Austria, situated in the heart of the new Europe, is the core of the former Austria-Hungarian Empire which disappeared in 1918 at the end of World War I. As a result of its historical ties in Central and Eastern Europe, Austria has been able to profit immensely from the disintegration of the Communist Regimes in Europe and the emerging countries succeeding the Soviet Union and Yugoslavia. Vienna has in fact become the gateway to Russia and Eastern Europe.

Austria, situated in the heart of the new Europe, is the core of the former Austria-Hungarian Empire which disappeared in 1918 at the end of World War I. As a result of its historical ties in Central and Eastern Europe, Austria has been able to profit immensely from the disintegration of the Communist Regimes in Europe and the emerging countries succeeding the Soviet Union and Yugoslavia. Vienna has in fact become the gateway to Russia and Eastern Europe. The currency is the euro. Legal System The Austrian constitution divides strictly between legislation, administration and the judiciary. As a result, administrative decisions such as decisions in tax matters are not subject to control by the civil courts. In order to review administrative decisions an administrative court and a constitution court have been established. The main body of Austrian civil law is contained in the General Civil Code 1812 (Civil Code). The Civil Code is based on the philosophical ideas of the Age of Enlightenment. Its basic tenets are similar to those of Code Napoléon. The Civil Code regulates the basic principles of civil law and, inter alia, the law of succession. The Act on International Private Law 1978 (IPRG) deals with conflict of laws. Corporate law is regulated in the Commercial Code, Act on Limited Liability Companies, Act on Stock Corporations, and Act on Private Foundations. Tax legislation is found in various tax acts such the Income Tax Act, Corporate Tax Act, Inheritance and Gift Tax Act, and Federal Revenue Code. In the tax area, administrative ordinances and regulations issued by the Federal Ministry of Finance are highly relevant in the actual application of the tax laws. Trusts The trust concept as such is not known in Austrian law. Austria has not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985. The recognition of foreign trusts has been established by various precedents issued by the administrative court in tax matters. According to these decisions, foreign discretionary trusts are accepted in Austria as being independent from the settlor and the beneficiaries. In contrast, non-discretionary trusts are not recognised, and for purposes of Austrian taxation, the activities of such trusts will be allocated to the settlor, the beneficiaries, or to both. In view of the need of tax effective transfers of wealth and enterprises, in 1993 Austria created its own vehicle in the form of the private foundation (Privatstiftungsgesetz). The private foundation has been welcomed by both residents and foreign investors as an excellent tax planning device and has proved to be a remarkable success. Today, there are more private foundations registered in Austria than stock corporations. As indicated above, Austria introduced private foundations as an alternative to trusts, which are not known in the Austrian legal system. The private foundation operates like a trust but in the form of a legal entity. Its organisation and governance is similar to a company, but its purpose is the preservation of wealth for an indefinite period. The private foundation is a for-profit structure, and there is no need to have an additional non-profit aspect or charities as ultimate beneficiaries. Where a settlor wishes to pursue charitable purposes in the private foundation as well, the settlor is free to include this in the deed. The settlement deed has to be filed with the company registry and is open to public inspection. However, the identity of the beneficiaries and any wishes of the settlor can be included in an ancillary document which is also filed with the company registrar but is not open to public inspection. The accounting of a public foundation follows the same principles as that of a company. The end-of-year accounts have to be audited by a certified auditor and filed with the company registrar. These accounts and the auditor’s report are kept confidential and are not available for public inspection. Property, Estate, Probate According to the Act on International Private Law succession follows the nationality of the deceased, irrespective of where the deceased was domiciled. Where Austrian law applies, the surviving spouse is entitled to a statutory legacy according to which the surviving spouse may continue to live in the matrimonial home. This statutory legacy provides a right to use the matrimonial home only, not title to it. In a case of intestacy, the line of succession and the nature of the entitlements will be as follows: the spouse will inherit one-third of the estate while any children of the deceased will share the remainder in equal portions; where there are only parents of the deceased or issue of pre-deceased parents, the spouse will inherit two-thirds of the estate; where there are only surviving grandparents, the spouse will inherit two-thirds of the estate; and, where the grandparents are deceased, the spouse will inherit the whole estate. The deceased may have chosen to write a will which supersedes any intestate succession. Valid wills may be made either in handwriting in the testator’s own hand or in the presence of three witnesses. A later will invalidates a previous will even without an express revocation clause. Marriage does not invalidate a will. When writing a will a testator should be mindful of the mandatory rules of Austrian inheritance law for forced heirship shares for children and parents, unless the testator is of foreign nationality when Austrian law should not apply to the succession. The mandatory portions for forced heirs are, for children, half of the intestate portion, and, in the case of parents, a third of their intestate portion. The mandatory portion is a monetary claim against the heirs appointed in the will. If the testator has ignored the forced heirs in the will or provided too little for them, they may be able to make a claim in the course of the estate proceedings. (Austrian law does not have the concept of a court issuing a ‘probate’ or confirmation of the legal validity of a will, together with the appointment of an executor. In Austria, the estate courts issue a certificate of inheritance to those heirs who have accepted their inheritance shares.) In contrast to common law, the heirs become successors of the deceased once they have accepted their inheritance in a statement made before the court commissioner who is usually a notary appointed by the estate court. Together with the acceptance of inheritance, they can request that the administration of the estate be handed over to them. The court commissioner determines the assets and liabilities, draws up an inventory, records any will, and eventually applies to the estate court for an order transferring the estate to the heirs. As there is no executor or administrator to wind up the estate, it is up to the heirs to arrange the settlement of the debts and, inter alia, any inheritance taxes. Taxation In 1988 Austria implemented wide-ranging tax reforms with a view to making Austria an attractive place for international holding companies and regional headquarter companies. Austrian companies are not taxed on dividends and capital gains derived from qualified interests held in foreign companies including companies in offshore jurisdictions. Austria has no foreign controlled company legislation. Austria implements strictly the provisions of more than 70 tax treaties it has with other countries. Apart from relief available under tax treaties, the Minister of Finance may grant relief in other instances of double taxation. For international tax issues, the international tax department of the Ministry of Finance has established an express answer service whereby an advance ruling is available by fax within two to three weeks. These preliminary tax rulings can be obtained on a no-name basis. In addition, the tax office will issue a binding advance ruling, if circumstances warrant the request for a binding ruling. Foreign non-discretionary trusts may become taxable in Austria if either the beneficiary or the settlor is resident in Austria. Discretionary foreign trusts are not subject to Austrian taxation. The Austrian private foundation enjoys many tax benefits. Entry taxation upon transferring assets into a private foundation is five per cent of the value of the assets endowed. A reduced entry tax of 2.5 per cent applies where a private foundation creates another private foundation or transfers some of its assets to the new foundation. Dividends from shares, distributions from holdings in companies and other profit-distributing participations remain tax free in a private foundation. Estates as such are not taxed. The heir is taxed on the portion received. The tax rate depends on two factors. The first is the relationship of the beneficiary to the testator. Gifts or inheritance to close family members, such as the spouse and children, attract the lower tax rates in Tax Class I, rather than the higher tax rates in the classes of more distant relatives or the final Tax Class V where the gift or inheritance is to a person of no relation at all. The second factor is the actual amount received by the beneficiary. The lowest tax bracket in Class I is two per cent, while the highest tax bracket in Class V is 60 per cent. Austria does not levy any net wealth tax or business tax. Value added tax is levied at the rate of 20 per cent with a reduced rate of ten per cent available in certain situations. Corporate taxation is at a flat rate of 25 per cent. Qualified dividends and capital gains received from subsidiaries are tax exempt in the holding company. The rates for personal income tax are on a sliding scale with a top tax bracket of 50 per cent. Personal income from dividends, interest and other revenue from capital is subject to a reduced flat tax rate of 25 per cent. High net worth individuals often choose the Austrian private foundation as an excellent vehicle for estate planning and succession issues. The entry tax into a private foundation is only five per cent, which compares favourably with the 60 per cent top tax bracket for inheritance tax for large fortunes and unrelated beneficiaries. Anti-Money Laundering Austria has implemented the third Money Laundering Directive of the European Union. Therefore banks, lawyers, real estate agents and others are required to follow the prescribed Know Your Client Rules and other disclosure procedures. At the same time, Austria has a high level of bank secrecy. As a result, Austria, together with Belgium and Luxembourg, has negotiated with the EU a special deal under the EU Interest Directive according to which Austria will not report foreign-owned bank deposits but instead levies withholding tax on interest and on such deposits.