorship) and participates in the latter's profits and, possibly, in the losses as well. The dormant partner has no liability for debts of the enterprise; in case of insolvency of the enterprise he qualifies as a creditor with regard to that part of his contribution not consumed by losses.

The rules for the Societas Europaea (SE) according to the European Council Regulation 2157/2001 have been implemented in Austria. An association (Verein) is a corporate body founded by two or more persons for non-profitmaking purposes. The purpose has to be stipulated in the articles of association. 2.1.3. Austrian private foundation An Austrian private foundation (Privatstiftung) is a legal entity set up by a declaration of establishment, which must be filed with the Commercial Register (Firmenbuch). The declaration of establishment documents the legal intent of the settlor to dedicate assets to a defined purpose. The declaration of establishment must be notarised. The basic requirements for a private foundation are:  Legal domicile in Austria;  Entry in the Commercial Register;  No activities in a business or trade (mere ancillary activities are permitted); and  Minimum amount of assets donated to the private foundation: EUR 70,000. The assets must be at unrestricted disposal of the board of trustees (formal confirmation required by an Austrian bank). Additional rules may be laid down in a supplementary declaration of establishment, if this is provided for in the primary declaration of establishment. The settlor of a private foundation may be one or several individual(s) or legal person(s). Beneficiaries may be specified in the declaration of establishment (or simply named). The settlor may also be the beneficiary. The final beneficiary is the beneficiary to whom residual assets are transferred after liquidation of the private foundation. The purpose of a private foundation can be considerably broad. Not only non-profit aims, but also pure personal interests, may be specified as the purpose of a private foundation. A private foundation may be established for the benefit of individual persons (for example a maintenance trust for a family). The board (Stiftungsvorstand) must comprise of at least three members, two of them maintaining their permanent place of residence in a member state of the European Union (EU) or in a contracting state of the European Economic Area (EEA). The trustor appoints the first board. Beneficiaries and their close relatives are excluded from acting as board members.

2.1.4. Permanent establishment/ branch A permanent establishment usually means a fixed place of business of not only temporary duration through which the business is wholly or partly carried on (plant, bureau, etc.). However, also a dependent representative of an enterprise with authority to conclude contracts constitutes a permanent establishment. A foreign enterprise may establish a branch (Zweigniederlassung) in Austria; the branch under certain conditions must be registered with the local Commercial Register, which requires proof of the legal existence of the foreign company and of a regular business activity in the country where it is domiciled. The appointment of an authorized representative (and his residence) in Austria is mandatory if the company is not established within the EU or the EEA.

2.2. Acquiring a business 2.2.1. General considerations of acquisitions Austrian law provides for a variety of special provisions that apply to mergers and acquisitions. These provisions are to be found in different areas, as for example Corporate Law, Antitrust Law, Employment Law, Environmental Law and Tax Law. Specific treatment of mergers and acquisitions with regard to Tax Law is provided for by the Reorganization Tax Act of 1992 (RTA). As according to this Act the tax treatment of mergers and acquisitions follows the legal structure used to effect a merger or an acquisition, Company Law-aspects of the proposed structure have to be analyzed in detail to determine the tax consequences provided for by the RTA. In general, under the aforementioned Austrian law, an acquisition can be structured as either a share or an asset purchase. If a share-deal takes place, a participation in a corporation is acquired. Any prior undisclosed risks and liabilities remain with the target company and are assumed by the new shareholder (buyer). An asset deal is intended to enable the buyer to acquire only those assets actually desired, and to leave assets of no use for the buyer, and especially undesirable risks, behind. For this reason an asset deal may be favorable, if the target corporation has (potential) liabilities or owns pieces of real estate that shall not be acquired. To achieve (beyond the economic goals of the buyer) the most favourable tax result, it may furthermore prove useful to effect further stages of reorganization after the acquisition. Austrian Company Law provides for a range of suitable instruments in this respect.

The tax treatment of an M & A-transaction may, nevertheless, be challenged by the tax authorities based on substance-over-form considerations. The legal structure of a transaction therefore might also have substantial (unwanted) tax consequences. Considering possible substance-over-form discussions in a future tax audit, it is essential that the commercial background, the economic goals striven for by the parties and the adequacy of the implemented structure to achieve those goals are explained in detail in the documents relating to the transaction. 2.2.2. Tax aspects of acquisitions When acquiring a business, the following issues have to be considered by the buyer:  Tax deductibility of the acquisition cost;  Deductibility of interest expenses of debt-financing;  Avoidance of non-deductible expenses;  Utilization of tax loss carryforwards of the target. The vendor's prior fiscal concern will be to realize capital gains income tax-free or to minimize capital gains tax. Therefore, provided that the criteria for a tax exempt share deal under the applicable Austrian tax regime are fulfilled, it will be rather unlikely that the vendor is willing to accept an asset deal without being offered any compensation for the additional tax burden. In particular cases, however, an asset deal may also lead to a more favourable result for the vendor. The purchaser's main interest with regard to taxes will be the tax deductibility of the purchase cost. Therefore the buyer will aim at structuring the acquisition in a way to enable the maximum tax deduction of acquisition cost. Up to 2004, the purchaser would therefore usually have preferred an asset deal (including the acquisition of a partnership interest, as in Austria, for tax purposes, this is also treated like an asset deal). The Austrian Tax Reform 2005 nevertheless provided for major changes in the tax treatment of tax groups having a significant impact on M & Atransactions relating to Austrian businesses from 2005. In particular, the amortization of goodwill and the tax-deductibility of interest expenses of (debt-financed) third-party share deals create a wide scope of opportunities and have significantly widened the tax planning opportunities available after a share deal. 2.2.2.1. Asset Deal The main tax effects of an asset deal are the step-up (new cost basis of the assets for the purchaser) on the one and the capital gain (purchase price less cost of the assets) of the

vendor on the other hand. This is also true for the purchase or alienation of a participation in a partnership that is qualified as an asset deal for Austrian tax purposes. The buyer has to allocate the purchase price to the acquired assets. Each identifiable asset is supposed to be accounted for at its fair market value serving as the basis for depreciation or amortization. Any portion of the purchase price not assigned to assets must be accounted for as goodwill. Whereas other depreciable tangible and intangible assets are depreciated over their useful lives (increase in future tax deductions), goodwill has to be amortized over a period of 15 years for tax purposes. Capital gains from the alienation of business property are subject to (Corporate) Income Tax at the level of the vendor (25 % as of 2005; up to 50 % for individuals). Tax allowances for individuals are only available under rather restrictive conditions (halve the tax rate; spread over three years). In general, the vendor may be able to reduce the tax burden by offsetting pre-acquisition losses against the capital gains. 2.2.2.2. Share Deal If shares in a corporation are acquired, the purchase price has to be accounted for as acquisition cost of the shares and is therefore not depreciable at the level of the acquirer, although the share-price usually reflects the fair value of the target’s net assets including goodwill (basically no step-up!). The Austrian group taxation regime (see 5.1.3.2) provides for a tax-deduction of goodwill and hidden reserves in depreciable assets of the target corporation over a period of 15 years in a share deal, if the following conditions are met:  Share deal effected after December 31st, 2004;  Acquisition of more than 50 % of the shares in an Austrian corporation  Active business of the target corporation;  No acquisition from an affiliated company;  Inclusion of the target into the tax group;  The relief is available over a period of 15 years (timing is important to avoid losing one fifteenth!) and is capped at 50 % of the acquisition cost of the shares. Tax deduction is available without corresponding taxation of goodwill/hidden reserves at the level of the vendor or the target but will reduce the acquisition cost (book value) of the participation thus resulting in capital gains upon disposal of the shares.

The tax treatment of capital gains from share deals in a corporation depends - according to the Austrian Income Tax Act and the Austrian Corporate Income Tax Act - on the vendor’s tax status:  Corporations: Capital gains from shares in Austrian corporations are taxable at the level of an Austrian corporate seller at the standard rate (25 %). For participations in foreign corporations, the international participation exemption applies resulting in a possible tax-neutrality of the capital gains (see 5.1.3.1).  Individuals: Capital gains resulting from the disposal of shares are qualified as taxable income (tax rate up to 50 %). The tax rate is reduced to 25 % after a one-year holding period. From 2011 onwards, the taxation of capital gains resulting from the disposal of shares has been changed. Any capital gains – independent of the shareholding quota as well as the holding period – are subject to a reduced tax rate of 25%.  Private foundations: In general, capital gains from the disposal of shares are taxable at the standard rate of 25 %. A rollover-relief (capital gains are offset against future acquisition cost) is granted if another participation in a corporation is acquired within a period of one year from the date of the sale (if the capital gains have not been (fully) transferred within the same fiscal year, a tax-free reserve is set up). If the reserve is not used for rollover relief within one year from the share-sale, it is dissolved and taxed. 2.2.2.3. Pre-acquisition losses In principle, tax losses may be carried forward without a time limit. A carry-back of losses is not permitted. Loss carry forwards can only be set off against 75 % of the positive taxable income of the current year. Excess losses may be carried forward to subsequent tax years. As a rule, the utilization of pre-acquisition losses is possible but subject to certain restrictions (see 5.1.3.1).

Asset deal When acquiring a partnership interest or business assets of a company, the tax losses in connection with the target remain with the vendor, who may reduce the tax burden on his capital gains by offsetting pre acquisition losses against the capital gain. Acquisition of corporate shares As a result of anti-avoidance legislation, losses carried forward may be lost upon a change in ownership of the loss carrying corporation, if - in connection with the significant change in the corporation’s ownership structure - a significant change in the corporation’s economic and organizational structure occurs (Mantelkauf, see 5.1.3.1). Tax loss carry-forwards furthermore may be lost in the course of corporate reorganizations if - at the effective date of the reorganization - the assets having caused the losses no longer exist in a volume comparable to that of the time when the losses were incurred. It is therefore essential for a company to ensure that adequate documentation of the tax losses’ origin is available. 2.2.3. Tax aspects of corporate restructurings 2.2.3.1. Basic principles The Austrian Reorganization Tax Act (RTA, Umgründungssteuergesetz) provides for transactions to take place tax-neutrally for both the corporations involved and their shareholders, if Austria's right to tax unrealised gains is not affected by the reorganization. These provisions are based on the economic reason that certain transactions comprise more a change in business structure than a disposal of assets and, thus, are not the type of transactions that should be taxed. In the absence of sound business reasons for the reorganization (i.e. if it is only effected for tax optimization purposes), however, the tax-neutral treatment will be denied. To transactions covered by the RTA the following basic principles apply:  Retroactive effect: The reorganization date can be fixed within a period of nine months before the day on which the reorganization is filed with the Commercial Register/tax office at the maximum. For income tax purposes, reorganizations can be effected retroactively as of the reorganization date.  If a transaction results in capital gains taxation abroad and if - according to the respective tax treaty - relief is granted via a tax credit, tax neutrality in Austria may lead to a disadvantage for the transferor, as there is no Austrian tax liability against which the foreign tax can be credited. In this case, the transferor may opt for capital gains taxation in Austria crediting the foreign tax levied.

 Capital gains taxation may be compulsory in certain cases (if the Austrian right to tax unrealised gains is restricted because of the transaction and the receiving corporation is basically not located in an EU Member State).  If the receiving entity is located in an EU Member State, taxation of unrealised gains is postponed upon application and Austrian Income Tax attributable to hidden reserves that have already existed at the reorganization date is only levied at the time the gains are realised.  Tax loss-carryforwards incurred by the transferring entity are, in general, passed over to the legal successor, if: 

The tax losses were caused by the transferred assets;



The loss-carrying assets at the date of the reorganization still exist to an extent comparable to that at the time the losses were suffered;



No significant change in a corporation’s ownership, economic and organizational structure (Mantelkauf see 5.1.3.1).



Additional rules apply in case of a conversion into a partnership;

 The transfer of real estate in the course of a reorganization triggers real estate transfer tax of 3,5 % plus 1,1 % registration fee, but a reduced tax basis is available in the course of a tax-neutral restructuring.  All types of transactions covered by the RTA are deemed to be non-taxable for VAT purposes. 2.2.3.2 Types of restructurings Merger Article I of the RTA provides for a corporate income tax-neutral merger of Austrian or foreign corporations if a merger is effected under Austrian or comparable foreign company law. Under Austrian company law, a merger leads to the extinction of the transferring corporation. The assets and liabilities of the extinguishing corporation are transferred to the absorbing corporation in a single act (universal succession). The transferring corporation ceases to exist without formal liquidation. In principle, losses of the transferring corporation are carried over to the receiving corporation. Mergers are exempt from Capital Duty if the transferring corporation has existed for at least two years at the day the merger is filed with the Commercial Register.

Conversion According to Art II RTA, a corporation can be converted corporate income tax-neutrally  Into a partnership (errichtende Umwandlung) provided that the converting corporation transfers an operating business to the partnership or  Into its main shareholder with the effect of an up stream merger ("merger by conversion", verschmelzende Umwandlung), provided that (a) the main shareholder is an individual, a partnership or a non-EU corporation, and (b) the converting corporation either transfers an operating business to the main shareholder. Under Austrian company law these transactions result in the extinction of the transferring corporation. The assets and liabilities of the extinguishing corporation are transferred to the legal successor in a single act (universal succession) without formal liquidation of the transferor. Under specific conditions, the losses of the converting corporation are assigned to the legal successor(s); this can be either the main shareholder of the converting corporation in a merger by conversion or the shareholders of the partnership in a conversion into a partnership. An exemption from Capital Duty is granted if the converting corporation has existed for a period of at least two years at the day on which the reorganization is filed with the Commercial Register. Contribution in kind Article III RTA provides for a tax-neutral (no gain or loss recognized) transfer of certain qualifying assets in exchange for shares in the transferee corporation. From a civil law-perspective, all assets and liabilities transferred must be transferred individually (singular succession). A tax neutral contribution is only available for the subsequent types of assets:  Whole business operation;  Operating division;  Participation in a partnership with an active business; or  Qualifying interest in a corporation (at least 25 %). The transaction will not fall within the scope of the RTA (and therefore lead to capital gains taxation) if - in addition to the shares granted - cash payments are made, which exceed 10 % of the nominal value of the shares granted. In certain cases, no new shares in

exchange for the assets transferred to the corporation have to be issued (e.g. if the transferor is already the 100 % owner of the transferee). Losses resulting from the property transferred can be carried over to the receiving corporation under certain conditions. An exemption from capital duty and stamp duty is granted if a two-year holding period for the transferred assets is fulfilled. De-merger A de-merger of corporations (Spaltung) can be effected tax neutrally according to Article VI of the RTA if exclusively qualifying property is transferred:  Whole business operation;  Operating division;  Participation in a partnership with an active business; or  Qualifying interest in a corporation (at least 25 %). This provision also covers de-mergers under comparable foreign law. A de-merger of companies established under Austrian civil law also leads to universal succession. The assets and liabilities forming the qualifying property do not have to be transferred individually, but are carried over automatically in one single act. A de-merger can either be effected by transferring qualifying assets from one corporation to one or more (other) corporations, while the transferring corporation continues to exist (Abspaltung) or by transferring all the assets of a corporation to one or more corporations, whereas the transferring corporation extinguishes without formal liquidation (Aufspaltung). The property can be transferred to a newly established (Spaltung zur Neugründung) or to an already existing corporation (Spaltung zur Aufnahme). As a rule, the shareholders of the transferring corporation are entitled to receive shares in the receiving corporation in exchange for the transferred property. However, shares need not or must not be granted in certain cases (e.g. if the transferring company holds 100 % of the shares in the receiving company). The exchange of shares in the course of a demerger is not subject to capital gains taxation on the shareholders' level unless additional cash is paid and the amount of cash paid exceeds a certain threshold. An exemption from Capital Duty and Stamp Duty is granted if a two-year holding-period for the transferred assets is fulfilled. 2.2.3.3 Capital duty Equity contributions by a direct shareholder to an Austrian corporation are subject to a 1 % capital duty. The same applies to contributions by a limited partner to a limited partnership

in which a corporation is the only partner having unlimited liability. Special exemptions apply to tax-neutral reorganizations. According to the consistent practice of the Austrian tax authorities, Capital Duty can be avoided by granting an indirect contribution (Großmutterzuschuss), if certain requirements are met. 2.2.3.4 VAT The sale of a business via an asset deal is subject to VAT. VAT-treatment depends on each individual asset transferred: Austria levies VAT at a standard rate of 20 %, for certain assets, a reduced rate of 10 % or even a tax exemption (e.g. for receivables) may be applicable. The transfer of shares in a corporation as well as the transfer of a partnership interest is exempt from VAT. Reorganization types covered by the Reorganization Tax Act are deemed to be non-taxable for VAT purposes. 2.2.3.5 Stamp duty In an asset deal, furthermore, Stamp Duty may be triggered if receivables, rights or other types of contractual agreements are transferred (see 5.4.1). 2.2.4 Due diligence reviews In acquisitions under negotiation - subject to a confidentiality agreement - the performance of a tax due diligence review is a recommended standard procedure. The review may be subject to a previously agreed scope, but at a minimum should include the following:  Adequacy of tax liability accounts;  Identification of not-yet-assessed years and pending income tax audits;  Comments on the latest tax audit;  Examination of major differences between financial statements and tax records;  Specific tax assets (e.g. tax loss carry forwards);  Review of acquisition and post-acquisition tax planning issues.

2.3 Funding 2.3.1 Acquisition of a corporation Interest expenses directly related to third-party acquisitions of qualified participations are basically tax-deductible at the level of an acquiring corporation. Expenses other than interest expenses relating to the financing of a share purchase are not deductible, as they are incurred to generate tax-free income of a corporation.

Nevertheless, according to the recent jurisdiction parts of these expenses may be accumulated for tax purposes and offset against a taxable capital gain at the time of disposal of the participation. By contrast, tax-effective interest deduction on debt-financed intra-group acquisitions is no longer possible in financial years commencing on or after 1st January 2011: Whenever shares have been acquired in a related-party transaction (from another group-company or a controlling shareholder) and that acquisition has been financed with debt capital, interest is no longer accounted for as a tax-deductible expense. Interest payments to shareholders or parties related to shareholders are subject to arm's length standards. Interest charged at excessively high rates on loans granted by shareholders or affiliates therefore may (partly) constitute a hidden profit distribution that insofar is not tax-deductible. Although the Austrian tax law does not provide for specific thin-capitalization rules, the Austrian fiscal authorities may qualify a shareholder's loan as hidden equity if it is granted in order to substitute shareholders' equity (see 5.1.5). Austria does not levy any withholding tax on interest paid to a foreign party. 2.3.2 Acquisition of a partnership For tax purposes, the acquisition of a partnership interest is qualified as an asset deal. Consequently, interest expenses on debt-financed Austrian partnership acquisitions are tax deductible at the level of the target (debt is pushed-down for tax purposes). As a partnership is transparent for tax purposes (see 5.1.3.3) the partnership income is attributed to the partners. Consequently, the interest deduction reduces the buyer's taxable income.

3 Incentives 3.1 Government incentives/ funding instruments 3.1.1 Federal, regional and EU funding instruments Austria offers a comprehensive system of both national and local funding programs, all of them based on EU and national regulations. The purpose of these regulations is to ensure “fair competition” between companies and regions within the European Union. The funding programs available in Austria vary for specific projects, depending on:  the size of the planned company;  the geographic location of the planned company;  the type of the planned activities (e.g. pure plant investment; R&D; environmental investments; technology used; number of jobs created and sometimes regional criteria). Ad 1) Based on EU policies, funding programs in Austria (and all over Europe) concentrate on Small and Medium Enterprises (SMEs) and start-up companies. Since January 2005, SMEs have the following definitions all over Europe: Company type

Employees

Turnover

Balance sheet total

Smallest company

1–9

Max 2 Mio EUR

Small company

10 – 49

Max 10 Mio EUR

Medium company

50 – 249

Max 50 Mio EUR

Max 43 Mio EUR

Big company

> 250 Employees

> 50 Mio EUR

> 43 Mio EUR

If a “big company” holds 25 % to 49,9 % shares of an SME, they are considered to be “connected companies”. In this case, 25 % to 49,9 % of employees and turnover of the big company have to be added to the SME. If a big company holds more than 50 % shares of an SME, it is considered to be a “controlled company”, possibly also making the SME a “big company”, when adding 50 % or more of employees and turnover. Ad 2) Second criteria that defines the amount of possible funding is the geographic location in Austria. Based on EU policies, companies in less developed regions are allowed to receive more funding than in industrialized regions. The following map shows the new definition for “disadvantaged regions” in Austria, as of January 2007. If a company is set-up in the red and orange coloured regions on the map, it may receive a higher percentage of funding than in the rest of Austria. Regional funding areas, according to EU rules (effective 1.1.2007)

Source:

Österreichische Raumordnungskonferenz

According to this map of regional funding areas in Austria, the following percentages of funding are allowed, e.g. for pure investments projects, or for R&D and innovation: Regions in Austria

Company size

Funding for investments

Funding R&D/Innovation

Industrialized regions = white

Smallest company Small company Medium company Big company Smallest company Small company Medium company Big company Smallest company Small company Medium company Big company

Max 15 % of costs Max 15 % of costs Max 7,5 % of costs 0% Max 40 % of costs Max 40 % of costs Max 30 % of costs Max 20 % of costs Max 50 % of costs Max 50 % of costs Max 40 % of costs Max 30 % of costs

Max 35 % of costs Max 35 % of costs Max 30 % of costs Max 20 % of costs Max 35 % of costs Max 35 % of costs Max 30 % of costs Max 20 % of costs Max 35 % of costs Max 35 % of costs Max 30 % of costs Max 20 % of costs

Medium Disadvantaged = orange

Max Disadvantaged = red

For the above mentioned R&D projects, a bonus of 15 % additional funding can be granted for the “cooperation with an R&D center” or for the “cooperation of two independent companies”. Applications for funding of projects can be submitted 1) via the two major national funding agencies AWS (Austria Wirtschafts Service, Vienna) or FFG (Forschungs Förderungs Gesellschaft, Vienna), 2) via the regional funding agencies in every Austrian federal state and 3) in some cases via Austrian banks. The range of incentives/funding is broad: from regional to national and EU, from cash grants and low-interest loans to export guarantees.

Subsidies Subsidies may be non-repayable, repayable or repayable under certain conditions (e.g. repayment upon successful completion of an investment or R&D project). The modernization or extension of plants and the setting-up of manufacturing facilities are specially encouraged by an investment grant of max 50 % of the investment expenditure. In particular, investments in tangible and intangible assets (except investments in cars, land and used assets and operating costs) are subsidized. In addition, investments that lead to an improvement of environmental conditions may entitle to environmental subsidies of max 30 % of the investment expenditure. Investments in means of conveyance, in buildings and fixed assets, expenses for construction work, assembling and planning are subsidised. Apart from those mentioned, there is a wide range of subsidies for various types of special investments, especially for R&D and innovation projects. The funding programs are available on a continuous basis or on the basis of time specific calls. Loans at concessionary interest rates Long-term loans at favourable conditions are available for investments in all kinds of industrial production, food, technical services, trade, tourism and transportation. Favorable financing is specifically granted to small and medium-sized enterprises, among others for investments in research and development, innovation, IT and E-business, labour market promotion, for anti-pollution purposes and for the improvement of regional economic structure. Guarantees A variety of guarantee schemes for financing and promotion of investments in Austria and exports from Austria to non European and developing countries intended to promote Austrian exports and internationalization are available. The state-owned Österreichische Kontrollbank AG (ÖKB) and the before mentioned Austria Wirtschaft Service, Vienna (AWS) provide most of these specific fundings programs. Guarantees are available for project investments, if the company’s own bank cannot secure the required loan financing. Those guarantees are granted if the project would not materialize due to insufficient security of financing. The extent of the guarantees for security of financing varies. In many cases, up to 80 % of the loan amount can be guaranteed. Applications for guarantees for financing are usually made via the company’s bank to ÖKB or AWS.

3.1.2 EU investment grants Several Austrian regions (see graphic above) are eligible for support under various EU structural fund programs to promote and facilitate economic development. Incentives under these programs are equally available to domestic and foreign investors and range from subsidies to preferential loans, to guarantees and tax incentives. Most of these incentives are available only if the planned investment meets specified criteria (e.g. implementation of new technology, reduction of unemployment, etc.). At the end of this short summary on funding instruments in Austria, we want to put an emphasis on two topics that are essential for reviving grants:  there is no legal obligation to grants or funding, that means, it is the company’s duty to submit a formally correct and innovative project application;  applications for funding always have to be submitted before investments are made, work on projects has started, even before orders for equipment are signed.  Due to the number of regional, national and EU regulations that define the prerequisites of investment grants and specific funding programs, we strongly recommend to engage specific experts to prepare and submit funding applications. Experts will help you to make the funding process more effective and efficient.

3.2 Tax incentives  Companies that invest in R&D are fostered by the Austrian government through tax incentives. 3.2.1 R&D premium  From 2011 onwards, the R&D premium is the sole tax incentive that can be asserted for research and development with the limitation of research activities taking place in Austria. The R&D premium can be claimed for Frascati-research but also for Contract-research. The contract-researcher in that case has to be a EU- or EEAcompany. The R&D premium has been increased from 8% to 10% of the expenses. For contract research, the basis for the premium has been limited with EUR 100,000. The threshold will now be increased to EUR 1,000,000. 3.2.2 Education allowance/ education premium An education allowance is granted in respect of expenses incurred for the education and training of employees. The allowance amounts to 20 % of the qualifying expenses. The allowance is granted if the expenses are directly related to education, which means that travelling expenses, for example, do not qualify for this relief. Only expenses paid to institutions offering education and training are generally taken into account; under certain

conditions expenses for education and training within a company may also be considered provided that they do not exceed a daily amount of EUR 2,000. Alternatively, an education premium of 6 % of the expenses can be asserted (restricted to external education). The premium is granted as a tax refund, which is directly credited to the taxpayer's tax account. 3.2.3 Basic incentive for apprenticeship training (“Basisförderung”) As an incentive for enhanced apprenticeship training a basic incentive (amount depends on the year as an apprentice and the salary according to the collective agreement) can be asserted at the Austrian Federal Economic Chamber (Wirtschaftskammer Österreich) for each apprentice during the whole period of training (usually 3 to 4 years). Furthermore, depending on specific requirements to be met, there are further incentives granted for apprenticeship training by Austrian Institutions (Arbeitsmarktservice) that are tax-exempt. 3.2.4 Tax allowance for business profits (“Gewinnfreibetrag”) From 2010 onwards, a tax allowance for profits generated by individuals earning income from agriculture and forestry, income from business or income from independent work (irrespective of assessing the profit via cash in – cash out taxation or financial accounting) is available. The basic tax allowance (Grundfreibetrag) has been limited with 13 % of the generated profits and capped with EUR 30,000. That incentive is granted irrespective of whether the profits are re-invested. Furthermore, an additional tax allowance for profits re-invested by the individual may be claimed (available for profits exceeding EUR 30,000 to a maximum of EUR 580,000; degressive rate) provided that certain tangible depreciable assets (including buildings) and certain securities have been acquired. A minimum holding period and a useful life of four years of the respective assets is basically compulsory to benefit from the tax incentive (Investment tax allowance). The maximum incentive granted is EUR 45,350.

4 Reporting 4.1 Austrian accounting principles 4.1.1 General principles Sections 195 and 201 of the Austrian Commercial Code (Unternehmensgesetzbuch, UGB) incorporate the accounting conventions that we might call the Austrian generally accepted accounting principles (Grundsätze ordnungsmäßiger Buchführung, GoB). Due to Austria’s

EU membership, several amendments to the Commercial Code have been implemented since 1996. The Austrian GoBs lay down fundamental formal and material rules necessary for proper accounting. Austrian GoBs can be created by legislation and/or deduced from general guidelines for the preparation of financial statements. In traditional nomenclature they are classified into three major groups of accounting and valuation principles:  Fundamental or superior principles;  Realization and recognition principles; and  Supplementary principles. Fundamental or superior principles In preparing financial statements, the fundamental or superior principles are:  True and fair presentation: True and fair implies a complete set of financial statements, comprising a balance sheet, an income statement, and – for corporations – notes and additional other statements (management report [Lagebericht] and Corporae Governance report). All assets and liabilities should be measured and all transactions should be reported in compliance with all statutory measurement rules. In consolidated financial statements a consolidated Cash Flow Statement is also mandatory.  Unambiguous presentation: Unambiguous refers to the formal aspect of financial statements. A clear and well-structured presentation of assets and liabilities as well as of revenues and expenses is to facilitate determining the performance and financial position of an entity. The latter principle also prohibits any netting of assets and liabilities or of revenues and expenses. Realization and recognition principles These principles specify which items or transactions are to be deemed revenue or expense in an accounting period and thus determine accounting on an accrual basis (as opposed to accounting on a cash basis). These principles include:  The revenue recognition principle: This principle defines when an entity may record assets and liabilities at the higher of historical cost or production cost. The revenue recognition principle largely defines the scope and the content of the revenue side of income statements. Revenue is the gross inflow of economic benefits during the period arising in the course of ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

 The expense recognition principle: An entity is required to provide for all possible losses and if there is any doubt about an asset’s realizability, to provide for or write off the asset.  The matching principle: Matching means amounts reported as expense depends on as revenue in a particular period must have their economical substance in this period. Supplementary principles This group of principles completes the accounting principles dealt with above in restricting and/or specifying other accounting principles, e.g. the principle of conservatism restricts the realization principle in certain cases. The supplementary principles focus on:  Consistency: The financial statements of successive periods must be comparable, i.e. transactions in the current period must be accounted for in the same way as they were in the previous periods. Changes may only be made if there are compelling economic reasons. Consistency relates primarily to classification and format and to the consistent valuation of assets and liabilities.  Conservatism: Where several acceptable valuation alternatives are available, the alternative having the least favorable immediate influence on the financial position of the reporting entity must be chosen. In compliance with this principle, assets have to be valued at the lower of cost or market value and liabilities at the higher of cost or market value at each reporting date. The basic idea underlying this principle is that expected but unrealised revenues must be ignored and expected unrealised losses have to be recognized. The objective of these accounting principles is to present a conservative view of the financial position of an entity and not to overstate income as well as safeguard debtors through capital maintenance. 4.1.2 Capitalization and valuation General administrative and selling expenses must not be capitalized; interest expenses related to loans for the financing of production may be included in manufacturing cost as long as they relate to the manufacturing period. Purchased goodwill may be amortized over its estimated useful life (for tax purposes it has to be amortized over 15 years!). Internally developed intangibles must not be capitalized: Start-up and business expansion costs, however, may be capitalized; this is an accounting convenience. Valuation, in principle, has to be at cost, i.e. at the purchase price or at manufacturing cost. Manufacturing cost includes:  Direct cost of material;

 Direct production cost; and  Special cost of production. Applicable portions of material and production overhead – but not general overhead – cost may be included. 4.1.3 Record keeping Every business entity has to keep books and to record all business transactions and its financial position in accordance with the applicable accounting principles. The books have to be kept in such a manner as to enable an expert third party to obtain insights into the business transactions of the entity and its position within reasonable time. All business transactions must be traceable from origin to settlement. In principle books, records and vouchers must be kept in Austria (or may be kept abroad under certain conditions) and retained for 7 years. EDP-based accounting systems are acceptable if they meet certain requirements. Double-entry bookkeeping is the only legally accepted method. Another source for record keeping requirements is Section 18 of the Value Added Tax Act, under which enterprises are required to maintain specific records in Austria for the purpose of the determination of the VAT-base and documentation for zero-related supplies which always have to be kept in Austria. 4.1.4 Financial statements Companies' classification by nature and size At the end of every financial year, every entity has to prepare an inventory and financial statements. Most enterprises adhere to the calendar year; financial years other than the calendar are possible but subject to an approval of the tax office. Financial statements cover a maximum of 12 months. In general, equal treatment is given to corporations and partnerships (Offene Gesellschaften (OG) or Kommanditgesellschaften (KG)) where no individual is a personally liable partner (KapCoGesellschaften). For corporations and KapCoGesellschaften the Commercial Code defines three size classes:

Size classes for corporations and KapCoGesellschaften

Small

Medium-sized

Large

Balance sheet total (EUR million)

Turnover (EUR million)

Number of employees (average per year)

Up to and including

840

680

From

841

681

Up to and including

19,250

38,500

250

Beyond

19,250

38,500

250

To allocate a company to a particular size class, the company must meet two out of the three criteria on two successive balance sheet dates. In case of a newly established company the size class allocated initially depends on the size criteria on the first balance sheet date. However, publicly quoted stock corporations (AG) are always deemed to be large companies. Elements of the financial statements Balance Sheet Corporations and KapCoGesellschaften must prepare their balance sheets in accounts format in the classification as prescribed in Section 224 of the Austrian Commercial Code. Other types of business entities also largely follow this method of presentation. Receivables and liabilities exceeding a term of one year are shown separately or disclosed in the notes. Thus working capital and other ratios can be computed. Capital not yet paid in is deducted from the nominal capital. Share capital called up is reported separately under other receivables. Reserves are divided into capital reserves and revenue reserves, including revenue reserves under statutory provisions (AGs and large GmbHs have to transfer 5% of the annual profit after taxes a statutory reserve as long as this reserve does not exceed 10% of the statutory share capital) or under a companyâ&#x20AC;&#x2122;s by-laws. Income statement The income statement prepared by corporations and KapCoGesellschaften must be in report form (Staffelform) using either the total-cost format (Gesamtkostenverfahren) or the cost-of-sales format (Umsatzkostenverfahren).

For each of these two methods, law prescribes the classification of the income statement. In practice, other types of business entities also use these forms of presentation. Notes to the financial statements and management report The management of corporations and KapCoGesellschaften is required to prepare both  Notes which supply comprehensive information on balance-sheet items, on incomestatement items and the general situation and prospects of the firm in order to provide a true and fair view of the firm’s assets, financial and earnings situation, and  A management report providing additional information. With the notes being part of the financial statements themselves the management report is a separate account containing an analysis of the business including a ratio analysis comments on post-balance sheet date events of special importance, on the anticipated development of the company, on research and development activities, and on the use of financial instruments (including a description of the risk management of the entity).

Preparation, audit, disclosure and publication The management must submit the financial statements together with notes and the management report and – if applicable – the Corporate Governance report within a period of five months following the close of a corporation’s financial year to the supervisory board. Before the submission to the supervisory board the financial statements of large and medium-sized corporations have to be audited by an independent auditor. After the approval of the financial statements by the shareholders’ meeting, but not later than nine months after the close of the corporation’s financial year, the financial statements must be filed with the Commercial Register. Some corporations have to publish the information in the Wiener Zeitung (official gazette)- additionally. The disclosures, i.e. filings and publications, vary according to the size of the corporation:  Large corporations must file the balance sheet, income statement, notes and the management report, each in the complete format prescribed by the law, with the court of the Companies Register. In addition, large AGs have to publish these documents in the official gazette, while large GmbHs only have to publish the date of the filing.  Medium-sized corporations are only required to file these documents with the court of the Companies Register and to publish the date of the filing. For their filings simplifications are available in respect of the income statement (with an exemption from the requirement to analyse the gross profit figure) and in respect of the notes to

the financial statements (with exemptions, in particular, from the requirement to analyse sales by areas of activity and by geographical markets and from the disclosure of the extent to which the result for the year has been affected by the application of tax concessions and any future charges that will arise there from). ď&#x20AC; Small corporations are not required to prepare a management report and the notes to the financial statements are substantially simplified. Only the balance sheets in an abbreviated format and the notes have to be filed with the court. The above regulations equally apply to KapCoGesellschaften. Business entities, which are neither corporations nor KapCoGesellschaften, have, in principle no duty of public disclosure. Particular duties of disclosure apply to enterprises in specific industry sectors (e.g. banking, insurance). 4.1.5 Consolidated financial statements Corporations and KapCoGesellschaften, which are legally domiciled in Austria, must prepare worldwide-consolidated financial statements, if the company is the parent company of a group of companies. All the companies under the control of a domestic parent company are deemed to be members of the group (subsidiaries). This is always the case where the parent company holds the majority of voting rights or rights to appoint the majority of members of the board of directors or the supervisory board, or where the parent company is granted the power to control the other companies by virtue of a controlling agreement between the companies. For banks and insurance companies additional, sector-specific consolidation requirements are in force. In general, both domestic and foreign companies must be included in the consolidated financial statements and should be prepared if at least two of the criteria below have been met on both the reporting balance sheet date and the preceding balance sheet date. Size criteria for the preparation of consolidated financial statements Balance sheet total

Turnover

Number of

(EUR million)

employees (average per year)

Pre-elimination figure exceeds Consolidated figure exceeds

250

17,50

250

The financial statements, which are included in the consolidated financial statements, must be prepared using the same accounting and valuation policies as those of the parent company. The consolidation of the shareholdersâ&#x20AC;&#x2122; equity of subsidiaries follows the purchase method, i.e. the difference between the book value of the investment (cost) and the portion of the shareholdersâ&#x20AC;&#x2122; equity to be consolidated at the time of the acquisition is allocated to the assets and liabilities of the acquired company to the extent possible (fair value accounting), with the remainder, if any, being presented as goodwill. Goodwill may be either amortized over an annual rate of 20 % or its useful life. The equity method is mandatory for certain investments (associates), which are included in the group financial statements. An associate is an enterprise in which the group has a significant influence and which is neither a subsidiary nor a joint venture. This situation is deemed to exist if the reporting company holds more than 20 % of the voting rights of a company. Under the equity method of accounting, all post-acquisition movements in the equity of the associate are either debited or credited to the investment account in the books of the parent company in proportion to the parent companyâ&#x20AC;&#x2122;s share of equity in the associate. An interest in a joint venture with non-consolidated parties should be included in the consolidation using either the proportionate consolidation method or the equity method. This proportionate consolidation method means that all assets and liabilities as well as, income and expenses, are included in the group accounts pro-rata to the interest in the joint venture, so that no minority interest arises. Generally, intercompany profits and losses should be eliminated. However, this rule may be waived if sales or services were made or rendered on usual market terms and the calculation of intercompany profits or losses would cause unreasonable expense. However, if this waiver is applied, this fact needs to be disclosed in the notes to the consolidated financial statements. A parent company is exempt from the requirement to prepare sub-group consolidated financial statements if it is itself the subsidiary of a group of companies (exempting and consolidated financial statements), to the extent that these exempting consolidated financial statements comply with EC-Directive 83/349/EEC and fulfill a number of other requirements (e.g. examination by qualified auditors of the exempting consolidated financial statements). However, it is possible for shareholders to oppose to this exemption if they have 5 % of the shares (in case of a foreign parent company) or 10 % of the shares.

4.2 IFRS An Austrian parent company may prepare consolidated financial statements in accordance with the International Accounting Standards (IFRS) of the IASB as endorsed by the European Union, instead of preparing consolidated financial statements in accordance with Austrian generally accepted accounting principles. From the year 2005 onwards, due to Art 4 of the Regulation 1606/2002 of the European Parliament and the European Council on the use of International Accounting Standards, publicly-traded companies or companies, which have issued liabilities traded on a regulated market, are required to prepare consolidated financial statements in accordance with IFRS as endorsed by the European Union.

5. Business Taxation 5.1 Corporate tax 5.1.1 General system and rates The tax status of a business entity depends on whether it is incorporated or not. Corporations are taxed on their net profits at the corporate level and are subject to national corporate income tax (Körperschaftsteuer). As a rule, each corporation is subject to corporate income tax, but the Austrian Corporate Income Tax Act provides for group taxation, which applies if certain conditions are met (see 5.1.3.2). Corporate income tax is presently levied at a flat tax rate of 25 %. There are no other taxes levied on the income of corporations. Both limited and general partnerships (non-corporate entities, i.e. Offene Gesellschaft – OG, Kommanditgesellschaft – KG and Gesellschaft bürgerlichen Rechts – GesbR) are treated as transparent entities for tax purposes (see 5.1.3.4). The share of profit or loss attributable to each partner is included in the partner's business income and taxed accordingly as part of the partner's income. If the partner is a corporation, its share is liable to corporate income tax. A non-resident partner's income from the partnership is subject to Austrian income or corporate income tax as a permanent establishment is assumed (limited tax liability). The existence of a permanent establishment in Austria results in the liability of the foreign investor to pay (corporate) income tax in Austria. 5.1.1.1 Type of tax system Austria has had a classical system for taxation of corporate profits since 1988. Corporate profits are subject to corporate income tax. Dividends paid to individual shareholders and portfolio corporate shareholders are subject to a withholding tax of 25 %. For an individual shareholder, the tax withheld is final; for a portfolio corporate shareholder, it is credited against the final corporate income tax liability (on other income) or refunded upon request. There is no withholding tax on dividends paid to substantial corporate shareholders (at least 10 % participation). Dividends paid by an Austrian corporation to its resident corporate shareholder are exempt from corporate income tax for a corporate shareholder, regardless of the size of the holding (national participation exemption, (see 5.1.3.1).

5.1.1.2 Taxable persons Corporate entities subject to corporate income tax include:  Stock companies (Aktiengesellschaft, AG);  Limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH);  Private foundations;  Commercial enterprises operated by public entities;  Associations, institutions, foundations without an independent legal existence and accumulations of property for a specific purpose. This survey is restricted to resident stock companies and resident limited liability companies, as well as to foreign-incorporated entities of a similar description, whether resident or non-resident. These entities are referred to as companies. 5.1.1.3 Residence A company is resident in Austria if it has its legal seat (place which is designated as such in its statutes) or its place of effective management in Austria. Companies incorporated under Austrian Commercial Law must have their legal seat in Austria. For the place of effective management test, the place where the essential decisions concerning the day-today-business are made, is decisive. Accordingly, a non-resident company is a company that neither has its legal seat nor place of effective management in Austria. 5.1.1.4 Rulings From 2011 onwards, binding advance rulings can be obtained from the responsible taxoffice for specific questions with regard to transfer pricing, reorganizations or group taxation. Fees for obtaining advance rulings vary between EUR 1,500 and EUR 20,000 (depending on the sales volume of the company and the integration to a group of companies). An appeal against such an advance ruling is possible. Apart from that specific type of binding rulings, according to general practice of the taxauthorities, advance rulings with regard to other tax-questions are granted free of charge, but may be refused in specific situations. A ruling request is usually addressed to the local tax office or to the Ministry of Finance. Rulings obtained from the Ministry of Finance are generally not binding. Rulings of the responsible tax office are binding on the tax administration based on the principle of good faith (Grundsatz von Treu und Glauben) as long as all facts and circumstances have been disclosed correctly and as long as there are no contradicting legal provisions. Those rulings, however, are generally not binding on the taxpayer and the courts. An appeal against such ruling is impossible.

5.1.2 Computation of taxable income 5.1.2.1 Basic principles Resident companies Resident companies are taxable on their worldwide income whether remitted to Austria or not. The provision of the Income Tax Act (Einkommensteuergesetz) which lists the items of taxable income is broadly worded and includes practically all income, whether principal or accessory in nature, and whether received in cash or kind. Taxable income is the income from one or more sources listed in the Income Tax Act, decreased by some special expenses and the losses incurred from these sources. In principle, regular income and capital gains are pooled and taxed at the same rate. The computation of the income follows the rules of the Income Tax Act, unless the Corporate Income Tax Act provides otherwise. The most important items of exempt income are domestic and foreign dividends under the (international) participation exemption (see 5.1.3.1). Capital injections by shareholders to a company upon formation or capital increases, whether or not in return for shares or other membership rights or in proportion to shareholding are generally not subject to corporate income tax. In general, expenses incurred in acquiring, securing and maintaining taxable income are deductible. Beginning with the second year of unlimited tax liability a minimum corporate income tax of EUR 1,750 for GmbH and EUR 3,500 for AG is due (for the first year: EUR 1,092). The minimum corporate income tax may be credited against the corporate income tax liability of the assessment period or of the subsequent years. Non-resident companies Permanent Establishment Non-resident companies are taxable on their business income if they carry on a business via a permanent establishment in Austria or participate in such a business. As a general rule, a non-resident company is subject to tax on all income earned through the activities of its permanent establishment or derived from assets held by the permanent establishment as business property. Generally, non-resident companies may carry forward losses of an Austrian permanent establishment only insofar as they exceed the global income of the non-resident company.

Other income Furthermore, certain Austrian source investment and other passive income of non-resident companies is subject to tax irrespective of whether this income is attributable to a permanent establishment or not.  Immovable property: Income of non-resident companies from immovable property located in Austria is taxable, regardless of whether or not it is attributable to a permanent establishment. Capital gains on the sale of shares in resident companies are taxable if the percentage of the direct or indirect shareholding has amounted to at least 1 % at any time during the preceding 5 years. Capital losses incurred on the sale of such shares may only be offset against capital gains on the sale of (other) shares. However, under a treaty following the OECD model convention, Austria is generally not entitled to tax capital gains from the sale of participations by nonresidents.  Other capital gains are only taxable if they arise from assets pertaining to an Austrian permanent establishment.  Dividends: Gross dividends are subject to a final withholding tax (see 5.2) if no permanent establishment exists. Dividends attributable to a permanent establishment of non-EU-resident companies are taxable for corporate income tax purposes. As far as withholding tax has been retained upon the dividend distribution, it may be credited or refunded. If the recipient is an Austrian permanent establishment that is to be attributed to a qualifying parent company resident in another EU member state and the participation is held in the Austrian permanent establishment, both the national and the international participation exemption apply for non-resident companies (see 5.1.3.2).  Interest: Interest income is generally only taxable for non-resident companies if the income is attributable to a permanent establishment in Austria. No withholding tax is levied on inter-company interest payments to non-resident companies. Interest derived by non-resident companies from loans secured by Austrian-sited immovable property, however, is subject to income tax by assessment at the standard rate of corporate income tax, unless an exemption or a reduced rate applies under a tax treaty or ECDirective 2003/49/EC.  Royalties: Royalties are subject to a final withholding tax (see 5.2) if they are not attributable to an Austrian permanent establishment. Otherwise they are fully taxable for corporate income tax purposes unless a reduced rate applies under a tax treaty or EC-Directive 2003/49/EC.

Corporate income tax is levied either by means of withholding at source (see 5.2) or by assessment. Income which is not subject to withholding tax (e.g. business income derived through a permanent establishment) is assessed at the standard rate of 25 %. Only expenses relating to taxable income are deductible. If tax is withheld at source, there is no tax-deduction for expenses available. 5.1.2.2 Determination of taxable income The computation of corporate income tax is based on the taxable (gross) income derived by a taxpayer within one calendar year. The gross income, which is the amount to which the tax rate is applied, is the total of income derived (regardless from which source) balanced against losses incurred. The underlying principle in Austria is that tax accounting should be based on commercial accounting (MaĂ&#x;geblichkeitsprinzip). Consequently, the computation for tax purposes is based on the results shown in the annual accounts (see 4.1), adjusted in accordance with tax legislation. Generally the calculation of income can be based on several accounting methods. For corporations, however, the accrual method is compulsory. Proper accounting is a basic requirement for tax purposes neglecting of which may result in assessment based on estimates of the tax authorities. All assets and liabilities have to be determined as of the balance sheet date, i.e., the end of the fiscal year. Basically assets with a useful life in excess of one year have to be capitalised as assets in the balance sheet. Unrealized losses have to be recognized (subject, however to a restriction for provisions for anticipated losses on pending transactions; see below), whereas unrealized profits must not be recognized. Assets are carried at cost, less depreciation, if applicable, or at their lower going concern value (Teilwert). Going concern value means the amount or fraction of the total purchase price that a buyer of the entire business would assess to a specific asset assuming he intended to continue the business. The lower going concern value may only be recognized if the impairment in value is considered to be of lasting nature. Financial assets (e.g. participations) may be written down to a lower going-concern value even if the reduction is not expected to be permanent. If the reason for the impairment in value ceases to exist, the write-down may be reversed. In the case of participations in other corporations, such adjustments are obligatory. Inventories generally must be valued at the lower of cost or market value. Where inventory is valued according to the cost price, the FIFO method is generally accepted. The LIFO method is allowed only if it is in accordance with the taxpayer's actual practice. Writedowns for anticipated future losses may be deducted if they are necessary to arrive at a net realizable value. Other anticipated losses can only be recognized if they relate to pending transactions involving the inventory to be valued.

Provisions and valuation adjustments reduce and increase taxable profits upon their creation and dissolution, respectively. According to Austrian tax legislation, provisions can only be set up for:  Severance payments;  Current pension payments and future obligation to pay pensions;  Other uncertain liabilities; and  Anticipated losses from pending projects. Liability provisions (e.g. for warranties, damage claims, advisers' costs, etc.) do not have to be based on a legal obligation or certain in amount. Generally a wide scope is given to the taxpayers' estimates if they are based on objective facts and special business experience in the particular industry, transaction etc. However, such provisions must not be made on a globally estimated basis. Only 80 % of the value of provisions other than those for severance payments and pensions, may be taken into account for tax purposes. Provisions with a term of up to 12 months however may be fully taken into account. Generally, all expenses that are necessary to generate income are deductible. A number of major items that are relevant to determine taxable gross income are set forth below:  Capital Contributions: Open and constructive capital contributions are generally treated as non-taxable income. Write-offs of receivables against subsidiaries, however, are tax effective in the amount of the non-valuable part (at the level of the subsidiary this part is considered taxable income).  Cost of formation of a corporation is deductible for corporate income tax purposes unless they exceed the maximum amount fixed by the articles of association. The excess amount constitutes a constructive dividend and is therefore not tax deductible.  Capital gains: Capital gains from the sale of business assets are generally included in taxable income and are taxed at the standard rate (main exception: international participation exemption, see 5.1.3.1). Chargeable gains are calculated by deducting the cost of the asset, together with any enhancement expenditure or incidental costs of disposal, from the gross proceeds of sale.  Dividends: Dividends (whether declared or hidden profit distributions) to corporate shareholders constitute non-taxable income appropriation at the level of the distributing company and are not tax deductible.  If a profit distribution is leveraged and the borrowing is directly linked to the dividend

payment, the respective interest expenses are tax-deductible.  Interest: In general, interest expenses are tax deductible. Since 2005, interest expenses arising from leveraged share acquisitions (both in Austrian and nonAustrian resident corporations) have also been tax deductible. In 2010, Austria´s tax regime regarding the tax deductibility of interest expenses has been amended with effect from 2011 onwards. As a result, interest expenses related to leveraged intragroup share acquisitions are not tax deductible. The new regulation also applies to share acquisitions effected before 2011. Furthermore, interest payments to related parties may be qualified as constructive dividend to the extent that the consideration is not at arm's length or the underlying debt is qualified as hidden equity.  Royalties: As a rule, royalties are deductible. Corresponding to the rules on interest expenses, excessive royalty payments to shareholders or their affiliates are treated as hidden profit distributions insofar as they do not meet the arm's length criteria.  Write-down of participations:  In principle, participations may be written down to a lower going-concern value, if necessary. To the extent the write-down of a participation or capital loss is basically tax effective, the amount must be apportioned over a seven-year period (as regards write-downs in international participations for which an option to the tax effective status has been carried out [see 5.1.3.1]).  The write-down or a capital loss upon the sale of a participation is not tax deductible if they are induced by a previous profit distribution of the company and if the dividends received from the participation are tax-exempt for the receiving company.  With regard to participations included in a tax group, an impairment of the participation at the level of the group parent is not tax effective during the existence of the group (see 5.1.3.2).  In case of a shareholder's contribution down a chain of companies (grandparentcontributions) to cover the losses of the second-tier subsidiary resulting in an increase in the book value of the participation at each level, a depreciation or a loss from the sale of the participation is only tax-deductible at the top-level (provided there is a decrease in value of the participation), whereas a depreciation at the level of the intermediary corporations in principle is not tax-effective.

Write-off of participations (shareholder's contributions)

G AG

write-off in principle deductible

100% capital contribution

D GmbH

write-off nondeductible

100%

S GmbH

 Losses suffered by a foreign permanent establishment of an Austrian corporation reduce the Austrian tax base of the Austrian corporation, even if the tax treaty between Austria and the PE-country provides for the exemption method. To avoid a double utilization of the permanent establishment-losses in Austria and the permanent establishment-country, the use of the tax losses of the permanent establishment will lead to a claw-back at the time the foreign permanent establishment earns profits against which the foreign loss carry-forwards can be offset.  Goodwill: A goodwill acquired for a consideration must be amortized over 15 years.  Intangible fixed assets have to be capitalized only if they are acquired for a consideration, and are to be amortized over their useful lives.  Assets whose value does not decrease (e.g. land or investments in other corporations), do not qualify for the scheduled depreciation. However, these assets may be written down to a lower (going-concern) value.  Depreciation: Basis for depreciation is the cost price or production cost. If the taxpayer has acquired a business asset without any consideration, the depreciable base is the amount that should have been paid by the taxpayer at the moment of acquisition. For tax purposes, only the straight-line method of depreciation is permitted. Excess write down to the lower going concern value in case of technical or economic obsolescence is possible. For the first financial year of use, depreciation for 12 months is allowed, if the asset has been in use for more than 6 months throughout the respective financial year. Otherwise, half the annual rate is deductible. Except for buildings (50, 40 or 33 years), goodwill (15 years) and passenger cars (8 years), depreciation rates are not fixed by Austrian tax law.  Other deductible expenses:



Depreciable movable assets with a price not exceeding EUR 400 (excluding VAT) can be fully expensed in the year of acquisition or production.



Repair and maintenance payments are tax deductible in the period incurred. Repairs that lead, in effect, to a new asset must be capitalized as such.



Organization expenses (e.g. lawyer's and accountant's fees, registration fees etc.) incurred in the course of forming a corporation or on occasion of a capital increase are tax deductible.

 Non-deductible expenses: 

Excessive expenses related to passenger cars, aircraft, hunting, antiques etc. (expenses related to passenger cars are regarded as adequate to the extent the acquisition cost of the car does not exceed EUR 40,000);



50 % of business-related meal expenses;



Expenditure

business

entertainment

and

amusement

including

entertainment of guests at theatres, nightclubs, sporting events, etc; 

Gifts to non-employees;



Donations for the public benefit or for charitable or religious purposes; donations of a promotional nature (Werbecharakter) and expenses to sponsor activities are deductible under certain conditions;



The corporate income tax itself, including items of prior years and the value added tax relating to non-deductible expenses; and



Half the benefits and compensations paid to members of the supervisory board and half the reimbursement of travel expenses to the extent they exceed the maximum tax-free lump-sum reimbursement provided for in the Income Tax Act.

5.1.2.3 Tax administration Taxable period Companies are assessed by reference to accounting periods. If a company’s financial year does not coincide with the calendar year, its taxable income is computed based on the financial year that ends within the respective calendar year. A change of the financial year to a period other than the calendar year is subject to the approval of the tax office. Tax audits of the company's books and records are made periodically and may result in the revision of assessments. Proper books and records must be maintained in order to avoid a tax assessment based on estimates.

Tax returns A company must file a corporate income tax return annually. The due date for the filing of tax returns is March 31 of the subsequent calendar year irrespective of the financial yearend. Taxpayers represented by a tax adviser may file their tax returns with the tax office by March 31 of the second subsequent calendar year (e.g. tax returns for the financial/calendar year 2011 must be filed with the tax office by March 31, 2013 at the latest). Further extensions may be granted upon application. For most types of tax returns, the electronic filing is compulsory given the technical requirements are available to the taxpayer. The following documents must be filed together with the return: financial statements, the auditor's report (if any), separate financial statements for tax purposes or a reconciliation between the figures shown in the financial statements and the tax return. After the tax return has been filed with and reviewed by the tax office, a notice of assessment will be issued which shows the amount of corporate income tax payable. The taxpayer may lodge an appeal against an assessment within one month after receipt thereof. Payment of tax Prepayments of corporate income tax have to be made in four equal instalments by February 15, May 15, August 16 and November 15 of each tax year in accordance with the assessment notice issued by the tax authorities. The prepayment is generally based on the prior year's tax payments, plus an adjustment (4 % for the calendar year following the year of the last assessment and 5 % for every subsequent year). The prepayment may be further adjusted if the current year's liability is estimated to vary substantially from the total prepayments to be made during the year. A reduction of the prepayments may be granted upon application. The prepayments fixed for the assessment period and any amounts collected by withholding are credited against the final corporate income tax liability. Excess prepayments are refunded, unless they do not exceed the minimum tax. In this case, they are carried forward and offset against the corporate income tax liability of subsequent years. The minimum prepayments payable by every corporation irrespective of whether it earns profits or suffers losses (minimum corporate income tax) per year are EUR 3,500 (stock company) and EUR 1,750 (limited liability company). For the first four quarters a reduced minimum corporate income tax in the amount of EUR 1,092 is applicable.

Fines on late payment Assessed corporate income tax is normally payable within 1 month after the date of issue of the assessment notice. Postponement may be granted if an appeal has been lodged. A late payment fine of 2 % is levied on taxes which are not paid up to the due date. A second and a third late payment fine of 1 % each will be levied if the taxes due are still not paid after a certain period. Furthermore, interest is due on the difference between the corporate income tax prepayment and the assessed amount from October 1, of the subsequent year until payment is effected (maximum period: 48 months). For example, if the corporate income tax prepayment for 2011 is too low, this may trigger interest from October 1st, 2012 if the assessment is made after this date and in the meantime, no additional Corporate Income Tax prepayments have been made. An administrative fine (maximum 10 %) may be imposed if the tax return is filed late. 5.1.3 Special regimes 5.1.3.1 Tax treatment of intercompany-dividends and capital gains/ losses National participation exemption Dividends received by Austrian (resident) corporations from other Austrian (resident) companies are exempt from Corporate Income Tax at the level of the recipient irrespective of the percentage of the holding. The exemption applies to holdings in the form of company shares as well as participation rights (aktienähnliche Genussrechte). An indirect shareholding (e.g. via a partnership) also qualifies for the exemption. In addition, the exemption also applies to deemed profit distributions (constructive dividends). The participation exemption does not extend to capital gains and liquidation proceeds; they remain fully taxable at the standard rate. International participation exemption Dividends from a substantial shareholding in foreign operating subsidiaries or intermediate holding companies are exempt from Corporate Income Tax, if the following requirements are met: 

The parent company is an Austrian company or a comparable foreign company subject to unlimited corporate income tax-liability in Austria;



The subsidiary has one of the legal forms listed in the annex to the EC ParentSubsidiary Directive or is legally comparable to an Austrian corporation;



The parent company holds at least 10 % in the capital of the subsidiary (formal share capital or other forms of holding). An indirect shareholding (e.g. via a partnership) also qualifies for the exemption;



and the shareholding has existed for a minimum holding period of one year prior to the receipt of a dividend or the disposal of shares. The date of the legal acquisition of the participation is decisive for the one-year holding period (day to day);



no abuse of law is suspected.

The legal comparability requirement is usually met if:  The foreign company (a) is a legal entity, (b) has fixed share capital, and (c) offers more than one shareholder the possibility to participate; and  All shareholders are only subject to limited responsibility in respect of the company's liabilities and have the chance to participate in a shareholders' meeting, thus influencing the management.  A freely transferability of shares is possible  The company must be registered in a companies register It is not required that the foreign subsidiary is treated as a separate taxpayer in its residence country. Even if the foreign tax legislation qualifies the company as transparent and treats it as a partnership, Austria's participation exemption can apply. Partnerships, trusts and unit trusts are not considered comparable to an Austrian company. If the above requirements are met, the (regular and constructive) dividends received from abroad are exempt from corporate income tax. The tax exemption is granted automatically; it is not necessary to apply for a special ruling. Under the current regime the tax treatment of capital gains and losses of international participations is twofold: 

"Tax-exempt" status: Both capital gains/losses realized upon the sale of an international participation and the impairment of the participation are tax neutral. Therefore, capital gains realized remain tax-free. Losses realized on the liquidation of a foreign subsidiary are still tax deductible to the extent they exceed the previous five years' tax-free dividends.



"Tax-effective" status: As an alternative to the tax-exempt status of international participations, an option-model has been introduced allowing a taxpayer to opt for the tax deductibility of capital losses and write-downs. In this case, capital gains are fully taxable at the standard rate. Dividends are not covered by this option and remain tax free (see above).

The option for the tax-exempt or tax-effective status can be exercised independently for each international participation held. The option chosen is irrevocable and also binding upon intra-group share-sales or reorganizations.

In case of foreign subsidiaries with passive activities the following tax aspects have to be taken into consideration:  There is no exemption for dividends and capital gains if the tax authorities have reason to suspect tax avoidance or abuse.  Such a reason may be assumed if the following conditions are met:  The non-resident company's activities, directly or indirectly, mainly consist of deriving interest income, income from the transfer of moveable tangible or intangible assets or the use thereof, or income from the disposal of participations;  The income of the non-resident company is not subject to a foreign tax comparable to the Austrian Corporate Income Tax with regard to the tax rate or the determination of the tax base.  In this case, tax relief is granted via a credit of the foreign income tax levied on the underlying income for the distributed dividends against the Austrian corporate income tax levied on the dividend income. In computing taxable income, the creditable foreign tax is added to the dividend income derived. Portfolio dividends  In 2010, legislation with regard to portfolio dividends received from companies with its seat in EU member countries as well as third countries has been changed. Due to an unequal treatment of portfolio dividends received from Austrian companies (taxexempted independent of the capital ownership percentage) and companies in EU member countries (exempted if a 10% holding exists), Austria had to change legislation towards the tax exemption of international portfolio dividends irrespective of a minimum capital ownership percentage.  Again, there is a switch-over from the exemption-method to the credit-method. For portfolio-dividends, the switch-over applies if the distributing corporation has its residence in a low-tax jurisdiction (Corporate Income Tax Rate less than 15 %). Hybrid financial instruments  From 2011 onwards, the international participation exemption does not apply in cases where cross-border dividend distributions from foreign companies are treated as tax deductible expenditures in the foreign country according to a qualification conflict (e.g. so-called Genussrechte). Thus, a double non-taxation of the achieved profits will be avoided. 

5.1.3.2 Taxation of groups In the Tax Reform Act 2005, the rather complicated and old-fashioned system of the Austrian tax unit (Organschaft) was replaced by a modern group taxation system enabling the pooling (no consolidation) of profits and losses of Austrian resident group-companies. Moreover, it is possible to use tax losses of foreign subsidiaries directly held by Austrian group companies. The use of foreign tax losses will be subject to a claw-back at the time the foreign subsidiary earns profits against which the foreign loss carry-forwards can be offset or the subsidiary leaves the group (apart from insolvency) or in case the foreign group member (economically) leaves the tax group. Therefore in contrast to the innerAustrian pooling of profits and losses, the use of foreign losses in Austria is only of temporary nature, resulting in a cash flow-benefit for the group. The only requirements for establishing a tax group are the following:  Equity participation in excess of 50 %;  Including the majority in voting rights;  Maintenance of the group for at least three years;  Filing an application for group taxation with the tax office in time. 

The participation can be held directly as well as indirectly via a partnership or besides a (small) direct participation via another group-corporation.

Joint taxation is also available if a syndicate of several qualifying shareholders together holds a participation in excess of 50 % and the majority in voting rights, provided that the stake of the major shareholder amounts to at least 40 %, whereas each other shareholder participating in the syndicate holds at least 15 %. From 2010 onwards, this regulation only applies if the syndicate is formed at the level of the group-parents.

Group taxation enables independent tax planning for shareholders of joint venturecompanies

A AG Acquistion loan

B GmbH 40%

AUT

60%

Joint Venture GmbH

100%

foreign country

X Ltd operating losses

There is an element of flexibility in the scheme as it is necessary to elect which companies are to be included. Once an election has been made, it is necessary for companies to remain in the group for at least 3 years, otherwise the benefits of group taxation are clawed back. Irrespective of the (qualifying) participation held, 100 % of the profits and losses of Austrian group-members will be attributed to the group-parent.

Group taxation - pooling of profits/losses of Austrian group-members

P AG

P AG profit: 100%

60%

profit: 100%

60%

partnership

S GmbH

100%

S G m bH

In contrast to that, losses of foreign group-members will be attributed according to the ownership percentage of the participation held.

Practical consequences: Based on the (reduced) requirements for establishing a tax group, it is also possible for mere holding companies to act as group parent and/or become group-company. The group taxation rules are of particular benefit to share-acquisitions via Austrian corporations in both Austrian-resident as well as foreign targets: Interest expenses arising from a leveraged third-party share acquisition in a future group-company is deductible against the profits of the target business. Profits and losses of Austrian group-members are pooled resulting in final tax-savings; losses of foreign resident group-members reduce the Austrian tax base resulting in cash flow-benefits for the group. Group taxation - goodwill amortization/interest deduction A deduction is available for the amortization of goodwill and of hidden reserves in depreciable assets of the target company where the shares in an Austrian company (with an active business) are acquired (no intra-group acquisitions) in a third-party transaction and that company is subsequently included in the tax group (i.e. it is necessary to acquire more than a 50 % participation to benefit from this relief). The amortization has to be apportioned over a period of 15 years and is capped at 50 % of the acquisition costs of the shares.

Investor 100%

NewCo

Acquisition loan

> 50%

Target GmbH

interest deduction; goodwill amortization

ď&#x20AC; The deduction is available without corresponding taxation of the goodwill/hidden reserves in the target company but will reduce the acquisition cost (book value) of the participation.

Tax treatment of group losses  Pre-group loss carry forwards of group-members can only be offset against profits of the respective group-company itself (without application of the general 75 %limitation; see 5.1.3.1) but not against profits of other group members, whereas (both pre-group and group-) tax loss-carry forwards of the group-parent can be offset against the group profit (75 %-limitation applicable). Due to the use of losses and goodwill-depreciation an impairment of the participation at the group-parent during the existence of the group will not be tax-effective and cannot be clawed back up upon termination of the group. 5.1.3.3 Taxation of partnerships In Austria, partnerships are considered transparent for income tax purposes. Therefore, the partners (and not the partnership) are subject to (corporate) income tax. A partnership, nevertheless, is regarded as an entity for the purpose of profit computation in Austria. The partnership has to calculate its profits and to determine each partner’s share in the profit. Administrative bookkeeping requirements depend on the partnership’s annual turnover. An income tax return for the partnership has to be filed with the tax office; a joint assessment is made for the partnership and all partners. However, in the end, the partners add their share in the partnership profit to their gross income. Thus, the partnership profit is only taxed at the partner’s level. Besides, the partnership in principle is a taxable person for VAT purposes and for the purpose of other taxes. The kind of income the partners derive from their partnership depends on the kind of activity the partnership carries out. If the partnership runs a business, the partners derive business income. In this case, the partnership is considered as a co-entrepreneurship (Mitunternehmerschaft). Partners of a so-called Mitunternehmerschaft from an Austrian point of view are treated in the same way as sole entrepreneurs. Therefore, compensations from the partnership to the partners for their services rendered to the partnership or for the granting of loans or the conveyance of business assets basically are deemed to be business income and not capital or rental and leasing income. Assets owned by a partner but for business purposes used by the partnership are deemed to be business property of the partnership. Such assets have to be shown in a supplementary balance sheet (Ergänzungsbilanz) for tax purposes and valued according to the principles for business income. Partnerships that do not run a business derive income other than business income, for example income from rental and leasing or capital income. In this case, the income is calculated as the excess of receipts over professional outlays. Therefore a separate tax return for the partnership has to be filed only if the partnership derives income from rental and leasing of real property. In all other cases, the partners add their share in the

partnership income to their personal income declared in their personal (corporate) income tax declarations. Capital gains from the disposal of an interest in an Austrian partnership are subject to Austrian income tax if the investor is an individual or to Corporate Income Tax if the investor is a corporation. Corporate Income Tax is levied at a flat rate of 25 % while income tax is levied at progressive income tax rates of up to a maximum rate of 50 %, but can be reduced to half the normal rate if the partnership interest has been held for a minimum of seven years and the disposal is made upon retirement due to serious illness or at the age of 60 of the taxpayer. 5.1.3.4 Permanent establishment The existence of a permanent establishment in Austria results in the liability of the foreign investor to pay income taxes in Austria. The tax base for the permanent establishment must be calculated according to Austrian tax law. 5.1.4 Transfer pricing rules The Austrian Ministry of Finance introduced chapters I - IX of the OECD Transfer Pricing Guidelines as domestic regulations. Generally, the regulations are not binding on the courts or taxpayers, but must be followed by the tax authorities. In 2010, statutory transfer pricing guidelines have been published by the Austrian Ministry of Finance. These guidelines are a compilation of statements of the OECD Transfer Pricing Guidelines, the OECD Report on the Attribution of Profits to Permanent Establishments as well as various court decisions of the Administrative Court and the independent administrative senates. The transfer pricing guidelines are binding for the Austrian taxauthorities but not for taxpayers and Austrian courts. It is nevertheless advisable to comply with the guidelines in order to avoid discussions in future tax-audits. Although there is no Austrian legislation regarding transfer pricing documentation, proper documentation is highly recommended in order to shift the burden of proof that prices are not at armâ&#x20AC;&#x2122;s length to the tax authorities. 5.1.5 Thin capitalization rules Although Austrian tax law does not contain specific thin-capitalization rules, in practice of financial administration a shareholder's loan constitutes hidden equity if it is granted as a substitute for shareholders' equity. It must be proved, however, that a supply of equity would clearly have been necessary at the time the loan was granted and that the loan is a substitute for required equity. Hidden equity is not assumed if the company's equity ratio is in accordance with commercial practice. As a rule, an equity ratio of 20 % - 25 % should be sufficient. If a shareholder grants a loan to his company, an unusual form of contract also

triggers treatment as hidden equity. The result of requalifying a shareholder's borrowings as hidden equity is that the interest payments are regarded as income appropriation and are therefore not tax-deductible. 5.1.6 Tax loss carry forward In principle, losses may be carried forward without any time limit. As far as capital losses are not tax-neutral (e.g. losses from the sale of an international participation), they are treated in the same way as ordinary losses. A carry-back of losses is not permitted. As a rule, loss carry forwards can only be set off against 75 % of the income of the current year (income from the sale of a qualifying business unit, a partnership share or write-offs granted in the course of an insolvency procedure can be fully offset, though). Excess losses may be carried forward to subsequent tax years. Losses incurred from foreign permanent establishments may be offset against Austrian income even if the tax treaty between Austria and the country of the permanent establishment provides for the exemption method. These losses increase the Austrian income in subsequent years if and to the extent they can be used in the country of the permanent establishment (see 5.1.2.2). As a result of anti-avoidance legislation, losses carried forward may be lost after a substantial change in ownership of the company's share capital (Mantelkauf) if specific additional changes occur. Regarding a direct acquisition of shares, loss carry forwards are lost, if the following criteria are fulfilled (cumulatively):  A substantial change of the shareholders (more than 75 %);  A substantial change in the organization (e.g. management); and  A substantial change in the economic structure. Even if these conditions are fulfilled, the loss carry forward is not lost, if the change is made for purposes of a reorganization of the corporation aiming at preserving a substantial part of the jobs. Loss carry forwards may be lost in the course of a corporate reorganization such as a merger or spin-off, if the loss-causing assets no longer exist on the effective date of the reorganization or have been reduced significantly. If a tax unit (Unternehmensgruppe) is established, losses of the group-members resulting from periods prior to the formation of the tax unit may only be offset to the extent of the subsidiary's subsequent taxable profits. The 75 %-limitation, however, does not apply to such type of loss utilisation of group members – at the member’s level a 100 % deduction

is possible. At the level of the group parent, in contrast, pre-group losses can be offset against the total income of the group – but the 75 %-limitation is applied. Losses arising from a participation in a company or partnership may not be set off against profits from other activities if the main purpose of the participation is to obtain tax advantages. Such losses may be set off only against future profits from the participation. In principle, non-resident companies are entitled to carry forward losses incurred from an Austrian permanent establishment. According to Austrian domestic legislation, the loss carry forward may be set off against Austrian income in subsequent years to the extent the non-resident company's worldwide income does not exceed the loss. Tax treaties, however, may provide for a broader application of loss deductions. 5.1.7 CFC Currently, there is no formal CFC legislation in Austria. 5.1.8 Anti-Avoidance The Austrian Tax Authorities in general apply a “substance over form”-approach when computing taxable income based on general anti-avoidance provisions. Furthermore, there are specific anti-avoidance clauses contains in the Corporate Income Tax Code (see capital 5.1.3.1Fehler! Verweisquelle konnte nicht gefunden werden.). 5.1.9 Relief from Double Taxation 5.1.9.1 Tax treaties Austria has concluded a considerable number (77) of Double Tax Treaties providing for relief from double taxation. Relief is granted in two forms:  Exemption method: Some types of income paid from one country to the other country are exempt from tax in the source country. If the income is taxed in the source country and exempt in the country of residence, the residence country is usually entitled to calculate the tax-rate based on the world-wide income including the exempt income (Progressionsvorbehalt).  Credit method: If income remains fully or partially taxable in both countries, the tax charged on the income in the source country is credited against the tax that the country in which the recipient is resident levies on the income. In this case, the foreign tax credit may not exceed the amount of corporate income tax attributable to that income. The tax credit is calculated on a country by country- and an item by item-basis: an excess amount of foreign tax cannot be offset against the Austrian tax liability on income other than the respective income from the source country.

Regarding the treatment of certain categories of income, many Austrian treaties follow the OECD Model Tax Convention as outlined below - assuming Austria to be the country of residence:  Business profits are exempt from tax in Austria in case they are attributable to a permanent establishment in the treaty country. According to Austrian tax legislation, losses from a foreign permanent establishment are, however, deducted for Austrian tax purposes.  Dividends, interest and royalties (unless attributable to a permanent establishment in the other country) received by an Austrian company may be subject to a withholding tax in the source country. Usually the domestic withholding tax rate is reduced under the treaty provisions. As far as the foreign source income is taxable in Austria, credit may be claimed for the foreign withholding tax against the Austrian corporate income tax payable on this income.  Capital gains are usually only taxable in Austria. This basic rule does not apply if the gains result from the alienation of immovable property situated in the treaty country or movable property forming part of the business property of a permanent establishment in the other country. Furthermore, there is an increasing number of double tax treaties, according to which sales of shares in companies owning immovable property may only be taxed where the immovable property is located.  Income from immovable property situated in the other country is exempt from Austrian corporate income tax. 5.1.9.2 Domestic provisions In the absence of a tax treaty, according to the domestic Austrian provisions relief from double taxation can basically be obtained if the respective foreign income is subject to taxation comparable to Austrian income tax of at least 15 % (average). In this case, the exemption method is applied for immovable property, income of a permanent establishment, income from lectures and teaching, income from entertainment shows and income from dependent employment. For all other income, the credit method is applied. In order to benefit from the unilateral tax relief, a declaration has to be filed and sent to the tax authorities listing every source country, type of income, amount of profit and expenses relating thereto as well as foreign tax-burden.

5.2 Withholding tax 5.2.1 Dividends Resident companies Generally, a 25 % withholding tax is levied on dividends distributed by an Austrian resident company. Portfolio corporate shareholders may credit the withholding tax against their final corporate income tax liability (on other income) or claim a refund (to the extent their tax burden is lower). The withholding tax is not levied on dividends distributed to corporate shareholders holding directly at least 10 % of the subsidiary's nominal capital. Non-resident companies Both the national and international participation exemption apply with respect to nonresident companies if the dividend recipient is the Austrian permanent establishment of a qualifying parent company resident in another EU Member State, provided that the participation is held in the permanent establishment. Dividends attributable to a permanent establishment of non-EU resident companies are fully taxable for corporate income tax purposes. If tax has been withheld from the dividends, the withholding tax may be credited or refunded. If there is no permanent establishment, a final withholding tax of 25 % is levied on dividends and other corporate distributions, unless a reduced rate applies under a tax treaty. Under the Austrian domestic provision implementing the EC Parent-Subsidiary Directive, dividend distributions by resident subsidiaries to non-resident EU parent companies are exempt from withholding tax under the following conditions: ď&#x20AC; The legal form of parent company complies with the forms listed in the annex to the Directive; ď&#x20AC; The parent company holds directly at least 10 % of the subsidiary's nominal capital; and ď&#x20AC; The shares have been held for a minimum period of one year prior to the receipt of dividends. The tax at source must be withheld provisionally, however, if the dividends are distributed during the first year of holding. A refund may be granted when the one-year holding period has expired. Tax at source must also be withheld in the case of tax avoidance, abuse of law and constructive dividends. Tax avoidance or abuse of law is no issue for the paying company

if the receiving company has submitted a written form to the paying company stating that it derives its income from active business, that it employs its own personnel and that it maintains its own business facilities. In general, constructive dividends are assumed if the paying company grants its shareholders a benefit it would not have granted to an independent third party when applying the diligence of a prudent businessman. 5.2.2

Interest

Interest paid by an Austrian debtor is only subject to 25 % withholding tax, if the income is derived from qualifying bank deposits or bonds. Therefore, no withholding tax is levied on interest income from inter-company loans or sources other than banks or bonds. Interest derived by non-resident companies, subject to certain conditions, in general is not subjected to 25 % withholding tax. Interest from loans secured by Austrian-sited immovable property, however, is subject to income tax by assessment at the standard corporate income tax rate, unless a reduced rate applies under a tax treaty or based on the EC Directive regarding the relief from withholding tax on intragroup interest and royalties 2003/49/EC. 5.2.3 Royalties Royalties paid to non-resident companies are subject to a final withholding tax of 20 % unless a reduced rate applies under a tax treaty. Due to EC Directive regarding the relief from withholding tax on intragroup interest and royalties 2003/49/EC, EU intra-group royalties are exempt from withholding tax if certain requirements are met. 5.2.4 Other income No withholding tax is levied on management fees. In addition, there is no branch profits or remittance tax in Austria. By contrast, corporations are obliged to withhold 20 % tax at source from the following types of payments to non-resident recipients:  Income from independent services as writer, lecturer, artist, architect, sportsman etc.;  Profits of an Austrian partnership, the participation of which is held by a foreign partnership if the identity of the beneficial owners of the profits is not disclosed;  Income from commercial or technical consulting services rendered in Austria; and  Supervisory board fees. The payer - usually an Austrian resident person - is liable for the withholding and the remittance of the amount to the tax authorities. If a Double Tax Treaty is applicable

providing for an exemption of the respective income in Austria, an exemption from withholding tax may be applicable subject to certain conditions (declaration sent to the taxauthorities). No assessment is required if the 20 % withholding has been applied. The withholding tax is a final (no deduction of expenses). As an alternative, a tax assessment can be filed from 2007 (optional!), thus deducting expenses relating to the income. In this case, nevertheless, the tax rate is 35 % or 25 % (see below).

5.3 VAT 5.3.1 General system and rates The Value Added Tax Code was established in 1994 (Umsatzsteuergesetz 1994, UStG) and is based on the EC Directive 2006/112 on the harmonization of VAT and supplementary Directives issued thereto. The standard VAT rate is 20 %. 10 % VAT is imposed on:  Supplies of goods listed in an Appendix to the VAT Code (e.g. foodstuff, books, newspapers and periodicals, objects of art under certain circumstances, etc.);  Restaurant services, if the served goods are mentioned in the Appendix to the VAT Code;  Leases of land and buildings for residential purposes, including hotel accommodation;  Services rendered by theaters, museums, musicians, the broadcasting and television corporation, cinemas, artists, etc.;  Transport of passengers, etc.  Output VAT  The entrepreneur has to pay the output VAT due on his transactions by the 15th of the second month following the month in which the supply was effected (regardless of whether the VAT has been paid in cash by the customer to the entrepreneur).  Input VAT  Basically, entrepreneurs are entitled to deduct VAT charged by their suppliers on business expenditures. The permission to deduct input VAT is subject to the possession of a valid VAT invoice issued by the supplier. Furthermore - apart from prepayments - input VAT may only be deducted at the time the supply of goods or

services has already been effected. Apart from prepayments, it is not necessary that the invoice has already been paid.  VAT returns  Submission dates for VAT returns: Generally returns must be completed on a monthly basis. If total sales of the previous year did not exceed EUR 100.00, the taxable person can complete the returns on a quarterly instead of a monthly basis. Additionally, an annual return is obligatory. Monthly/quarterly as well as the annual VAT returns have to be submitted by electronic transfer.  A resident business can ask for filing of an annual return for the period that corresponds to its fiscal year, which may differ from the calendar year (example: April 1st – March 31.). Tax authorities have to allow such a reporting period provided the entrepreneur provides material economic reasons.  Due dates for returns and payments: The returns have to be filed with the tax authorities by the 15th (respectively the next working day) of the second consecutive month of the month/quarter/year the return has been prepared for (e.g. the return for March has to be filed by May 15). For the annual return, special rules are applicable, if the taxable person is represented by a tax adviser. The same due dates are valid for the VAT payments. Late payment causes surcharges (2 - 4%); the Austrian tax authorities may also impose penalties (up to 10 %) if filing of returns is late.  VAT liabilities and input VAT claims are not subject to further interest.  In case that a monthly or an annual VAT return shows a credit in favor of the tax payer, the amount is paid back on demand unless the credit is matched with other tax liabilities of the tax payer. 5.3.2 Taxpayer and registration 5.3.2.1 Taxable persons VAT covers any entrepreneur (sole traders, partnerships, companies etc.) who independently supply goods or services within the domestic territory of Austria for consideration within the scope of his enterprise regardless of nationality or residence. Holding companies are not regarded to be a taxable person unless they provide services against remuneration to their subsidiaries or third parties. Dividends paid to the holding are not regarded as remuneration.

VAT Group Nevertheless a VAT group (Organschaft) is regarded as single entrepreneur if the group members are financially, economically, and organizationally dominated by the parent enterprise, since the members of this group lack the independence that is required for VAT purposes. Group members must not be individuals or partnerships. For VAT purposes, a profit and loss pooling agreement is not required. As a result, all companies included in the VAT group are treated as one taxpayer. Intercompany sales and services are not subject to VAT. The fiscal unit implications are limited to supplies and services performed between business-divisions located within Austria. If the controlling enterprise has its management abroad, the economically most important domestic business division (pe) is deemed to be the entrepreneur liable to VAT. The group taxation regime (see 5.1.3.2) does not apply for VAT purposes. 5.3.2.2 VAT registration Any person, supplying goods or services in Austria according to the Austrian VAT Code is obliged to register for VAT in Austria unless the reverse-charge procedure applies. Entrepreneurs seated or having a permanent establishment in Austria are allocated a single tax reference number for all kind of taxes and in addition a VAT identification number. Foreign entrepreneurs are allocated a single tax reference number for all kind of taxes and a VAT identification number on demand 5.3.2.3 Foreign entrepreneurs Foreign entrepreneurs who have neither their registered office nor their place of abode nor a permanent establishment in Austria are - like any other entrepreneur - in principle liable for VAT if they effect a taxable supply of goods or services in Austria. Such foreign entrepreneurs have to be registered for VAT purposes in Austria. No registration is necessary, if the foreign entrepreneur renders only services in Austria subject to the reverse-charge procedure. The responsible tax office for foreign entrepreneurs is the tax office “Finanzamt GrazStadt, Conrad von Hötzendorferstraße 14-18, 8018 Graz”. Further information can be obtained by the website of the Austrian ministry of Finance: https://www.bmf.gv.at. The same tax office is responsible for the VAT refund according to the 8th or 13th EU-Directive. A foreign taxable person who is not established in the EU performing taxable supplies, services or intra-community acquisitions in Austria must appoint a fiscal representative. A

fiscal representative needs not to be appointed if the taxable person renders only supplies of goods subject to the withholding procedure. 5.3.2.4 VAT withholding procedure If a non-resident entrepreneur performs a taxable supply of goods in Austria, every recipient shall withhold and pay the Austrian VAT to the tax authorities in the name and for the account of the supplier, as he is personally liable for the payment of the VAT. In this respect withholding liability does not mean that the tax liability is shifted to the recipient, but if the foreign entrepreneur will not pay the VAT, the tax authority could claim this VAT from the recipient of the supply. Foreign entrepreneurs are not excluded from this withholding procedure. If VAT is withheld by the customer, the foreign entrepreneur is also obliged to file VAT returns. 5.3.2.5 Reverse charge Supplies of services and supply and installation by foreign entrepreneurs In some cases, foreign entrepreneurs do not need to issue invoices showing VAT, as the tax-liability is shifted to the recipient of the service (reverse charge). If foreign entrepreneurs who are not established in Austria perform ď&#x20AC; services or ď&#x20AC; supply and installation (Werklieferung) to another entrepreneur or a public entity, the reverse charge mechanism is applicable. Therefore, the tax liability shifts to the recipient of the services. The invoice must not show VAT but a declaration that the reverse charge-mechanism applies. The foreign entrepreneur who rendered the services remains liable for VAT. Reverse charge does not apply, if the foreign entrepreneur has a permanent establishment in Austria and the permanent establishment is involved in the supply of the service. Services subject to the reverse-charge procedure are not reported in the Austrian VAT return of the foreign entrepreneur. Certain supplies of Austrian entrepreneurs Certain supplies made by Austrian entrepreneurs are also subject to the reverse-charge procedure if they are carried out to Austrian receipients. Mainly, the supply of services in connection with construction services, emission certificates and waste is subject to this provision, if certain conditions are met.

From 2012 onwards, the supply of electronic devices as well as mobile phones is also subject to the reverse-charge mechanism if the volume of the supply exceeds EUR 5,000. 5.3.2.6 VAT refund procedure for foreign Non-EU-entreprenuers Non-residents that are neither registered nor required to be registered may require Austrian input VAT via a simplified refund procedure according to the 13th EU Directive. The application can be filed quarterly or yearly until the 30th of June of the following year at the latest. The application shall contain a certification of the country of residence that the applier is known as a VAT registered person. Furthermore the original invoices must be attached to the application. Input VAT will not be refunded, if it is linked to supplies that are tax exempt in Austria. Even if the supplies have been rendered outside Austria. The application must be filed with the tax office “Finanzamt Graz-Stadt, Conrad von Hötzendorferstraße 14-18, 8018 Graz”. Further information can be obtained by the website of the Austrian Ministry of Finance: https://www.bmf.gv.at. 5.3.2.7 VAT refund procedure for foreign EU-entrepreneurs Non-residents that are neither registered nor required to be registered may require Austrian input VAT via a simplified refund procedure filed with their local tax authorities by electronic means. The application can be filed quarterly or yearly until the 30th of September of the following year at the latest. Input VAT will not be refunded, if it is linked to supplies that are tax exempt in Austria. Even, if the supplies have been rendered outside Austria. The competent Austrian tax office for such VAT refund applications is the tax office “Finanzamt Graz-Stadt, Conrad von Hötzendorferstraße 14-18, 8018 Graz”. Further information can be obtained by the web-site of the Austrian ministry of Finance: https://www.bmf.gv.at.

5.3.2.8 Other reporting requirements European Sales Lists Any entrepreneur making intra-community supplies from Austria to another EU-country must file monthly European Sales Lists. The European Sales Lists must be filed by electronic means on the last day of the following month at the latest. Late filing of European Sales Lists is subject to a fine amounting to 10 % of the sales not reported in time. Intrastat reports Entrepreneurs must file Intrastat reports with the Austrian statistic office if they make intracommunity purchases or intracommunity supplies. Intrastat reports only need to be filed, if the amount of the supplies or purchases exceeded EUR 300,000 in the preceding year. 5.3.3 Taxable transactions The taxable transactions comprise:  Supply of goods;  Supply of services (transport, repair and maintenance, professional services, advertising, etc.);  Free charge supply of goods and services within Austria by a partnership to its partners or a company to its shareholders as well as to third parties affiliated with a partner or a shareholder  Free charge supply of goods and services to third parties or employees under certain criteria  The private use of business assets  Imports of goods from a non-EU territory into Austria;  Intra community acquisitions. Additionally, the transfer of goods by an entrepreneur from his undertaking to another Member State at his own disposal (Verbringung) is deemed a taxable intra community acquisition under specific circumstances;  Specific expenses that are not deductible from an income tax point of view; and  Expenses made abroad that would not qualify for input VAT deduction in Austria.  The sale of a whole business is regarded as a taxable supply according to Austrian VAT Act unless the sale of the whole business is subject to the Austrian Reorganization Act.

Austrian VAT falls due if the place of supply is in Austria. With regard to the question where the transaction takes place it has to be checked whether the transaction is qualified as a supply of goods or of services. 5.3.3.1 Place of taxable transactions Supply of goods If goods are not removed, they are treated as supplied where the goods are situated when the right to dispose of the property as an owner is transferred. When the goods are removed from one place to another, they are treated as supplied where the transport of the goods starts. In principle, an intra-Community acquisition of goods is deemed to take place where the transport of the goods ends. If the recipient uses a VAT identification number of another EU-Member State, in addition the supply will be deemed to be effected in this state unless the person receiving the goods proves that the acquisition has been subject to tax in the state where the transport ends. Special provisions are applicable for chain-transaction. Supply of services Basic rules As a basic rule, services rendered to entrepreneurs are deemed to be supplied at the place where the recipient has established his business. Beyond this background any person having a VAT identification number is considered to be an entrepreneur. Services rendered to non-entrepreneurs are deemed to be supplied at the place, where the supplier runs its business. Exceptions However, there is a range of exceptions to be considered to these rules. The exceptions to the basic rule are: ď&#x20AC; Services relating to real estate: Generally, supplies of real estate or supplies of services connected with land take place where the land is situated. ď&#x20AC; Passenger transport services: Passenger Transport services are supplied where the transport takes place. ď&#x20AC; (If the transport takes place within the territory of Austria and a third state, then only at part which takes place in Austria will be subject to VAT in Austria). An intra-

community transport takes place where the transport starts.  Other transport services rendered to non-entrepreneurs: other transport services rendered to non-entrepreneurs are supplied where the transport takes place.  Services supplied to non-entrepreneurs where performed/physically carried out: 

Cultural, artistic, sporting, scientific, educational or entertainment services and any services ancillary to any such services (including organising);



Handling and storage of goods and similar services related to transport activities;



Valuation of, or work carried out on, any moveable goods (e.g. repair services).

 Services supplied to non-entrepreneurs performed/physically carried out:

and

entrepreneurs

where



Restaurant and catering services



Granting of admittance to cultural, artistic, sporting, scientific, educational or entertainment services

 Services supplied where the recipient is seated outside the European Union. With respect to electronically supplied services, the service is also taxable at the place of residents of the recipient, if the recipient is a private person resident in the European Union. 

Transfers and assignments of copyrights, patents, licenses, trademarks and similar rights;



Advertising services;



Services of consultants, engineers, consultancy bureaux, lawyers, accountants, boards of directors, interpreters and other similar services;



Technical, legal and commercial consultancy;



Data processing;



Supply of information;



Banking, financial and insurance services;



Leasing of personnel;



The services of agents who act in the name and for the account of another entrepreneur that provides services referred to in this point;



Leasing of moveable, tangible goods other than means of transport;



Telecommunication services;



Broadcasting services;



Electronically supplied services;



Short term renting of means of transportation is taxable, where the mean of transportation is handed over physically

5.3.3.2 Zero-rated supplies and VAT Exemptions The Austrian VAT Code includes a number of VAT exemptions. From an Austrian perspective, it is important to distinguish between zero rated supplies and tax exemptions. Tax exemptions result in the loss of the right to deduct input tax. If such services are supplied, the entrepreneur is not qualified for any refund of input VAT related to the tax exempt supplies. Zero-rated supplies (entitlement to input VAT deduction)  The supply of goods dispatched or transported to a destination outside the territory of the European Community;  Intra-community supplies - subject to the following conditions: 

The Austrian supplier obtains the VAT identification number of the customer and quotes it on his invoice;



The goods are dispatched to another EU member state (this does not have to be the country where the customer is based);



The Austrian supplier retains proof of dispatch to the other EU member state.

 The supply of services consisting of work on movable property acquired or imported for the purpose of undergoing such work and transferred back to a third country after the service was performed;  The supply of goods for the fuelling and provisioning of such aircraft;  The supply of other kind of services to meet the direct needs of the sea-going vessels or of their cargoes;  The supply of other kind of services, to meet the direct needs of such kind of aircraft or of their cargoes;  The supply of services including transport and ancillary transactions when these are directly linked to the transit or the export of goods, or to the imports of goods under certain circumstances;  Services supplied by brokers and other intermediaries, acting in the name and for account of another person, if they are part of certain exempt transactions;  International flights.

VAT exemptions (no entitlement to input VAT deduction)  Services provided by public social insurance;  Health services provided by doctors and hospitals  The granting and the negotiation as well as the management of loans by the person granting it;  The negotiation of or dealing in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the loan;  Transactions (including negotiation), concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;  Transactions (including negotiation), concerning currency, bank notes and coins used as legal tender, with the exception of collectors' items;  Transactions (including negotiation), excluding management and safekeeping, in shares, interests in companies or associations, debentures and other securities;  Management of special investment funds;  Insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;  The supply of land and buildings (option-model: can be treated as taxable supply);  The leasing or letting of immovable property for non-residential purpose (optionmodel: can be treated as taxable supply of service);  The supply of services and the delivery of goods of an entrepreneur resident in Austria whose turnover does not exceed an amount of EUR 30,000 p.a. (The threshold has been raised from EURO 22,000 to EUR 30,000 since the beginning of 2007).

5.4 Other taxes 5.4.1 Stamp duties Stamp duties (Rechtsgeschäftsgebühren) are a kind of tax levied on certain legal transactions in Austria. The tax is only levied on specific transactions enumerated in a list (Sec. 33 of the Stamp Duty Act (Gebührengesetz or GebG)). This list includes in particular: adoption agreements, lease agreements, declarations of suretyship, specific gaming and wagering contracts, mortgage agreements, extrajudicial settlements, contracts of

assignment and bills of exchange. Due to a change of the Stamp Duty Act, loan and credit arrangements do not trigger stamp duty any more since the 1st January 2011. For stamp duty purposes it is fully irrelevant, if Austrian civil law or foreign civil law governs a legal transaction. To the extent these legal transactions are governed by the Real Estate Transfer Tax Act (GrEStG), the Inheritance and Gift Tax Act (ErbStG), the Capital Transfer Tax Act (KVG) or the Endowment Tax Act (StiftEG) an exemption from stamp duty applies. Legal transactions are also exempt from stamp duties if they are entered into to perform or secure obligations resulting from transactions subject to those laws (or the Stamp Duty Act itself). Comparable foreign tax laws are irrelevant in this respect. Basically, there are no double taxation agreements with respect to Stamp Duties. In spring 2007 the Austrian Federal Ministry of Finance issued comprehensive guidelines on the Austrian Stamp Duty Act, which will be applicable to future transactions as well as past transactions, as long as the underlying Stamp Duty is not statute-barred. 5.4.1.1 Principle of documentary evidence (Urkundenprinzip) As a rule, stamp duty is levied only, if a legal document is drawn up on the legal transaction. Legal transactions which have not been recorded in writing - also those enumerated in the above list - are basically not subject to the duty, i.e. contracts entered into orally or conclusively do generally not trigger stamp tax. In breach of this rule laid down in law the Austrian Stamp Duty Guidelines provide that contracts which have been entered into virtually (e.g. by E-Mail) are also subject to Stamp Duty, even if the parties to the contract have not printed out the E-Mail (and by that produced a document of evidence within the meaning of law). It is up to the tax courts to state, if the Guidelines are in conformity with the Stamp Duty Act. Under which circumstances does an instrument trigger Austrian stamp duty? Stamp duty becomes payable only, if a document was drawn up in Austria. In case documents are drawn up abroad - irrespective of the fact that they constitute a foreign document - stamp duty might be triggered under certain circumstances. Foreign documents not covered by these provisions therefore do not trigger stamp duty. Therefore, stamp duty in some cases can be avoided by drawing up a document abroad. Both the Austrian Constitutional Court and the Supreme Administrative Court confirmed that this represents a legal form of avoiding stamp duties. 5.4.1.2 Domestic documents Documents drawn up in Austria therefore generally trigger stamp duty on the respective legal transactions whether or not the contracting parties are Austrian nationals or

foreigners and whether or not the object covered by the legal transaction (e.g. the object of a lease agreement or a mortgage agreement on real property) is located in Austria or abroad. To give an extreme example, if two Japanese meet in Salzburg during their trip to Europe and sign a lease contract on a pub in Tokyo (Japan), according to Austrian legislation stamp duty will be triggered. The lessor's status as a foreigner will be considered only insofar as he will not be obliged to calculate the stamp duty himself, but may file the contract for stamp duty purposes with the tax authorities. For stamp duty purposes in this case, it is irrelevant that foreign (civil) law applies and that e.g. a foreign currency is agreed upon. If documents are drawn up in Austria, cross-border aspects of the underlying transaction do not avoid stamp duties. Many examples could be given apart from that of leasing premises located abroad or mortgaging real property located outside Austria. 5.4.1.3 Foreign documents If all foreign instruments were exempt from stamp duty, the contracting parties could easily avoid Austrian stamp duty by shifting the actual place or simply the legal place of contracting abroad. Therefore, in a large number of cases, foreign instruments also trigger stamp duty on the respective legal transaction. There are other cases in which foreign instruments may trigger Austrian stamp duty, namely, if the original or a notarised copy of the document is brought to Austria and either the requirements mentioned below (legal transaction concerns an object located in Austria or entitles or obliges a party to render a service in Austria) are met or if an act of legal relevance, based on the legal transaction, is performed in Austria or the instrument is used before an Austrian public authority. 5.4.1.4 Witnessing documents (rechtsbezeugende Urkunden) It should be kept in mind that not only documents establishing and evidencing a legal transaction between two parties are subject to stamp duty, but also any other document which meets specified criteria:  It is drawn up at any point of time after a contract has been concluded orally or conclusively (= not in written form) and therefore has not triggered stamp duty at first instance;  It is signed by at least one party to the underlying contract;  It may be used as proof that in former times a contract has been concluded orally or conclusively between specified parties at specified terms;  It has to state all “essentialia negotii” (= all essential parts of the former transaction,

such as parties, terms, and so on);  The witnessing document has to be handed over to the party to the contract who may derive claimable rights from such a witnessing document (e.g. the borrower of a loan confirms in writing that he has been granted a loan at specific terms and hands over this confirmation to the extender of the loan). In practice it is often difficult to avoid the establishment of “witnessing documents” after having successfully avoided the stamp duty on the transaction and the “document of evidence”. An often occurring mistake is the establishment of a witnessing document in Austria after having avoided the stamp duty by means of a foreign document. However, stamp duty can only be triggered once by a contract. Multiple copies of one and the same contract do not trigger additional stamp taxes. Therefore, if stamp duty has been paid for an agreement at first instance, “witnessing documents” created afterwards do not trigger additional stamp duty. Specific types of transactions subject to stamp duty:  Loan and credit agreements: Since 1st January 2011 loan and credit agreements do not trigger stamp duty any more.  Leasing agreements  Surety and similar agreements (such as entering into a joint and separate liability): are subject to stamp duty as long as the liability of the obliged person is accessory. Therefore, no stamp duty is levied on guarantees, the assumption of liabilities with full discharge of the prior debtor, and any other type of abstract obligation of the third party.  Assignment of rights: the transfer of receivables, rights, patents, trademarks, and any other contractual position (e.g. CO2-emission-rights) from one party to another (without ceasing of the existence of the right) is subject to stamp duty. In some cases it is easy to avoid the stamp duty (e.g. subrogation of receivables instead of selling receivables or implementing factoring), in other cases it is more complicated (especially, if official registers (such as the patent register) are involved). 5.4.2 Real estate transfer tax 5.4.2.1 Taxable events Legal transactions are subject to real estate transfer tax only in so far as they refer to domestic real property.

For Real Estate Transfer Tax purposes, it is irrelevant whether an Austrian national or a foreigner enters e.g. into a sale and purchase agreement for domestic real property. Likewise, it is clearly stated that the acquisition of foreign real property by an Austrian national does not trigger real estate transfer tax in Austria. In both cases, it is irrelevant where the contract is effected (in Austria or abroad) and/or which legal jurisdiction (domestic or foreign civil law) applies to the legal transaction (or with respect to a tax modification by a rescission of the underlying contract). One of the substitutional cases also triggering real estate transfer tax is the consolidation of all shares of the company owning real property in the hand of a single shareholder or the transfer of all the shares of such a company. This provision only applies to a company's domestic real property, not to its foreign real property. The company may be a domestic or a foreign entity. In this context the taxpayer must be the party in whose hand the shares are consolidated. It may be the case that this is the foreign company's sole shareholder who may be either an Austrian national or a foreigner. If all of a company's shares are held by controlling and controlled enterprises (see 5.1.3.2, VAT-group), the prerequisites of "consolidation of shares" are met, too. Cross-border tax integration is possible. The parties involved are jointly and severally liable for real estate transfer tax. The consolidation of shares is not a transaction recorded in the Land Register. In addition, the taxpayer does not acquire any domestic real property in such a case; he only acquires shares in a company that is not necessarily domestic, but simply owns domestic real property. 5.4.2.2 Tax base  Definition of the tax base of the Real Estate Transfer Tax Act is very wide. It typically amounts to the consideration for the transfer of real estate (as long as it equals fair market value) including possible mortgages transferred to the purchaser.  If no adequate consideration was granted and/or a consideration cannot be defined, the tax base is three times the assessed value of real estate for tax purposes (dreifacher Einheitswert). This applies to contributions of Austrian real estate into an Austrian company or partnership without capital increase, too.  In case of a consolidation of shares in the hands of a single owner, the tax base is always three times the assessed value of domestic real estate owned by the domestic or foreign company.  If Austrian real estate is transferred in the course of a restructuring of the legal form of a business within the meaning of the Austrian ReorganizationTax Act (Umgründungssteuergesetz), the tax base will be twice the assessed value of the real estate.

5.4.2.3 Tax rate The standard tax rate in Austria's Real Estate Transfer Tax Act is 3,5 %. The rate is reduced to 2 %, if real estate is transferred between close relatives and/or spouses. In case of a consolidation of shares, the 3,5 % rate always has to be applied. Furthermore, registration fee of 1,1 % becomes due. 5.4.2.4 Filing requirements The deadline for filing real estate acquisition tax return with the competent tax authorities is 45 days after the end of the month, in which the taxable event happened. Afterwards, the tax authorities render an assessment notice containing the amount to be paid by the taxpayer. Instead of filing a tax return, the taxpayer can also engage a lawyer or a notary public who is allowed to perform a self-assessment procedure and forward the tax collected from the taxpayer to the tax authority. 5.4.3 Energy duties Austria levies the following taxes on energy:  “Erdgasabgabe”, a tax on natural gas;  “Elektrizitätsabgabe”, a tax on electricity;  “Kohleabgabe”, a tax on coal; and  “Mineralölsteuer”, a tax on petroleum. Contemporaneously with the imposition of certain energy taxes in the year 1996 the “Energieabgabenvergütungsgesetz” – a law which provides for the refund of energy taxes paid – was introduced in Austria. Since that the federal law was subject to several amendments in order to harmonize it with the Energy Tax Directive released by the European Union. First of all, from 2011 onwards, the refund of energy taxes is only applicable for companies producing tangible assets. Refund of energy taxes is restricted by amount and can only be reclaimed if the taxes paid exceed both 0,5 % of the so-called “Nettoproduktionswert” and the sum of the (minimum tax) retained amounts. The “Nettoproduktionswert” represents the difference between the turnover of the company within a fiscal year and the operating expenses for supplies of goods and services which were provided to the company and which are connected to VATable supplies in Austria. Turnover and expenses have to be calculated in accordance with the Austrian VAT Act. The (minimum tax) retained amounts depend on the energy source used and are explicitly listed in the “Energieabgabenvergütungsgesetz”. The amount of the energy taxes refundable is calculated in a special manner: the higher

amount of either the 0,5 % “Netto-produktionswert” or the sum of the (minimum tax) retained amounts has to be deducted from the energy taxes paid. If the result of this calculation is positive, the calculated amount can be reclaimed after deducting a general retained amount of EUR 400. The application for the tax refund has to be filed for each year separately with the tax office in charge of the VAT. Due to the Energy Duty Refund Act (“Energieabgabenvergütungsgesetz”) the tax payer can apply for energy tax refund retroactively for the past five years. In the case of the tax on petroleum, refund is restricted and can only be reclaimed for certain explicitly listed products (i.e. fuel oil extra light, light, middle and heavy as well as liquid gas, not comprising fuel used for cars). No refund will be granted if the energy sources are used for the production of warmth, steam or warm water which are not directly used for purposes of the operating business. 5.4.4 Insurance tax There is insurance tax of either 4% or 11% levied upon payment of the insurance premium for specific types of insurance agreements. 5.4.5 Capital duty The legal basis of Austria's capital transfer tax (capital duty) is the Capital Transfer Tax Act (Kapitalverkehrsteuergesetz or KVG) of 1934 and EC Directive 69/335/EEC. Therefore, the rulings of the ECJ concerning capital duties based on Directive 69/335/EEC must be obeyed. In addition, there are no double taxation treaties covering capital duties. 5.4.5.1 Taxable events The following transactions are subject to capital duty:  Issuing shares in a domestic company - e.g. the transfer of capital upon the establishment of a company or an increase in its share capital, the granting of a profit-participating loan to a company, the establishment of silent partnerships with companies, and issuing of profit-participation rights by a company;  Contributions of capital to a domestic company after its establishment on the basis of a shareholder's legal obligation - e.g. a supplementary contribution according to the Law on Private Limited Companies (GmbHG);  Unsolicited capital contributions to a domestic company after its establishment - e.g. by a waiver of claims by a shareholder, non-repayable grants by shareholders, transfer of assets between the company and its shareholder in favor of the company that are not at arm's length, the granting of interest-free loans by shareholders (taxable base = interest foregone), and guarantees or bail provided by a shareholder to the company waiving the right of recourse; according to rulings of the Supreme

Administrative Court, such contributions by shareholders are unsolicited even if the shareholders implement such measures due to economic pressure exerted by the creditors;  The transfer of a foreign company's registered office and/or place of management to Austria (this rule does not apply to companies established in the European Union); the tax is triggered upon registration of the foreign company in the Commercial Register (Firmenbuch) in Austria; and  The transfer of assets by a foreign company to its domestic branch (this rule does not apply to companies established in the European Union); with regard to this provision, a substance-over-form approach applies. What is a "domestic company"? The Capital Transfer Tax Act contains a broad definition of the legal forms constituting a company. They are:  A public company or a private limited company established under Austrian Law Aktiengesellschaft (AG) or Gesellschaft mit beschränkter Haftung (GmbH);  A limited partnership established under Austrian law - Kommanditgesellschaft (KG) or Kommanditerwerbsgesellschaft (KEG) - if one of the fully liable partners is a domestic company or a comparable foreign company (it is not necessary for the company to be the only partner who is fully liable); this also applies to cases where the fully liable partner of an Austrian limited partnership is also a limited partnership whose fully liable partner is a company (two-tier limited partnership); and  A company or limited partnership established under foreign company law that is comparable to an Austrian AG, GmbH, KG or KEG, whose place of management is in Austria. Who is a "shareholder" in a domestic company? A shareholder is an individual or legal entity holding a direct interest in a company. An affiliated company other than the direct shareholder is not a shareholder within the meaning of the Capital Transfer Tax Act. Therefore, the capital duty in Austria can often be avoided by making a contribution, via the grandparent company (no substance over form principle). If a company is financed through shareholder grants or interest-free loans, the financing should not be implemented by the direct shareholder, but by another affiliated company, in order to avoid capital duty.  Sometimes it is not possible to act via affiliated companies. The issuance of shares by a company requires the direct shareholder to pay the issue price. The ECJ ruled in

2002 (“EStAG”-case) that Austrian capital duty could not be avoided if the issue price is paid by the grandparent company, rather than the direct shareholder. In cases, where the direct shareholder's obligation is fulfilled by the grandparent, payment effected by the grandmother company is attributed to the direct shareholder and taxed accordingly (theory of attribution, Zurechnungstheorie).  In other cases, where the grandparent does not fulfill an obligation of the direct shareholder but acts in its own name and for its own account, the contribution effected by the grandparent should basically not be subject to capital duty.  According to a ruling of the ECJ in 2006 (“Senior Investments BV”-case), contributions of the grandmother company may be attributed to the direct shareholder, if the contribution is exclusively favouring the direct shareholders´ interests and stake (theory of interest, Interessenstheorie). This theory, of course, must not be applied, if mainly the economic interest of the grandmother company or of the whole group of companies is favoured or if the direct shareholder is a mere holding company. The Austrian Federal Ministry of Finance confirmed this understanding of the ECJ-ruling in spring 2006.  According to a ruling of the Austrian Supreme Administrative Court, the substance over form approach is applied in cases of an abuse of law. The Supreme Administrative Court assumed an abuse of tax law where a grandparent contributed a large amount of money to its two-tier subsidiary and two days later was merged into the parent (i.e. became direct shareholder). What is an "interest" within the meaning of the Capital Transfer Tax Act?  Since public and private limited companies as well as specific limited partnerships are deemed to be companies within the meaning of the Capital Transfer Tax Act, shares in such entities are interests within the meaning of law. There is only one exception: In the case of a limited partnership, only the participations of the limited partners are qualified as interest. The holdings of fully liable partners are not subject to capital duty.  If a GmbH becomes fully liable partner of a limited partnership in which only individuals participate, the shares of the limited partners will be subject to capital duty, whereas the interest of the fully liable partner is not.  It is provided that profit-participating rights (issued by a company), silent partnerships (entered into with a company), and profit-participating loans (granted to a company) or claims bearing a share in profits are subject to capital duty.  The Austrian Supreme Administrative Court has a very broad understanding of what

can be treated as a profit-participating right (substance over form approach). The waiver of a claim against a company for a share in the profits (e.g. 60 %) is subject to capital duty. 5.4.5.2 Exemptions from capital duty  Principle of "taxation only once": Amounts that have already been subject to capital duty may not be taxed again. This may happen when profit-participating rights, silent partnerships or profit-participating loans are converted into share capital in exchange for shares. The same applies to a capital increase out of a company's resources if a direct shareholder contributed them.  Exemption based on Directive 85/303: The issuing of interests in a company or an increase in such participations is exempt from capital duty if the interest is granted as consideration for the contribution of a business, a division or all the assets and liabilities of another company. According to the ECJ, a 100 % interest in a company does not qualify as a business or division. An exemption for share-for-share exchanges from capital duty is available under the Restructuring Tax Act if the shares transferred amount to at least 25 % of the capital and have been held for 2 years.  “limitation of taxation”-rule: according to Art 4 par 2 and Art 7 par 1 of the EC-directive 69/335/EEC and the ruling practice of the Austrian Administrative Supreme Court basically taxable events must not be subjected to capital duty, if the relevant event was not taxable on July 1, 1984, or was taxable at the maximum rate of 0,5 %. This is one of the reasons, why contributions of the indirect shareholder are not subject to Austrian capital duty. 5.4.5.3 Tax rate There is a single tax rate of 1 %. 5.4.6 Inheritance and gift tax Since 1st August 2008 neither inheritance nor gift tax is levied in Austria any more, as the Austrian Constitutional Court declared the Austrian inheritance and gift taxation unconstitutional. 5.4.6.1 Donation Declaration Act In order to avoid unnoticed transfers of assets, the transfer of assets without consideration needs to be declared with the Austrian tax authorities since 1st August 2008 (Donation Declaration Act, SchenkMG). The declaration must be filed with the Austrian tax authorities within three months after the transfer of the assets. All persons, who are involved in the transfer, are generally obliged to file the declaration. If – against the law – a declaration is

not filed with the Austrian tax authorities on time, a fine of up to 10% of the value of the transferred assets is levied. 5.4.6.2 Exemptions  If real estate is transferred without consideration, a declaration need not be filed with the Austrian tax authorities, as the tax authorities will be informed about the transfer due to the obligation to pay real estate transfer tax.  The transfer of assets do not have to be declared between certain family members if the value of the transaction does not exceed EUR 50,000 within one year.  Furthermore, a declaration need not be filed if assets are transferred between persons, who are not family members, and the value of the transfer does not exceed EUR 15,000 within 5 years.  Transfers, which are encompassed by the Endowment Tax Act, need not be declared separately due to the Donation Declaration Act.

6. Logistical services and customs 6.1 Introduction Austria has been a member of the EU since January 1, 1995 and is committed to implement the EC Directives. Austria introduced a new customs law with the ZollrechtsDurchführungsgesetz (ZollR-DG) and the Zollkodexdurchführungsverordnung (ZK-DV). These regulations follow the regulations and the directives of the EU. Therefore, the Austrian regulations are based on the basic notion of the EU guidelines that goods originated from a member country can circulate freely within the EU. Goods imported from a non-EU member to the EU internal market have to be cleared with the customs authorities. Regarding the transfer of goods between EU member countries and non-EU member countries, import VAT has to be considered, which falls due when goods are imported from non-EU countries to Austria. Import VAT is part of the Austrian VAT Code and the administration of the import VAT is partly executed by the customs office.

6.2 The Austrian Customs Code 6.2.1 Subject - Basics The Austrian Customs Code is based on the Common Customs Tariff of the EU (CCT). It implies several customs procedures. Some of the procedures do not lead to a Customs liability, even when goods pass into the Internal Market of the EU. These procedures comprise:  Bonded warehouse (this exemption follows the notion that goods stored on a certain place are deemed as if they have not been imported);  Inward processing (Aktive Lohnveredelung): This exemption applies if goods are imported only to do processing and will be re-exported afterwards;  Temporary use;  Processing prior to clearance (goods are exempt if they are imported to be processed and declared for customs purposes after the processing); and  Transport in a free trade area. The most important procedure provides for goods cleared for free circulation. Customs are basically triggered when goods are imported for free movement into Austria and fall due when the customs declaration is submitted to the customs offices.

The maturity date does not coincide with the customs declaration. After the customs declaration the customs office usually determines the customs duty and issues a notification to the person who is responsible for the payment of the customs duty. This person is committed to pay the customs duty within the term denoted on the notification. The ZollR-DG contains two different sorts of exemptions:  Exemptions due to a rate of “0” (Tarifliche Zollbefreiungen): This exemption is used in the majority of the cases regarding exemptions for basic materials. The application of this exemption depends on the qualification of the goods concerned.  Exemptions which are not based on customs provisions but other notions (Außertarifliche Zollbefreiungen) due to the characteristics or the intended use of the goods: dowry, items of estate, specific goods sent in small consignments. 6.2.2 Base and tariff of the customs The Austrian Customs Tariff (Zolltarif) is patterned according to the EC Common Customs Tariff (Council Regulation 87/2658/EEC of July 23, 1987). The imported goods have to be qualified under the positions of the Nomenclature. Customs is in general based on the customs value, which depends on the value of the goods. Only in very rare cases the customs value depends on other characteristics of the imported goods (e.g. the weight of the goods). Generally, there are a number of different methods to determine the customs value. The general source for the determination of the customs value is the consideration paid for the goods mostly referred to as transaction price (Transaktionswert). The base for the customs basically has to include all costs relating to delivery of the goods to the place of entry into the EU. Otherwise, some adaptations have to be made. If it is not possible to determine the consideration of the goods concerned, the determination is based on the value of similar goods, or on the sum of the costs. Furthermore, specific amounts have to be added to this value (costs of packing) if these costs are not considered in the price of the goods. 6.2.3 Miscellaneous The Community Customs Code provides for a number of preferences, which depend apart from other aspects as characteristic and sort of the goods - on the origin of the goods. Based on these preferences these goods are subject to reduced tariff when goods are cleared for free circulation, if the goods originate from parties situated in these specific countries. These preferences are based on agreements concluded by the EU and certain non-EU countries or on unilateral agreements.

6.3 Import VAT Sec 1 Para 3 Austrian VAT Code (Umsatzsteuergesetz 1994) provides for a kind of VAT, which is levied if goods are imported from non-EU member countries to Austria. The tax is generally based on the customs value. The tariff depends on the sort of the goods and is either 10% or 20 %. Sec 6 Austrian VAT Code contains a number of VAT exemptions (see 5.3.3.2) that also apply to Import VAT. The administration is mostly linked with the administration of the customs. Thus Import VAT will be declared when the goods are cleared for free circulation and the customs offices are therefore responsible for the administration and determination of Import VAT. It should be considered that Import VAT is very similar to the normal VAT. Entrepreneurs are therefore under certain conditions qualified to deduct the Import VAT as Input VAT. Since October 2003, a self-assessment scheme for Import VAT has been available upon application for registered Austrian entrepreneurs under certain circumstances. This scheme can lead to substantial cash-flow benefits for entrepreneurs that are entitled to a full deduction of input VAT as Import VAT can at the time of application be deducted as input VAT and thus no cash payment is necessary.

6.4 Anti-Dumping and countervailing duties EU-Anti-Dumping and Anti-Subsidies Regulation provides for the imposition of antidumping or countervailing duties in line with the GATT (â&#x20AC;&#x153;General Agreement on Tariffs and Tradeâ&#x20AC;?) Anti-Dumping Code when a formal investigation shows that dumping or subsidization has taken place, such dumping or subsidizations causing or threatening material damage to an industry segment in the EU and the imposition of such duties is in the interest of the EU. If the conditions are met, the EU Commission may impose respective duties.

6.5 Product-Piracy Furthermore, Austria has implemented the EU-Directive 1383/2003 published on July 22, 2003 regarding product piracy. According to the Austrian Product-Piracy Act, customs authorities are entitled to take various measures to avoid the importing of goods under suspicion. Such measures especially include the possibility to confiscate and to destruct such goods.

7. Immigration, Employment and Personal tax 7.1 Employment regulations 7.1.1 Labour regulations and work permits In principle, all labour law provisions applying to Austrian employees are also valid for foreign employees. However, there are further restrictions: An employer may only employ foreign employees who have obtained a work permit, assignment permit or a dispensation certificate. The work permit is valid for a certain job, in a certain company, for a maximum period of one year and automatically expires upon termination of employment. Foreigners who are nationals of the "old" EU member states are entitled to work in Austria without a work permit. For the new accession countries, special transition rules apply. From July 1st, 2011, onwards Austria introduced a new work visa for skilled non EU workers, which is called â&#x20AC;&#x153;Red-White-Red-Cardâ&#x20AC;?. An employment contract is void in the event of occupation without work permit. The employment may be terminated with immediate effect at any time by unilateral declaration by either the employer or the employee. Even if an employment contract proves to be void, the employee retains all claims against his/her employer as if he/she had a valid employment contract. A work permit is also required in case a foreign employer who has his/her place of business abroad employs foreign nationals in Austria. Services of a type, which cannot be performed by Austrian nationals, such as business negotiations, taking part in conferences or trade fairs, and assembling as well as repair of plants, and equipment that cannot be done by Austrian nationals, are exempt from this requirement, if the activity is for a short period (some days or a few weeks). Foreign nationals who work based on international agreements on cultural activities do not need a work permit. Refugees under the Geneva Convention, students working temporarily during vacation, artistic, scientific and embassy staff and those engaged in work of a pastoral nature are also exempt from the Foreign Labour Act. 7.1.2 Collective agreements Collective agreements are very important in Austria, nearly every line of business has concluded collective agreements with the Austrian labour representatives. They comprise the working hours, trial period, terms of termination, payments in case of absence, special payments, allowances and, last but not least, the minimum compensation.

However, collective agreements can only include regulations, which are more favorable for the employee than labour law. In case a collective agreement is in force, it is not possible to change the provisions of an individual employment contract to the disadvantage of the employee. Whether a collective agreement is applicable or not, depends on the personal, professional and regional scope of the agreement. The professional range of application depends on the affiliation of the employer to the Chamber of Commerce.

7.2 Personal income tax 7.2.1 Personal income tax liability Individuals who are resident in Austria are liable to Austrian income tax on their worldwide income. Individuals who are resident outside Austria are exempt or only liable with respect to specific income sources or assets that are situated there. A person whose domicile or customary place of abode is located in Austria is deemed to be resident. The domicile of an individual is the place where he occupies a residence under circumstances, which indicate that he will retain and use it not merely temporarily (e.g. if he maintains a house or apartment). Customary place of abode is assumed in case of physical presence over an extended period. Individuals are considered to have a customary place of abode in Austria if they remain there for 183 days or more during any tax year. Citizenship and nationality are not relevant. Sometimes an individual may be treated as resident both in Austria under domestic law and in another country according to that country’s tax law. If the foreign country has a double tax treaty with Austria, the treaty usually contains rules to decide in which of the two countries the individual is resident for the purposes of giving double tax relief and determining the respective country‘s taxing rights. 7.2.2 Taxable income Residents Residents are subject to income tax on their worldwide income derived from the following seven sources:  Agriculture and forestry;  Independent personal services; typically professional activities;  Trade or business, including gains on the sale of a business or partnership share;  Employment; e.g. wages and salaries, social security pensions;  Investment of capital; e.g. dividends, interest, capital gains, profit shares of dormant partners;

 Rentals and royalties;  Other income specified by law including income from the alienation of assets and real estate. Income from sources other than those mentioned above is not taxable. Non-residents Non-residents are subject to income tax in Austria on the following categories of income only derived from Austrian sources:  Domestic agriculture and forestry;  Trade or business carried out through a permanent establishment or a permanent representative in Austria;  Independent personal services performed or utilized in Austria;  Employment if the activities are performed or utilized in Austria;  Capital profits such as dividends, capital gains and other earnings from Austrian stock corporations and private limited liability companies, similar earnings from participation rights, earnings from a dormant partnership, interest on loans secured by mortgages on real estate located in Austria.  Rentals and royalties if the real estate is located, or the patents etc. are utilized in Austria;  Capital gains realized upon disposal of Austrian real estate; Depending on the type of income, Austrian income tax is payable either by way of annual assessment upon filing of an income tax return or through withholding at source. In case the tax is assessed by filing an income tax return, a fictitious amount of EUR 9.000 is added to the actual income. Income tax is withheld at a flat rate of 25 % on dividends paid by an Austrian company. Furthermore, starting in 2012, capital gains resulting from the disposal of real estate will also be subject to a 25 % gross withholding tax (grandfathering-rules for real estate acquired before 1 April 2002 are available resulting in a decreased tax-rate of either 15 % or 3,5 %). A 20 % gross withholding tax (alternatively: 35 % withholding tax on net income taking expenses into consideration) is levied on income from commercial or technical consulting services, directors' fees, royalty income and income from personal independent activities carried out in Austria, as artist, athlete, supervisory board member, etc.

There is basically no withholding tax on interest income paid out to non-residents if certain requirements are met (see 5.2). Where income tax is assessed, income or business related expenses are only deductible to the extent that they are economically related to the respective Austrian source income. Special personal expenses (Sonderausgaben) are only deductible if incurred in relation to Austrian-based circumstances. 7.2.3 Determination of taxable income 7.2.3.1 Business income Net income from agriculture and forestry, from trade or business, and from independent activities is determined by deducting business expenses (Betriebsausgaben) from gross income resulting in taxable profits. The accrual method is mandatory if the turnover p.a. exceeds EUR 700,000 (in the case agriculture and forestry EUR 400,000). Losses incurred in relation to those activities may be carried forward as set out under 5.1.3.1, if proper books and records are maintained. There are also types of businesses which may use the cash basis of accounting (e.g. firms of members of the liberal professions, such as doctors, lawyers, certified public accountants, architects, and businesses not exceeding certain limitations as to taxable revenue). There are no general standard deductions for businessrelated expenses. In specific cases, however, a lump-sum percentage of the gross turnover (6 % - 12 %) can be deducted as expenses. Net income from all other categories of income is determined by deducting expenses incurred to acquire, safeguard and maintain this income (income-related expenses; Werbungskosten) from gross income. That income is usually computed on a cash-basis. 7.2.3.2 Salary income Expenses deductible from employment income are e.g. contributions under the Austrian social security system or obligatory contributions to foreign schemes. Furthermore, income from employment is reduced by income related expenses not covered by the employer (e.g. amortization of necessary home computer, acquisition of business books). A minimum lump-sum deduction of EUR 132 is granted as income-related expenses. Nonrecurring payments of salaries and wages, e.g. 13th and 14th salaries, bonus payments, etc., enjoy a tax-free allowance of EUR 620 per year in the aggregate; the exceeding amounts up to 1/6 of the regular annual salary is taxed at a reduced fixed rate of 6 %, lowering the average tax rate to about 43 %. Starting from 2013, extra payments exceeding the tax-free allowance of EUR 620 plus a gross amount of EUR 24,380 will be subject to an increased, progressive tax-rate starting from 27 % up to 50 %, what effectively means an increase in the applicable average income tax rate for top earners by

3 % to 6 % The increase in tax-rates for top earners is said to be of temporary nature and shall phase out in 2016. 7.2.3.3 Dividends Dividend distributions of Austrian-resident corporations are subject to withholding tax at source at a flat rate of 25 % (withheld by the corporation distributing the dividend). The recipient has to gross up income received. The tax withheld is credited against his tax liability if the tax payer decides to make use of the option for assessment. Otherwise, the 25 % withholding tax on dividends is a final one. Foreign dividends are subject to 25 % Austrian withholding tax but foreign taxes withheld at source will be set off against the Austrian withholding tax up to 15 %. 7.2.3.4 Interest income Interest income from saving deposits and credit balances on current accounts (if paid by Austrian-resident credit institutions) as well as interest income from interest-bearing securities (bonds and debentures, mortgage bonds, if the interest paying agency is located in Austria) is basically subject to 25 % withholding tax which is a final one. If the dividend or interest is paid by an agency abroad, foreign withholding tax has to be considered. A flat tax of 25 % on this foreign-source income is either withheld by Austrian banks (taking the foreign tax already withheld into consideration thus reducing their withholding) or the income has to be included in the income tax return in order to treat Austrian and foreign investment income equally (EU regulations). 7.2.3.5 Capital gains For business enterprises, gains on the sale of business assets are generally included in taxable income and taxed at ordinary rates (a reduced rate applies in certain cases of retirement). If sales of certain fixed assets result in capital gains, tax may be deferred by offsetting gains against the cost of other fixed assets acquired within a certain period following the date of sale (rollover relief, see 2.2.2). Beginning from 2012, capital gains resulting from sales shares (including qualifying participations), securities or other financial assets (such as derivates, certificates etc) are subject to 25% income tax as a final tax (withheld by domestic banks) if the assets have been acquired after 31 December 2010 (resp 30 September 2011 for interest bearing securities and derivates) and sold after 31 March 2012. Realized capital losses may be set off against capital gains. Capital losses may set off against capital gains, interest income (with some exceptions) and dividends in a private portfolio. In a business portfolio half the capital losses may be set off against any kind of income due to the different tax rate.

Starting from 1st April 2012, furthermore, any capital gains resulting from a sale of real estate acquired after 1st April 2002 by private individuals will be subject to Income Tax at a flat rate of 25 % and will be treated in the same way as sales of businessmen. Furthermore, Income Tax will be levied on capital gains from a sale of real estate acquired before 1st April 2002. If real estate was subject to a re-dedication (transformed from grassland to building area after 1.1.1988).the tax rate applicable will be 15 %. In all other cases (no re-dedication or re-dedication before 1.1.1988) the tax rate applicable will be 3,5 %. Up to 2011, by contrast, capital gains realized by private individuals upon the sale of real estate basically have only been subject to Austrian Income Tax if the sale took place within a period of 10 years from the acquisition. Above all, gains from transactions considered as speculative by tax legislation i.e. if property other than real estate-property or financial property (eg works of art, antiques) is sold within one year after the date of acquisition, or if the sale occurs even before the acquisition. The total net gains from such transactions are taxed at ordinary rates if they amount to more than EUR 440 per calendar year. Losses from speculative transactions can only be offset against gains from such transactions realized in the same year. 7.2.3.6 Income from investment funds Taxation of investment fund-income in Austria is a rather specific issue subject to a series of complicated rules and regulations. The basic principle from a tax perspective is the principle of transparency: domestic and foreign investment funds are treated as transparent vehicles provided that the foreign funds comply with the Austrian reporting requirements. Taxable income of investment funds consists of ordinary (dividends, interest) and extraordinary income (capital gains realized at the level of the fund). Both types of income may be distributed or retained by the fund. Distributions of ordinary and extraordinary income are taxable in accordance with the rules and regulations applicable to those types of income. Basically, there is no difference between domestic funds and foreign funds in calculating taxable ordinary income. As regards capital gains realized by the fund, there has been a partial exemption applicable up to 2012, if the shares are held in a private portfolio. From 2013 onwards, capital gains realized by the fund are taxable without exemption. Undistributed income is deemed to have been distributed to the shareholders not later than four months after the end of the financial year for tax purposes and is taxed accordingly. The amount of withholding tax due on the deemed income is paid out by the fund. If such retained income is distributed later on actual distribution is exempt from tax. There are still some administrative requirements to be complied with by foreign funds to ensure that taxation of the foreign fund in Austria is the same as taxation of a domestic fund: The fund has to appoint an Austrian tax representative and has to meet the filing-

requirements of the Austrian clearing organisation OEKB (Oesterreichische Kontrollbank AG). If those requirements are not met, the foreign fund is taxed on a lump-sum basis. 7.2.4 Specific Deductions Taxable income can be reduced by the following items:  Special personal expenses not related to income of a particular source (Sonderausgaben). They include premium to voluntary health, accident and life insurances; payments incurred to finance private house building and improvement. For these categories a flat annual allowance of EUR 60 per year is granted (without any documentation necessary) unless higher payments are documented. 25 % of the actual payments are deductible within several limitations (up to EUR 2,920 per year for the taxpayer, another EUR 2,920 if the spouse has no income or only a very low income and additionally EUR 1,460 at a minimum of three children) from the tax basis. Furthermore, these deductions are phased out from an income exceeding EUR 36,400 up to EUR 60,000. The flat annual allowance is granted anyway. Other special expenses are certain recurring payments, expenses for professional tax advice, contributions to churches and other religious bodies if recognized by law (up to EUR 400 p.a); donations for research purposes with limitations; donations for certain charitable organisations mentioned in the list published by the Austrian Ministry of Finance; tax losses carried forward from previous years for earners of business income. These deductions are not subject to phase out.  Extraordinary expenses (aussergewöhnliche Belastungen) necessarily incurred by a taxpayer due to extraordinary circumstances may be deducted from taxable income, usually after considering a retention ranging from 6 to 12 % of the taxable income. The percentage of retention is reduced by another 1 % for the spouse and for each child that enjoys children's allowance (see below). In certain cases flat amounts are deductible (e.g. children's tuition away from home; invalidity certified by the health authorities) or without considering a retention (e.g. expenses following natural catastrophes). Taxable income is taxed at graduated marginal rates ranging from 0 % to 50 % (see 8.2). From income tax due the following deductions are available to resident taxpayers:  Taxpayers with employment income are entitled to EUR 54 per year  Sole earners with one child may deduct EUR 494 per year, if the spouse's income does not exceed certain limits; EUR 669 with two children, and additionally EUR 220 for every further child.  Taxpayers with employment income are entitled to EUR 291 for expenses incurred in

travelling between private residence and employment site  Pension earners are entitled to a deduction of EUR 400 per year (from 2005 onwards there is a phase out for this deduction from EUR 17,000 to EUR 25,000); 2011 onwards, pensions earners are eligible to an increased deduction of EUR 764 in case the pension income does not exceed EUR 13.000 and the partner’s income is below EUR 2,200 per annum.  There are family allowance and child deduction (EUR 58,40 for each child/month) granted to all taxpayers with dependent children. Furthermore, a tax allowance of EUR 220 per child per year (or EUR 132 if used by both parents) is available. Expenses for child care may be deducted for children until the age of 10 years in the amount of EUR 2,300 In case the employer provides a benefit it may be under certain conditions treated tax free up to a yearly amount of EUR 500. Foreign income taxes on interest or dividend income may be credited against the Austrian tax liability according to the respective Double Tax Treaty, but limited to the amount of Austrian income tax payable on that specific income. Based on the Double Tax Treaties concluded by Austria, employment income is normally taxable in the country where the work is performed. Most treaties, however, grant the sole right of taxation to the country of residence in cases where  the individual's stay in the country where the work is performed is less than 183 days, and  the salary is paid by an employer of the resident state and is not borne by a permanent establishment in the country where the work is performed. Income from independent personal services is usually taxed in the country of residence of the individual performing these services, unless the individual has a permanent establishment (feste Einrichtung) in the other country for performing his activities. Special rules apply to remuneration paid to artists, athletes, to directors' fees, etc. 7.2.5 Filing requirements and payment of tax In general, income tax is assessed for each calendar year based on an individual tax return to be filed by April 30 – respectively June 30, if filed electronically - of the following year. An automatic extension until March 31 of the second following year is granted, if the return is prepared by a tax advisor. Further extensions are available upon special and supported request. Basically, income tax returns have to be filed electronically. An official tax form may only be filed if electronic filing is impossible due to a lack of appropriate technical equipment.

After receipt of the return, the respective tax office will issue an assessment notice; any balance due is payable within one month after receipt of the assessment notice. Quarterly prepayments are assessed based on the prior year's tax or on an estimate; those prepayments are due on February 15, May 15, August 16 and November 15 and are credited against tax due. Income tax on employment income is withheld at source (wage tax; Lohnsteuer). A tax return is required if in addition to the income derived from the principal employment (that exceeds EUR 11,000) further income exceeding EUR 730 has been earned during the respective year. Furthermore, the employee may apply for a voluntary assessment if he is able to obtain tax benefits (e.g. by deduction of additional expenses). In case of other income a tax return must be filed, if the individual's taxable income exceeds EUR 11,000.

7.3 Social security and payroll taxes 7.3.1 Social security system Austrian social insurance is compulsory and comprises health insurance, old-age pension insurance, unemployment insurance and accident insurance. Social security contributions are determined as percentages of total monthly earnings (but only up to specified maximum amounts) and are borne partly by the employee and partly by the employer. Social security contributions for employees (“Angestellte”) 20121 Contributions by Employee

Pension insurance

10.25%

Employer

Total

Regular Payments Monthly maximum Assessment base in EUR

Special Payments Annual maximum Assessment base in EUR

12.55 %

22.80 %

4,230

8,460

Accident insurance

1.40 %

4,230

8,460

Health insurance

3.82 %

3.83 %

7.65 %

4,230

8,460

Unemployment insurance

3.00 %

6.00 %

4,230

8,460

Various other minor contributions are payable; e.g. for housing purposes and to a special fund intended to safeguard wages and salaries in case of insolvency, etc. As regards pension insurance, every employee is entitled to draw an old-age pension after having worked for a specified minimum period, and after having reached retirement age. In Austria, there have been major changes in the pension system in 2005. There are currently two regimes in place with complex grandfathering clauses.

Extra-ordinary increases – to be implemented from 2013 onwards - are already being discussed

The system of Austrian severance payment obligations changed from a defined benefit system to a defined contribution scheme in 2003. The system of severance payments applies to all private law employment contracts entered into from January 1, 2003 onwards. Some forms of self-employment are disregarded under the new system. This system does not provide for any payment upon termination of employment, (for contracts entered into before January 1, 2003, determined by the number of years of service and the last salary) but a continuous funding at a rate of 1,53 % of all salary compensation is obligatory. In order to safeguard the building up of an asset, the contributions have to be transferred to a separate severance payments-fund. 7.3.2 Wage tax Employment income is paid to employees net of wage tax. Base salary is often paid in 14 instalments, 12 of which are paid monthly. The 13th and 14th instalments are paid in June/July and November/December. The 12 regular instalments are taxed at the official rates listed above. The 13th and 14th instalments are tax-free up to EUR 620 per annum (cumulative; not pro-rated for periods of less than one year), with a favourable rate being applied to the excess amount. This favourable rate basically is 6 %. Other components of the compensation package such as bonuses paid once a year, have to be examined wheather they are (partly) taxable at 6 % or at normal tax rate. Starting from 2013, extra payments (13th and 14th instalment but also annual bonuses, etc) exceeding the tax-free allowance of EUR 620 plus a gross amount of EUR 24,380 (in total therefore EUR 25,000) will be subject to an increased, progressive tax-rate starting from 27 % up to 50 %, what effectively means an increase in the applicable average income tax rate for top earners by 3 % to 6 % The increase in tax-rates for top earners is said to be of temporary nature and shall phase out in 2016. The sole earner credit and the single parent credit may be claimed directly with the employer; employees have to submit income tax returns. For non-residents income tax is withheld at standard tax rates (the fictitious income addition of EUR 9.000 for non-residents does not apply to payroll withholding). The general tax credit, employee tax credit and commuter tax credit may be claimed. Special personal expenses, if related to the Austrian employment income, may be deducted. Employment income drawn by authors, artists, architects, athletes and entertainers for work carried out in Austria is subject to a 20 % withholding tax; this tax is computed from gross income. As an alternative a 35 % withholding from net income is available (optional). The following taxes and contributions are based on payroll and are borne by the employer: ď&#x20AC; The municipalities in whose area enterprises are located collect a municipal tax

amounting to 3 % on the salaries and wages paid.  A contribution to the Family Burdens Equalization Fund is payable at a rate of 4,5 % on the gross wages and salaries – basically this tax is also levied for employees working in Austria without fix base and payroll liability, but there is an exemption for EU citizens, who are attributable to the home country's social security system. In addition, members of the Chamber of Commerce are obliged to pay a surcharge (0,36 % to 0,44 % depending on the federal state).  Enterprises with staff employed in Vienna are subject to a special levy of EUR 0,72 per week and employee for the financing of the Vienna underground.

7.4 Expatriates 7.4.1 Social security Social Security is one of the most important issues on the table when it comes to cross border transfers of employees. Usually, Austrian expatriates sent to other countries are interested in remaining in the Austrian social security system that is considered rather advantageous (see 7.3). For Austrian employees sent to other EU Member States, EEAcountries or Switzerland, European social security regulations apply. Which of the relevant EU-Directives is to be applied, depends on “who” is sent to which country. 7.4.2 Taxation Inward expatriates The Ministery of Finance may grant special relief to individuals who take up residence in Austria to carry out research or development activities or who are sportsmen or artists by profession in order to compensate for the additional tax burden due to the removal. The possible relief, however, is limited to income other than that considered Austrian-source income of non-residents. According to a decree of the Ministery of Finance, expariates may deduct certain expenses for wage tax purposes. This provision applies to individuals who have not resided in Austria for the last 10 years if they work in Austria only temporarily (maximum 5 years) and if their salary is subject to Austrian tax. The deductible expenses include:  Moving expenses;  Expenses for a second residence at the place of work up to EUR 2,200 per month, provided that the expatriate keeps his main residence abroad (may be deducted even if the residence is not only used be the expariate himself but also by his family);  Private school fees for the taxpayer’s children up to EUR 110 per month; and

 Travel expenses to the residence abroad, up to EUR 281 per month. Outward expatriates Income tax benefits are granted to Austrian officials on duty in a foreign country, employees on assignment working abroad for more than one month and agents working in developing countries.

7.5 Taxation of private foundations 7.5.1 Establishment The contribution of assets to an Austrian private foundation by the settlor is subject to contribution tax (Stiftungseingangsteuer) at a flat rate of 2.5 %. Contributions of real estate are not subject to real estate transfer tax but also to contribution tax at an a surcharge for real estate transfer amounting in total to 6 %. Contributions to a private foundation by the settlor are corporate income tax neutral for the private foundation. 7.5.2 Income taxation of the private foundation Private foundations are subject to corporate income tax on their worldwide income. As a rule, the standard rate of 25 % applies. The preferential income tax treatment regime of private foundations - as outlined below only applies if both, the deed of foundation and the endorsement to the deed of foundation (if any) have been disclosed vis-à-vis the tax office. From 2011 onwards, an interim tax amounting to 25% is collected for the following types of (Austrian and foreign generated) income:  Interest income from cash deposits with and other claims against domestic and foreign banks;  Investment income from certain debt instruments (Forderungswertpapiere) if they were issued by public placement;  Income from investment funds if the underlying investment qualifies for the application of the reduced tax rate;  Capital gains from the disposal of shares in Austrian or comparable foreign corporations, if the shares have been held by the private foundation for more than one year prior to the alienation (otherwise the standard rate applies). A rollover relief is granted by offsetting the capital gains against the acquisition cost of a new participation (minimum participation 10 %) acquired within the same fiscal year

(except if the participation has been held by a corporate body in which the private foundation, the settler or the beneficiaries had a direct or indirect stake of at least 20 %). Alternatively, a tax-free reserve may be set up for the capital gains in the year of realization to the extent they have not been transferred to other participations in the same fiscal year. The reserve must be used for a rollover relief within one year from the sale of shares, otherwise it has to be dissolved and taxed as income.  Capital gains resulting from the sale of financial assets including shares, if the assets are acquired after 31 December 2010 (resp 30 September 2011 concerning interest bearing securities and derivatives); capital losses may be set off against capital gains.  The interim tax, as the name already suggests, is not a final tax, but only a prepayment on the income tax due on the benefits granted to the beneficiaries. Accordingly, any amount of interim tax will be credited against this benefit tax in the future. This means that – beginning from 2011 - distributions resulting from income which has already been subject to the interim tax are tax free at the time of actual distribution. From 2012 onwards, an interim tax amounting to 25% is also levied on capital gains resulting from the sale of real estate under the same conditions applied to sales of real estate of private individuals. Concerning the current income of the Private Foundation, the following types of income are tax-exempt for Austrian private foundations:  Dividends of any kind from a participation in an Austrian corporation.  Dividends of any kind from a participation in a comparable foreign corporation as long as the income does not derive from low tax jurisdictions (then the switch-over regime which is described in the chapter of dividend taxation for Austrian companies applies). 7.5.3 Taxation of payments to the beneficiaries Benefits granted by a private foundation to beneficiaries are subject to a 25 % withholding tax. In the case of benefits granted to individuals, this withholding tax represents a final income tax for the beneficiary. Any interim tax paid by the private foundation in previous years (12,5 % until 31.12.2010, 25% since 1.1.2011, see above) is credited against the withholding tax upon payments to beneficiaries. If the assets have been contributed after July 31, 2008, it is possible to distribute these assets tax free under certain detailed restrictions.

7.5.4 Termination of private foundation 7.5.4.1 Dissolution In the event of the dissolution of a private foundation, no liquidation tax is due at the level. Hence, the hidden reserves of a private foundation are not taxable. A final tax is levied only if a business unit or partnership shares are sold at the dissolution of the private foundation. However the final beneficiary is liable to tax on capital income for the assets received. A final tax of 25 % is levied on the market value of the assets transferred upon dissolution. 7.5.4.2 Revocation If the founder of a private foundation is an individual, she/he may make provisions for the revocation of the private foundation in the declaration of establishment. The tax treatment of the revocation of a private foundation is the same as the dissolution of a private foundation; the settlor is treated as the beneficiary (see above).

8. APPENDIX I 8.1 Tax treaties/ Withholding tax rates

Refund in %

Interest withholding tax under DTT in % *)

Refund in %

Royalties withholding tax under DTT in %

Refund in %

5/158)

20/10

0/109)

25/15

12.5

12,5

25/15

Austrian withholding tax in %

Dividends withholding tax under DTT in %

Algeria

Argentina

Armenia

Azerbaijan

Australia

Barbados

31)

5/15

4a)

5/10/15 15

5/15

20/10

0/10

11a)

20/15/10

5/10

20/10

20/15

Belarus

5/15

20/10

0/5

25/20

Belgium

151)

0/102)

25/15

20/10

Belize Brazil Bulgaria Canada China Croatia Cuba Cyprus

5/15

0/15

25/10

10/15/25

25 25 25 25 25

15)

5/15

7/10

10/15

5/15

20/10

15 9)

15/10/0 25

3a)

0/10

25/15

18/15

0/10

25/15

15/10

20/10 15

0/10 0

25/15 25

29)

25/20

28)

25/20

0/5 0/5

Czech Republic 5)

10 (0/10)8) 1)

15 (25/15)

0 (0)

25 25

0/5 0/56)

25/20 (25/20)

Denmark

101)

0/102)

25/15

Egypt (UAR)

Estonia

5/154) 1)

20/10

0/109)

25/15

5/1016)

20/15

25/15

12) 1)

25/10

25/20/15

Finland France Georgia Germany Greece

25 25 25 25 25

0/10 0/15

27)

0/5/10

8) 1)

5/15

20/10

32) 1)

-0

0/10

2) 32)

25 2)

25/15

0/10

25/15

Hungary

India

0/109)

25/15

Indonesia

Iran Ireland

10/15

15/10

0/10

25/15

Austrian withholding tax in %

Dividends withholding tax under DTT in %

Refund in %

Interest withholding tax under DTT in % *)

Refund in %

Royalties withholding tax under DTT in %

Refund in %

5/104)

20/15

0/59)

25/20

0/10

1) 4)

25/15

0/10

25/15

Israel

Italy

151)

0/109)

25/15

0/102)

25/15

15/5

Japan

Kazakhstan

Kyrgyzstan

10)

10/20

5/15

20/10 20/10

25/15

0/10

Korea (Rep.)

5/15

20/10

0/10

25/15

Kuwait

30)

Latvia

5/10

20/15

0/10

25/15

Liechtenstein

Lithuania

Luxembourg

Malaysia Malta Mexico

5/15

4) 1)

5/15

5/10

20/10 20/10 20/15 10

5/10

20/15

0/10

0/10 15

25/15 25/15 10

5 9)

0/10

16)

2/10

23/15 15

16)

5/10

20/15

5/1011)

20/15

16)

20/15

25/15

5/10

0/10

10/15

15/10

0/10

25/15

Moldova

5/15

20/10

0/5

25/20

Mongolia

5/108)

20/15

0/109)

25/15

5/1013) 14)

20/15

25/15

Morocco New Zealand

30)

Netherlands

Nepal

Norway

5/10 15

4) 1)

5/15

22)

5/10/15

4) 9)

0/15

17) 9)

20/10 20/15/10

0/10

0/10 0

0/10/15

23) 9)

15 2)

0/10

25/15

25/15/10

25/10

32) 9)

Pakistan26)

10/20 (10/1519))

15/5 15/10

(0/15)9)

0 (25/10)

20 10

5 15

Philippines

10/25 8)

15/0

0/159)

(25/10

8) 1)

25/20

Poland Portugal

Romania

5/15

20/10 10

0/5

10 0/3

25/22

25/20

5/15

20/10

San Marino

10/158)

15/10

8) 9)

Slovak Republic Slovenia

25 25 Austrian withholding tax in %

South Africa Spain Sweden Switzerland

25 25 25 25

20/15

25/20

5/10

25)

Russia

Singapore

4) 1)

0/5

38)

0/10

4) 1)

5/15

25/15 15

0/5 0

Dividends withholding tax under DTT in %

Refund in %

Interest withholding tax under DTT in % *)

Refund in %

5/154)

20/10

25/20

10/15

15/10

0/5

24)

25/20

27)

25/15

0/5

20/10

10) 1)

20 6)

0/10

Royalties withholding Refund tax under in % DTT in % 25 20

4) 1)

20/15

0/10

19)

25/10

5/10

0/15

18)

25/15 25

Tajikistan

Thailand

10 4)

0/10/2510a)

25/15/0

Tunisia

15/5

10/15

10/20

25 10 13)

15/10

Turkey

25/35

Turkmenistan

20) 9)

0/2/5

25/23/20

33)

Ukraine

5/10

20/15

0/5

25/20

United Arab Emirates

United Kingdom

5(10)/154) 1)

20(15)/10

0/102)

25/15

United States (USA)

5/158)

20/10

0/107)

25/15

Uzbekistan

5/158)

20/10

0/1021) 9)

25/15

UDSSR34)

Venezuela 31)

5/15

20/10

0/4,95/10

25/20, 05/15

There is no withholding tax on interest payments to non-residents. However, if the interest derives from a loan secured by mortgage tax is levied by assessment (see 5.). The rates in this column are the maximum rates on such interest under the treaty.

Only the normally applicable treaty-withholding rate is mentioned in the treaty chart. If the conditions of the EC Parent Subsidiary Directive are met, the rate is nil.

The rate of 10 % applies if the recipient company owns more than 50 % of the share capital of the paying company.

The 10 % rate applies if the royalties paid are a consideration for the use of, or the right to use, any copyright or literary, artistic or scientific work excluding cinematographic films; the 25 % rate applies if the royalties consist of payments as consideration for the use of, or the right to use trade marks, in all other cases the 15 % rate applies.

3a)

The lower rate applies to copyright royalties, excluding films, and to software payments.

The lower rate applies if the recipient company owns 25 % or more of the share capital of the paying company.

4a)

The lower rate applies if the recipient company owns directly 25 % or more of the share capital of the paying company and the stake is at least US-$ 100.000, -- (10 % rate) or at least US$ 250.000, -- (5% rate).

The treaty concluded between Austrian and the former Czechoslovakia applies to the Czech and Slovak Republics as of January 1, 1993. (The new DTT between Austria and the Czech Republic was signed in June 2006 but has to be ratified.)

The 0 % rate applies if the royalties paid are a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work – in the case of Malta as well as the Czech and Slovak Republics – also cinematographic films.

The higher rate applies to cinematograph films, tapes or other means or reproduction used for radio or television broadcasting and – in the case of Malaysia – also to literary and artistic work.

The lower rate applies if the recipient company owns 10 % or more of the share capital of the paying company. In case of the Philippines the 10 % rate is also applied for dividends if the recipient company holds 100 % and the shares were issued during the period of six months immediately preceding the date of payment of the dividends.

No withholding tax if dividends or interest are paid to the other contracting state, a statutory body, an administrative territorial subdivision or a local authority thereof or the Central Bank.

10)

The lower rate applies if the recipient company owns 50 % or more of the share capital of the paying company. In case of Japan and Spain the participation has to be owned for at least one year before the date on which the dividends are paid.

10a)

The 0 % rate applies if the interest is paid to the other contracting state, a statutory body, an administrative territorial subdivision or a local authority thereof or the Central Bank. The 10 % rate will apply if the recipient is a bank or insurance company.

11)

The 5 % rate applies if the recipient company owns manufacturing facilities in Liechtenstein and the royalties are paid directly or through a Liechtenstein patent holding company.

11a)

The 5 % rate applies if the underlying right (license, trade mark) is not older than three years.

12)

The 0 % rate applies if the recipient company is subject to cit and owns 10 % or more of the share capital of the paying company.

13)

The 10 % rate applies if the royalties paid are a consideration for the right to use, any copyright of literary, artistic or scientific work excluding cinematographic films. In case of Mongolia cinematographic films are included.

14)

The lower rate applies for royalties paid for the use or the right of use of patents, trademarks, designs and models, plans, secret formulae and processes as well as for the information concerning industrial, commercial or scientific experience.

15)

The rate of 5 % applies if the recipient company owns more than 10 % of the share capital of the paying company. Dividends paid from a Canadian investment company that is not owned by Canadian residents are excluded.

16)

The lower rate applies to royalties for industrial, commercial or scientific equipment.

17)

10 % rate is applied for dividends derived from the income of an industrial undertaking or dividends paid by an Austrian company to a company resident in Pakistan and owning at least 25 % of the share capital. 20 % rate in the case of dividends derived from the income of any other undertaking.

18)

The rate of 10 % applies if the beneficiary owns more than 50 % of the share capital of company paying the royalties.

19)

The 0 % rate applies if the recipient company owns 20 % or more of the share capital of the paying company.

20)

The lower rate applies to interest payments in connection with certain credit services.

21)

The 0 % rate is applied to certain interest payments specified in Article II (3) of the AustrianUzbekistan tax treaty.

22)

The rate of 5 % applies if the recipient company owns more than 25 % of the share capital of the paying company. The rate of 10 % applies if the recipient company owns more than 10 % of the share capital of the paying company. The 15 % rate applies to all other dividends.

23)

The lower rate applies to interest payments to banks.

24)

The lower rate applies to interest payments from governmental bonds.

25)

The lower rate applies if the recipient company owns more than 10 % of the share capital of the paying company or the stake in the paying company exceeds US-$ 100.000, - or the equivalent in another currency.

26)

New DTT signed in 2005 but has not been ratified up to now. Rates of the new DTT are given within the paranthesis.

27)

The 0 % rate applies if the recipient company owns directly or indirectly 50 % or more of the share capital of the paying company and the stake is at least EUR 2.000.000,-. If the recipient company owns directly or indirectly 10 % or more of the share capital of the paying company and the stake is at least EUR 100.000,- the 5 % rate will be applied.

28)

The 5 % rate is applied for royalties for the use or the right to use of any patent, trade mark, design or model, plan, secret formula or process, computer software, or industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience

29)

There is no withholding tax for copyright royalties paid in respect of the authorÂ´s right and for other similar remuneration for the production of literary, dramatic, musical or artistic work.

30)

Signed, but not ratified.

31)

DTT will be applicable with beginning 2008..

32)

The domestic rate applies; there is no reduction under the treaty.

33)

The 5 % rate applies if the royalties paid are a consideration for the right to use, any copyright of literary, artistic or scientific work including cinematographic films.

34)

The treaty concluded between Austria and the former USSR applies to Georgia, Tajikistan and Turkmenistan.

Fehler! Kein Text mit angegebener Formatvorlage im Dokument.

8.2 Individual income tax rates 2012 (unlimited tax liability) Taxable income

EUR

Tax rate on total

Deduction from

taxable income

amount calculated

EUR

EUR 0, -

Up to

11.000, -

11.001, -

25.000, -

36,50 %

5.110,00

25.001, -

60.000, -

43,21 %

15.125,00

More than

60.000, -

50 %

20.235,00

The above income tax rates, in principle, apply to taxpayers subject to limited tax liability, as well, but a fictitious income of EUR 9.000,has to be added. Income tax is reduced by the following deductions:

1 2

Deduction for employees

EUR

54, -

Deduction for pension earners

EUR

400, -1

Deduction for sole earner in a family (1 child)

EUR

494, -2

Commuter's deduction for employees

EUR

291, -

Phased out if income exceeds EUR 17.000, - up to EUR 25.000, -; an increased amount of EUR 764 is available if certain requirements are met. Two children: EUR 669; for any further child: EUR 220

Investment in Austria

9. APPENDIX II KPMG offices in Austria 1090 Wien, Porzellangasse 51 4021 Linz, Kudlichstraße 41-43

Phone: +43 (1) 313 32 - 0 Phone: +43 (732) 69 38 - 0

8010 Graz, Joanneumring 16 5020 Salzburg, Kleßheimer Allee 47 6020 Innsbruck, Adamgasse 23 9020 Klagenfurt, Krassniggstraße 36

Phone: +43 (316) 82 7474-0 Phone: +43 (662) 40 84 - 0 Phone: +43 (512) 59 996 Phone: +43 (463) 51 28 20

6900 Bregenz, Wolfeggstraße 11 2340 Mödling, Bahnhofplatz 1A/3 2514 Traiskirchen, Hauptplatz 17C/Stg 2 9800 Spittal/Drau, Bahnhofstraße 18

Phone: +43 (5574) 43 175 - 0 Phone: +43 (2236) 24 54 Phone: +43 (2236) 24 54 - 0 Phone: +43 (4762) 40 01

9500 Villach, Gerbergasse 13 8605 Kapfenberg, Mariazeller Straße 1/a / Wienerstraße 29

Phone: +43 (4242) 22 920 Phone: +43 (3862) 288 91

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For further details please contact one of our offices.

Designed and produced by

…………………………….

Investment in Austria

KPMG Contacts: Sigrid Brandstetter sbrandstetter@kpmg.at Ingrid Ebenberger iebenberger@kpmg.at Günther Hirschböck ghirschboeck@kpmg.at Bettina Matzka bmatzka@kpmg.at Roland Nessmann rnessmann@kpmg.at Armin Obermayer arminobermayr@kmpg.at Stefan Papst spapst@kpmg.at Michael Petritz mpetritz@kpmg.at Christoph Plott cplott@kpmg.at Christoph Puchner cpuchner@kpmg.at Christine Schreiner christineschreiner@kpmg.at Forrest Spallinger fspallinger@kpmg.at © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity.Member firms of the KPMG network of independent firms are affiliated with KPMG International.KPMG International provides no client services. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.