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 Posted: Wed Oct 11, 2006 8:21 am Post subject: DOING BUSINESS IN AUSTRIA / AUSTRIA BUSINESS GUIDE |
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DOING BUSINESS IN AUSTRIA
PRINCIPLES OF COMPANY LAW
Partnerships and Companies
Austrian law provides a variety of forms of partnerships and companies.
There are a number of issues that should be considered before determining
which form should be chosen. In particular the choice of legal representative,
the possibility of raising capital, and voting rights must all be addressed.
Sole Trader
A sole proprietorship, or sole trader, is the simplest form of business
undertaking. The advantages of this are flexibility, quick decisions and
few legal formalities. However, the sole trader is fully liable for debts
arising as a result of his business activities and there is the added
disadvantage that it is quite difficult to raise additional capital. If the sole
trader wants to perform a commercial activity he has to apply for a
trade licence.
Civil Law Partnership (Ges BR)
A civil law partnership is not a legal entity and cannot sue or be sued. It
is often used for single joint ventures and it ends on completion of the
project.
Silent Partnership (Stille Gesellschaft)
In a silent partnership a person participates in the business of another
person through investment. A silent partnership is not a legal entity.
There are two types of silent partnership. The first, a “typical” silent
partner, is where the silent partner only participates in the profits and
losses of the business, although losses may be excluded.
The second, or “atypical” silent partner, is entitled to share in the assets
of the commercial business and its goodwill. This differentiation is
important for taxation purposes. A “typical” silent partner has income
from capital yields. If there are profits for the silent partner, the principal
has to withhold the capital yield tax (25%). The silent partner himself has
to declare the profits in his own tax declaration. The witheld tax will be
deducted. Losses will be recorded in the books and the losses will be
set against future profits.
An “atypical” silent partner has income from trade or business. There is
no witheld tax. It is necessary to declare the profits or losses with a
special form of tax declaration.
General Partnership (OHG)
A general partnership consists of at least two unlimited partners and the
purpose of the business must be as a fully equipped commercial
business operation. Each partner is jointly and severally liable for the
partnership´s obligations and their liability is unrestricted or “unlimited”.
This means that liability also extends to their entire private assets and is
deemed to be a “primary” liability, allowing the partnership creditors to
hold the partners themselves liable for satisfaction, even if the
partnership is still solvent. This fact has led to an increase in the
number of private limited partnerships, which have limited liability.
Limited Partnership (KG)
What makes the limited partnership different from the unlimited
partnership is the existence of partners with limited liability. The limited
partner is only liable up to his risk capital, which is registered in the
Registrar of Companies. A limited partner participates in profits and
losses, but is excluded from the management of the partnership.
Another form of business organisation that is very common in Austria, is
the combination of a limited partnership and a private limited
partnership, a so called GmbH & Co KG. The general partner is a
private limited partnership and the limited partners are private persons.
This means that the liability of the general partner is limited to the
assets of the GmbH.
General Professional Partnership (OEG) and Limited
Professional Partnership (EEG)
These types of partnership were created for people who do not operate
a full commercial business. For example, they are used for the activities
of professionals such as lawyers and doctors, as well as businesses in
the field of agriculture and forestry.
Private Limited Company (GmbH)
This is the most important form of business in Austria, because of the
restricted liability of the shareholders and its flexibility. The shareholders´
liability is restricted to the unpaid portion of the nominal value of the
shares.
A GmbH has to be formed by one or more people, who may be
individuals or legal entities, resident or non-resident, Austrian or foreign
citizens, with a share capital of at least e35,000. A GmbH comes into legal
existence when it is entered into the Commercial Register (Firmenbuch).
There are three different size classifications for GmbHs: small, medium-
sized and large. The criteria are the balance sheet sum, the revenue
and the annual average number of employees. This distinction is
important for the application of accounting and auditing rules.
Small GmbHs are allowed to restrict the notes to the financial
statements to a minimum amount of detail. They are not subject to
statutory audit unless they are obliged to appoint a supervisory board
by virtue of law, and they are not legally bound to publish their annual
statements.
Public Limited Company (AG)
A public limited company has a more complex administration and
supervisory structure, but it is an appropriate form of organisation for
large enterprises who have widely held shares. The advantage is that it
is quite easy to acquire additional capital through the issue of shares.
With a public limited company there are a large number of shareholders,
the shares are easily transferable, the company has its own legal identity
and there is total separation between management and ownership.
Shareholders can be individuals or corporations and there are different
forms of shares. Shares can be issued either as bearer shares
(Inhaberaktien), as registered shares (Namensaktien) or preference
shares (Vorzugsaktien) with special rights. Restricted shares (vinkulierte
Aktien) are only transferable with the consent of the company.
The executive bodies of a public limited company are the board of
directors, the supervisory board and the shareholders’ meeting.
Furthermore, an auditor must be appointed to inspect the accounts and
issue an auditor’s report.
• Members of the board of directors (Vorstand) are appointed by the
supervisory board for a maximum of five years. Re-appointments are
permitted. The board of directors has a chairman who may be
appointed and dismissed at any time by the board.
• An important responsibility of the board of directors is the accounting
for the company. They are responsible for the preparation of the
annual report (Jahresabschluß) which must be presented to an auditor
(Abschlußprüfer). The auditor must confirm the reliability of the
accounts with an auditor’s report (Bestätigungsvermerk) and the
supervisory board must subsequently authorise the annual report.
• The supervisory board (Aufsichtsrat) must have at least three, but not
more than 20 members, who are appointed by the shareholders at a
shareholders’ meeting.
The duties of the supervisory board are to appoint and dismiss the
board of directors, to monitor the board’s activities, to consent to
certain transactions, to carry out checks of the accounting records
(including the annual account) and to call the shareholders’ meetings.
• A shareholders’ meeting must be called every year for the presentation
of the annual report and decisions about the distribution of profits
(dividends). The shareholders have the right to a distribution of the net
profits by way of dividends. Alternatively, they may decide to use the
profits in a different manner.
Societas Europea
After three decades of negotiations, the European Union adopted the
European Company Statute (“Societas Europea” or “SE”) in 2001. The
legislation entered into force on 8 October 2004.
There are several ways to create an SE:
• formation by merger
• formation of a holding SE
• formation of a subsidiary SE
• conversion of an existing public limited-liability company into an SE and
• an SE may itself set up one or more subsidiaries in the form of Ses.
The subscribed capital has to be expressed in Euros and not be less
than e120,000.
An Austrian SE comprises a general meeting of shareholders and have
either a supervisory board and a management board (two-tier system)
or an administrative board (one-tier system). The founders are free to
choose a system.
For the preparation of its annual accounts, including the accompanying
annual report and the auditing and publication of those accounts, the
rules for public limited-liability companies under the law of the Member
State in which its registered office is situated are applicable.
Generally in every Member State an SE shall be treated as if it were a
company formed in accordance with the law of that specific Member
State in which it has its registered office.
Concerning tax purposes an SE is treated in Austria like a public limited-
liability company.
Private Foundation
A private foundation (Privatstiftung) is a legal entity set up by a declaration
of establishment, which must be presented to the Commercial Register.
The grantor (Stifter) dedicates assets to a defined purpose that is
documented by a declaration of establishment. A supplementary
declaration of establishment is used to name the beneficiaries and the
amount of assets of a private foundation.
The main advantage of a private foundation lies in tax reliefs. To realise
this advantage the declaration of establishment has to be submitted to the
relevant authorities. Setting up a private foundation is only appropriate if
the property is worth e1,000,000 or more, because of administrative
and other costs. A private foundation may not carry out commercial
activities and is barred from participating in a general partnership, a
limited partnership, a registered commercial partnership as a personally
liable partner, or in the management of a commercial company.
Beneficiaries may be specified in the declaration of establishment or
simply defined. The grantor may also be the beneficiary. A private
foundation is managed by a board that must have at least three
members and the annual financial statements must be audited by a
certified public accountant or auditor.
Trade Licence Law
Austrian trade licence law which is embodied in the Trade Act
(Gewerbeordung) is, in general, of greater importance than comparable
trade licence law in other countries.
Trade law may have an impact on the selection of the business form in
which an enterprise is undertaken in Austria. Any activity that is conducted
on a regular basis, and with the intent of achieving profits is deemed to be
a trade for the purpose of the trade law and therefore requires a trade
licence. There are, however, certain trades where no proof of specific
qualification is required (Freie Gewerbe) e.g. The trade of milk, fruits,
vegetables, potatoes etc. in small quantities.
Business enterprises that require a trade licence must have a person as
trade manager (Gewerbliche Geschäftsführer) The trade licence is issued
to the company itself but the company will only get the licence if a trade
manager is appointed and meets all prerequisites.
PRINCIPLES OF TAX AND ACCOUNTING LAW
In Austria, taxes are levied by the federal, state and local governments.
As Austrian tax law is very complicated, only the most important taxes
for business are explained below.
Income tax
In Austria, only individuals are subject to individual income tax. Austrian
law distinguishes between unlimited tax liability and limited tax liability.
Individuals who have their residence, or their habitual place of abode,
within Austria are subject to unlimited tax liability. This means income
tax covers all income from domestic and foreign sources.
Individuals who have neither residence, nor habitual place of abode within
Austria, are only subject to limited individual income tax. Limited individual
income tax only covers income from domestic Austrian sources.
Determination of income
Income tax is based on the taxable income earned by a taxpayer within
one calendar year. The taxable income is the total income from all
sources, balanced against losses incurred and after deduction of
special allowances (Sonderausgaben), extraordinary expenses
(außergewöhnliche Belastungen) and special deductions (Freibetrag).
Special allowances include, for example, fees for tax advice, losses
which have been incurred in preceding years, expenses related to
acquiring participating certificates and new shares, and contributions to
certain types of insurance.
Where the annual income exceeds e36,400, special allowances are
reduced up to an annual income of e50,900 after which no special
allowance can be deducted.
Under the Austrian system, income is classified as business and
non-business income, from the following sources:
Business income includes:
• income from agriculture and forestry
• income from independent services
• income from other trade and business.
Other, or non-business income includes:
• income from employment
• income from investment of capital
• income from rental, leasing and royalties
• certain other specific income under § 29 IITA.
The distinction between business income and non-business income is
important for computing income tax and there are different procedures
in order to determine the amount of income tax.
For business income, the concept of profit is used for determining the
net income of the source. Two concepts are provided to compute
annual profits, the ‘cash-method’ available to taxpayers who need not
and do not voluntarily keep books (§ 4 (3) IITA); or the ‘accrual method’
(net equity comparison method) for taxpayers who are obliged to keep
books or keep them voluntarily. Under the ‘net equity comparison
method’, profit is the difference between net equity at the end of the
financial year and the equity at the end of the last preceding financial
year (§ 4 (1) IITA).
Corporations have to use the accrual method of accounting for financial
as well as for tax purposes (§ 5 (1) IITA), because corporations are
obliged by commercial law to draw up a balance sheet at the end of
their financial year, as well as a profit and loss account.
Income from all other sources is calculated as the excess of taxable
receipts over deductible expenses (cash-method).
Taxable income is taxed at a progressive tax rate with a maximum of
50% for income of more than e51,000. There is no joint taxation of
married couples or households, but every member of a household has
to file a separate tax return.
The tax rate is reduced to half of the average tax rate applicable to the
entire taxable income for:
• income from participations (shares)
• extraordinary income
• income from specific use of forest
• income from the exploitation of an invention protected by patent law.
Income tax is determined by the tax office on the basis of an income
tax return submitted by the tax payer. The period of time for the
computation of profits is the financial year.
For income from employment the income tax is levied as wage tax
(Lohnsteuer).
Taxation of Partnerships
A partnership is not a taxable entity for income tax purposes.
Partnership income is passed through to the partners and each
partner’s share in the partnership’s profit is subject to income tax.
Capital Gains (§ 24)
Capital gains are gains that are achieved from the disposal of:
• the entire business
• a separate division of a business
• the share of a partner who is to be regarded as entrepreneur. (Austrian
taxation treats partners of special partnerships as joint venturer e.g.
The partners of a general partnership, limited partnership, atypical
silent partnership, civil law partnership, general professional
partnership and limited professional partnership. They have to declare
the income of the partnership in a special tax declaration)
• (co-entrepreneur) of the trade of business
• the closing down of the business.
Capital gains have a beneficial tax treatment, for example, a tax
allowance of e7,300 or a distribution over three years, or taxation at a
reduced rate.
If neither scenario is suitable, the gain is subject to tax only to the
extent that it exceeds e7,300. Furthermore, a deduction may be
permitted if inheritance and gift taxes were charged for the acquisition
of the business. These tax benefits may only be claimed if none of the
incentives mentioned below are obtained.
Capital Yield Tax (KESt/Kapitalertragsteuer)
A withholding tax on capital income is imposed on dividends, interest
from securities, bank deposits and certain other capital income received
by residents as well as non-residents. Since 1992, the withholding tax
on interest income for individuals is a final tax settlement. The
investment income tax amounts to 25% and income is excluded from
the taxable income subject to the progressive rate.
Many exemptions from withholding tax exist according to the EC Parent-
Subsidiary-Directive. They are enumerated in § 94 and § 94a IITA.
In Austria there is also a system of business taxation which could be
described as the ‘half’ approach (Halbsatz). For income from
participations (shares of a company), extraordinary income, income
from specific use of forest and income from the exploitation of an
invention protected by patent law, the tax rate is reduced. This means
that half of the average tax rate applicable to the entire taxable income
is used, if the rate is below 25%.
Double Taxation
Austria has an extensive network of double taxation conventions on
income, wealth and profit taxes. Currently Austria has entered into tax
treaties on income with nearly 70 countries. Additionally Austria has
entered into douple taxation conventions on inheritance and gift taxes with
approximately ten countries. The various Austrian tax treaties primarily
contain the exemption method. But differences and the application of the
tax credit method are also possible.
Corporate income tax
As a general rule every corporation is treated as an independent entity
under Austrian tax law. This means any corporation, Austrian or foreign,
is subject to tax on its worldwide income if it has its seat, or place of
management within Austria. The seat of a corporate taxpayer is the
place designated in the contract and the place of management is the
place where the principal management is situated.
The key figure for corporate tax is the profit shown in the financial
statement, as required and determined by commercial law, and corporate
tax amounts to 25%. The minimum annual tax amounts to 5% of a quarter
of the minimum of capital required for incorporation, i.e. AG: e3,500;
GmbH: e1,750.
Related Corporations – Group Taxation
From 1 January 2005 a new regulation concerning “Group Taxation”
replaces the former concept of “Integrated inter-company relation”.
Group head - Corporations resident in Austria. But also EU-
Corporations with limited tax liability which are located within a member
state of the European Economic Area and having an Austrian branch,
registered in the Commercial Register (Firmenbuch), and the associated
company is counted to the branch office.
Multi-parent groups can pool their participations if one parent company
holds at least 40% and the other at least 15% of the equity.
Group members - normally resident corporations, but also foreign
corporations if they are financially associated (directly or indirectly) with
a resident group head or a group member. Foreign results have to be
calculated after Austrian tax law.
Group access - Necessary equity participation at the beginning of the
financial year and group contract before the end of the financial year.
[spam word detected] but right of election – through group contract. The
participation has to exist during the whole financial year.
Effectiveness of group taxation
Balancing out of all positive + negative results of resident as well as
foreign group members. In case of a loss the group head carries the
minimum corporate tax of all group members.
Losses before joining the group and outside the group (change
of legal form) of a group member are just deductible with profits of this
very group member (however, without the 75% limitation, taxed on a
full 100%). The results of the domestic group members are counted with
100%, even if the group head holds only 51% (here the 75% carry loss
forward limitation is valid for the group head). Multi-parent groups have
to count the results in relation with their participation to the equity of the
group members. Foreign losses have to be taxed supplementary within the
group head in the year in which these losses are realisable. It is possible to
write-off the goodwill of acquired domestic operating companies over 15
years. If the group is formed later, write-offs of former years are not deductible.
Withdrawal - Within 3 years => rescission of all tax effects, as if the
group had never existed.
After 3 years - eventual carry loss forwards, which would have been
collected by the group member without group, stay at the group head
(tax shifting rule in the group contract is important from a company law
view). Acquired foreign losses are subject to a supplementary tax at the
date of withdrawal.
Advantages - Contemporary realisation of losses, realisation of
sustainable losses of a group company, inland realisation of foreign
losses, goodwill amortisation.
Private Foundation
Private foundations are given favourable tax treatment. Capital income
and income from bank deposits is taxed with 12.5% corporation tax. If
income is distributed to beneficiaries, the investment income is taxed at
25% from which the 12.5% is deducted.
Rules for Foreign Corporations
A foreign corporation is subject to the Austrian corporation tax on income
derived from business conducted in an Austrian permanent establishment,
or through a permanent representative (agent). This income includes profits
from operations, capital gains, interest, dividends, rents and other incomes
which arise from an Austrian business.
In many cases, a foreign corporation’s Austrian tax liability is governed
by a tax treaty. In general, the treaties limit the taxation of industrial and
commercial activities to the profits attributable to a permanent
establishment in Austria.
In this case, the calculation of tax is similar to that of an Austrian
resident corporation, except for income from intellectual property rights,
which is taxed at a flat 20% withholding rate on gross receipts. There is
no withholding tax on royalties and interest paid to a parent company
located in the European Union.
A tax treaty may also provide for withholding tax rates on passive income
that are lower than the Austrian rates or may even eliminate the withholding
tax, details can be found under the section on Double Taxation.
Branches of Foreign Corporations
Foreign corporations may establish a branch office in Austria, which
before starting business activities, has to be entered into the
commercial register. The consent of the Federal Ministry of Economic
Affairs may be required for such registration, depending on whether the
foreign corporation is comparable with an Austrian company with limited
liability, or an Austrian stock corporation. While it usually does not take
very long to form and register a corporation, registration of branches
can take much longer in view of the requirement for ministerial consent.
Income from Austrian Subsidiaries
Profit:
The profits of a foreign-owned Austrian subsidiary are taxable in the
same manner as those of any other domestic corporation.
Dividends:
An Austrian subsidiary must withhold 25% income tax on dividends paid
to its foreign parent corporation unless a lower withholding rate applies
under a tax treaty. Most treaties provide a lower rate, some as low as
5% and some eliminate it totally.
A special exemption exists for gains from international holding participation.
A participation is classified as international holding participation if taxpayers,
who are obliged to keep books, can prove to hold, directly, at least 10% of the
shares in a foreign corporation. Further the participation must exist continuously
for at least one year. These gains include profits from shares as well as gains from
the sale of the participation. Profit shares from such participation that are received
before the one year period are preliminarily taxed. The tax office then makes a
final decision about tax liability or non tax liability after this period. If the holding
is permanent no withholding tax is levied.
Interest:
Interest paid by the Austrian corporation to non-residents is generally
not subject to Austrian withholding tax, if the obligation is not secured
by a mortgage registered in the Austrian Land Title Register. Otherwise
a 25% withholding tax rate applies unless reduced by a treaty.
Royalties:
A 20% income tax (Abzugsteuer) must be withheld from royalties paid to
a foreign person for rights used within an Austrian trade or business.
For treaty reliefs see the section on Double Taxation. Within the
European Union no source tax is withheld for royalties paid to related
companies if the royalties are at arm’s length.
Capital Gains:
If a foreign parent corporation realises a capital gain on the disposal of
its investment in an Austrian subsidiary, the gain is taxable in Austria.
Service Fees:
Arm’s-length payments for items such as management services, technical
assistance and use of know-how may be made by an Austrian subsidiary
to its foreign parent. A withholding tax of 20% applies to the service fee
if technical or commercial assistance is provided within Austria. The
payments are tax-deductible business expenses of the subsidiary if they
are not primarily aimed at shifting profits out of Austria.
Value Added Tax
The tax policy is to impose a tax on consumer expenditure on goods
and services provided in Austria. VAT is levied at the point of sale, as
well as at each stage of the production and distribution chain. Only
exports, airlines and certain services related to export are zero-rated,
whereas the banking and insurance industries are exempt from VAT. VAT
is also imposed on an entrepreneur’s private consumption (i.e. Where
the entrepreneur uses business equipment for private use) and on
goods when they are imported from other countries into Austria.
The standard rate for VAT in Austria is 20%. For certain goods and
services, VAT is charged at either a preferential rate of 10%, 12%
(beverage tax-substitute solution) or 16%.
For VAT purposes, a taxpayer must be defined as entrepreneur. An
entrepreneur is required to account for tax on all supplies made by him
to any customers, but can deduct, on the other hand, the tax already
charged to him by his suppliers.
Sales tax is assessed on the full sales price and therefore paid by the
buyer and collected by the seller. Entrepreneurs have to make monthly
VAT prepayments that are due on the fifteenth of the second month
following the month in which the goods or services were delivered.
A refund of input VAT is not only permitted for delivery of goods and
services, but also for deliveries from abroad (EU and non-EU countries).
In order to obtain a refund on input VAT, the delivering entrepreneur is
obliged to issue an invoice which must contain the necessary details
mentioned in the value added tax law. A simpler procedure is possible
for invoices that do not exceed e150.
This process of set-off applies at each stage in the production and
distribution chain, until the goods or services reach the final consumer,
who has to bear the final VAT burden on the price charged to him.
Specific rules apply to the supply of goods and rendering of services
within the EU. For most purchases by private individuals, the country-of-
destination principle is replaced by the country-of-origin principle. This
means that VAT accrues in the country in which the goods are bought,
and not in the country to which the goods are taken.
Community Tax
Community tax is levied on all entrepreneurs with employed staff. The
amount of salary and wages paid out during a month is subject to
community tax. The entrepreneur is forced to discharge the tax, which
amounts to 3%, to the community (Gemeinde) in which his business
premises are situated.
Real Estate Transfer Tax
Real estate transfer tax is levied on all real estate transactions. The tax
amounts to 3.5% of the purchase price. If the transfer is carried out
between close relatives the tax is reduced to only 2%. Real estate
transfer tax also accrues if all shares of a company, that owns real
estate, are taken over by a single shareholder.
The transfer of real property by donation or inheritance is exempt from
the real estate transfer tax.
After acquisition, the owner has to file a tax return by the fifteenth of the
second month at the latest, and tax is due one month after the receipt
of assessment. Alternatively, tax may be paid to a lawyer or a public
notary who is entitled to collect it on behalf of the tax authorities.
According to the law the debtor for the real estate transfer tax is the
former owner as well as the buyer. The tax authority can choose
whether the former owner or the buyer has to pay. In general, it is
agreed that the purchaser will bear the tax burden.
Additionally a fee of 1% must be paid for registration in the Land
TitleRegister (Grundbuch).
Inheritance and Gift Tax
The inheritance and gift tax applies primarily to the acquisition of
property by the way of inheritance or by the way of gifts.
Austrian inheritance tax accrues where either the deceased or the heir
is resident in Austria at the time of deceased’s death. Austria has
concluded tax treaties with some countries to avoid double taxation.
Gifts are subject to gift tax at the same rates as inheritances. The tax rate
ranges from 2% to 60%, depending on both the relationship between
transferor and transferee and the value of the estate or gift. An additional
charge of 3.5% (2% between close relatives) is levied on the transfer of
real estate. It should be noted that inheritance and gift tax is generally
based on the assets’ value under specific rules, for example the assessed
value (Einheitswert) of real estate located in Austria is below market value.
If cash or bond deposits, with an Austrian bank, are among the assets
of an estate, they are exempt from inheritance tax.
EMPLOYMENT LAW
Duties arising from the Contract of Employment
Employees’ rights are very well protected in Austria. Legislation restricts
the free contracting of employment, grants employees minimum
standards of payment, termination protection, maximum working-time
and benefits etc.
The sources of Austrian labour law are not limited to statutes, but also
comprise so called collective bargaining agreements (Kollektivverträge),
substitute forms of collective bargaining agreements and company
agreements (Betriebsvereinbarungen).
Collective bargaining agreements exist between trade unions and
statutory employer organisations. They regulate issues like payment and
working conditions. These agreements are applicable to all employees,
not only to members of the trade union.
Employment contracts concluded on an individual basis may not provide
clauses changing provisions of plant agreements, collective bargaining
agreements, and the main part of statutory provisions to the detriment
of the employee.
Employment practices or advantages granted to employees may
change into implicit contractual entitlements for the employee if
practiced or granted for a longer term, unless the employer has stated
the discretionary character of such advantages. That means if the
employer grants advantages for a certain time, the employee can trust
in receiving the advantages.
The employment contract is regarded as having an indefinite duration
unless another term is provided. The conclusion of contracts for a
definite period of time is permitted, although the definite term contract
must not bind the employee for more than five years.
The parties may only conclude a contract for a definite period on at
least two consecutive occasions without any compelling justification.
Otherwise the contract is deemed to be of indefinite duration since
employers could otherwise circumvent the provisions regarding the
termination of the employment contract.
Austrian law does not provide any restrictions on part-time work. The
main difference between full-time and part-time work is the regulation on
overtime work.
Overtime premiums are only to be paid when the daily or weekly
maximum of statutory working hours is exceeded, which makes part-time
employees an interesting alternative for employers. Contracts without
any teamwork available, where an employee may be requested to work
as and when the employer wishes, are illegal under Austrian law.
As managers of the managing board of a stock corporation are not
subject to any obligation to comply with instructions, as a matter of
corporate law, Austrian case law has excluded them from the provisions
of labour and employment law.
Since managing directors of a limited liability company are subject to
instructions by the general assembly of the shareholders, provisions on
labour and employment law apply. Shareholders holding a majority or a
blocking minority of shares are not regarded as employees when they
serve as a managing director for that corporation. Managers of a lower
level are subject to labour and employment laws.
All employees working in Austria benefit from the social insurance system
that covers health, occupational and pension insurance. Furthermore, all
employees are insured under the unemployment insurance system.
Employee’s duty
Aside from doing his job, the employee has to act in good faith in
relation to his employer. This means that he has to safeguard the
company’s interests.
Orders given by the employer must be followed, unless they are
contradictory to the substance of the contract of employment.
Although the employee cannot be held liable for success or failure of
work performed, he has to use his best judgement and exercise care
and skill in the way he works.
Salaried employees are also subject to a prohibition of competition
(Konkurrenzverbot). This means that salaried employees may neither run
an independent commercial business nor conclude transactions for their
own account, or for the account of others, in the employer’s line of
business, unless there is an agreement between employer and employee.
Employer’s duty
If no written employment contract has been concluded prior to the start
of working, the employer must, without undue delay, give the employee
a written record of all important rights and obligations ruling the
contract relationship.
At the start of the employee’s work the employer has to file a return
with the social insurance. It is also the employer's duty to pay both the
employer's and employee's contribution directly to the social insurance.
Apart from the framework of public social insurance including pension
insurance, employers are in principle not bound to grant any pension
rights or to set up any pension plan for the employees.
The duty of the employer is the duty of care. This is the obligation to
protect the employee from suffering any losses through his integration
into the business organisation for example the equal treatment principle.
The employer’s obligations include:
• payment of the appropriate remuneration
• payment of leave entitlement (Urlaubsanspruch)
• extra payment of one monthly salary each for vacation and
Christmas, this means 14 payments a year
• the employer must grant parental leave (Karenzurlaub) for a maximum
of two years
• payment in case of sick leave (Krankenstand), where for sickness or
accident the employee has the right of remuneration for a term of
four weeks.
Health and safety legislation
Health and safety provisions are generally covered by public law and
oblige the employer to take or refrain from certain acts. The employer
must ensure, at his expense, the protection of life and limb, health and
morals. The employer is, in particular, obliged to identify the risks
connected with each job and to ensure compliance by employees with
safety provisions. In addition, a safety representative must be appointed
when there are more than 10 employees. A safety committee is
required if the company has more than three safety representatives and,
where there are more than 250 employees, in-house medical and safety
departments must be provided.
Labour inspection
The Labour Inspectorates, represented by the labour inspectors are set
up to supervise health and safety provisions. These are directly
responsible to the Federal Ministry for Labour and Social Affairs. In order
to carry out their responsibilities, the inspectors have the right to access
and inspect the company’s premises, take samples and inspect records.
Work Council (Betriebsrat)
A work council represents employee’s interests. He has significant
statutory powers, the right to negotiate with the employer and to obtain
information, including financial statements.
Termination of the Employment and Dismissal
Restrictions
The employment relationship, constituting a so-called “recurring obligation”
can be terminated only in accordance with certain provisions and certain
reasons.
Both employer and employee are entitled to terminate the employment.
The consent of third parties is not required for a termination.
Forms of termination
The most significant distinction in practice is whether there exists a
premature termination of employment, or whether the employment shall
end at a specific date subject to a notice period, because a fixed-term
employment contract cannot normally be terminated.
Employment can be terminated by ordinary termination or dismissal with
immediate effect, although a dismissal with immediate effect by the
employer (Entlassung) or an immediate resignation by the employee
(Austritt) is only permitted in special circumstances.
The ordinary termination (Kündigung) requires no reason, but compliance
with certain periods and dates is necessary.
A consensual termination (einvernehmliche Kündigung) may be possible at
any time and only requires that the parties involved reach an agreement.
In plants employing at least 5 employees on a regular basis, the
employees benefit from some protection against ordinary termination. In
such cases, the employee or work council, if any, may contest the
termination with the labour court. Should the court rule that the
termination was set on an illegal basis, because of unjustified
circumstances, the employee has to be reinstated and is entitled to be
paid their ordinary salary for the time of the proceedings.
Some groups of employees benefit from a special protection against
termination such as candidates for, and members of, the works council,
pregnant employees, employees undertaking military service and
handicapped employees.
Severance Payment
Severance payment means an extraordinary remuneration paid upon
termination of employment. It is a form of loyalty bonus, depending on
the length of service.
If an employment lasted more than three years without interruption the
employee is entitled to severance payment.
This severance payment is paid out in the case of ordinary termination
by the employer, termination by mutual consent, justified immediate
resignation by the employee or retirement.
Severance payments range between two and a half and one year’s
salary, depending on the duration of employment. Only in the case
where a company is dissolved may the employer be fully released from
his obligation to pay all or parts of the severance pay.
Transfer of a Business
If a business, or parts of a business, are transferred to another owner,
the employment relations automatically skip to the new owner, who is
regarded as the new employer with all relevant rights and obligations. If
this transfer weakens the position of an employee, this is a reason for
termination.
Employment of Foreign Nationals
The employment of foreign nationals in Austria is subject to the
Employment of Foreign Nationals Act. Foreign employees may commence
their employment in Austria only after they have obtained the necessary
permits. Similarly, the employer may hire a foreigner only after these
permits have been obtained.
‘Foreign national’ refers to any person not having Austrian nationality.
Nationals of a Member State of the European Economic Area or the
European Union must be distinguished from ”third state foreigners”,
because they are fully exempt from the application of the Employment
of Foreign Nationals Act.
Employment of Non-EEA Nationals
These regulations apply to foreign employees whose employer has his
place of business in a member State of the European Economic Area
(EEA) or in the European Union.
The employment of a non-EEA national, with an employment period in
excess of six months, requires an employment permit
(Beschäftigungsbewilligung) that must be obtained prior to the start of
employment.
An employment permit will only be granted if certain legal requirements
are met. The permit refers to a particular workplace in a particular
company and expires automatically upon termination of the employment,
regardless of the length of the employment contract. It is issued for no
more than one year and must be regularly renewed.
Where foreign nationals are employed in Austria for a term not
exceeding four months by a foreign employer without a registered office
in Austria, a so called certificate of posting (Entsendebewilligung) may
be issued. If the posting is to last longer than six months, an
employment permit is required. Exemptions where no permit is required
are jobs, which by their nature, cannot be done by Austrian employees,
for example certain business meetings.
A work permit (Arbeitserlaubnis) will be issued for a term not exceeding
two years if the foreigner concerned has been lawfully employed in
Austria for a total of 52 weeks during the past 14 months.
A certificate of exemption (Befreiungsschein) can be issued to
employees who have, as a general rule, spent at least five of the last
eight years in employment in Austria, or to employees who have been
married to an Austrian citizen for the last five years and have their
residence in Austria.
Employment of EU/EEA Nationals
For foreign employees whose employer has his place of business in an
EU or EEA State, a so-called EU certificate of posting is required. There
is a requirement to notify the regional labour market service
(Arbeitsmarktservice) after one year of employment. For nationals of
EEA member states the rules of free movement apply substantially in
the same way as for nationals of the member states of the EU.
TAXES AND SOCIAL SECURITIES ON EMPLOYMENT INCOME
Austria has a well-planned social security and welfare system. Measures
begin before birth and accompany an Austrian citizen throughout life.
Social security insurance covers accident, illness, child spa treatment,
unemployment, invalidity and pension payments for surviving dependants.
The social insurance system in Austria consists of many health
insurance funds. The most important are ASVG (General Social
Insurance Law), GSVG (the Commercial Social Insurance Law ) and
FSVG. Which fund is most suitable depends on whether or not the
individual is in employment.
The test for employment is that employees have to follow the instructions
of their employer and have a duty to provide their labour to that employer.
An individual who holds an interest in the company which does not exceed
25% can still qualify as an employee. Generally whitecollar as well as blue-
collar workers have their compulsory insurance with ASVG.
The regulations for self-employed people, who are not bound by directives,
or the interest held exceeds 25%, are set out in the commercial social
insurance law (GSVG).
In the case of self-employment no employer contributions must be paid,
but there are higher tax-rates and less contributions are included in the
social service than under employment. For example, there is no
unemployment insurance, no insolvency insurance and a maternity
payment is only paid when supporting staff are employed.
The basis for the Social Security contribution are the wages or salaries
minus;
• the lump sum for commuter (Pendlerpauschale)
• income related expenses (Werbungskosten)
• amount of exemption (Freibeträge).
The result is the basis for wage tax and also for the Social Security
contribution.
The Austrian Social Security system covers both employed and self-
employed individuals and both are obliged to register for Social Security
purposes.
Employee’s Contributions
Employment income for services performed in Austria is subject to
Austrian income tax at a progressive rate, up to 50%. Wage tax is
withheld by the employer. It should be noted that in Austria wages and
salaries are paid 14 times per annum, whereas under this system 1/7
of the annual income is taxed at only 6% wage tax and a reduced rate
of 16.65% social security contribution. Furthermore, severance
payments are also subject to a reduced rate of 6%.
Social Security contributions are calculated as a percentage of the
gross salary received.
The basis for the Social Security contribution is calculated by deducting
the following figures from the gross salary:
• thirteenth and fourteenth monthly salary that is taxed with a
reduced rate of 6%, all amounts mentioned in the § 67 IITA
• non-taxable income enumerated in § 26 IITA
• tax-free income as mentioned in § 3 IITA.
Employer’s Contributions
The employer has to pay the following social security contributions on
top of gross salary:
Employers contribution (DB)
To the Family Allowance Fund: 4.50%
Surcharge to employment
contribution (DB-Zuschlag) to the
Austrian Federal Economic Chamber: 0.39% - 0.47%
Community tax: 3.00%
In addition to the payroll tax the employer is also obliged to pay a social
security contribution, which is made of the following contributions.
Pension insurance: 12.55%
Health insurance: 3.75%
Accident insurance: 1.40%
Unemployment insurance: 4.20%
Chamber allocation
Sum of contributions: 21.90%
Basis for contributions: Employment income
Other types of contract of employment
Alternative types of employment to the so-called ”real” contract of
employment are:
Contract for work and services (Werkvertrag)
Under a contract for work and services, work has to be provided and
specific successful performance must be guaranteed. There is no
integration into the principal’s organisation, [spam word detected] to do the work
personally, the individual uses his or her own resources and will bear the
entrepreneurial risk.
Low paid employment (Geringfügige Beschäftigung)
Within Austria there exists a low-paid employment. This concerns
incomes that do not exceed e323.46 but this limit is changed every
year. Under such employment, the employer’s contributions are limited
only to 1.4% accident insurance and the employee is not obliged to pay
any social insurance contribution.
However, the time an employee works under low paid employment is
not added to the years required for pension. |
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