reglem fiscale in austria

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THEMES A-Z

Austrian Forms Austrian Personal Income Tax and Corporate Income Tax

Austrian Tax Book 2007 Bans and Restrictions on Imports Current Economic Data Entry from EU Countries Entry from Non-EU Countries Export Promotion Forms of Treaty Partners Hiring Out of Labour International Forms Relief from Austrian Withholding Taxes under Double Tax Treaties Regulation of Games of Chance

Reverse Charge System Stability Programme Tax Treaty Network Traveling by car

Taxation | International Tax Issues | Information |THE AUSTRIAN PERSONAL INCOME TAX AND CORPORATE INCOME TAX(AS OF 2004)

The Austrian Personal Income Tax

1.1. Personal tax liability

The Austrian income tax system differentiates between unlimited and limitedliability to tax. An individual is subject to unlimited tax liability in Austria, whichimplies that he/she is taxable on his/her worldwide income, if he/she has itsresidence or habitual place of abode there. A residence is assumed wheresomebody has a lodging and all circumstances lead to the conclusion that he/shemay use it at any time he/she wants. The habitual place of abode is a placewhere somebody stays under circumstances that lead to the conclusion thathe/she will stay not only temporarily. Should the taxpayer stay in Austria for morethan 6 months, he will always be subject to unlimited tax liability.

The individual income tax is based on the taxable income derived by a taxpayerwithin one calendar year. The taxable income is defined as the total of incomefrom the income sources enumerated in Sec 2 (3) IITA, balanced against lossesincurred from these sources and after deduction of special allowances,extraordinary expenses and some special deductions. Thus, individual incometax is only imposed on:

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- income from agriculture and forestry;

- income from professional and other independent services;

- income from trade and business;

- income from dependent personal services;

- income from investment of capital;

- income from rental, leasing and royalties;

- other specific income (for example capital gains on private property).

Income not belonging to one of the above-mentioned income sources is notsubject to individual income tax.

1.2. Tax exemptions

Tax exempt are for example:

- scholarships and grants for students

- payments from foundations or public funds for the direct promotion of the arts,science or research

- certain social payments.

1.3. Business and professional income

For business income (i.e. the categories agriculture and forestry, professionaland other independent services and trade and business) the taxable profits aredefined as the difference between

the value of the enterprise's assets at the end of a financial year

MINUS the value of those assets at the end of the preceding financial year, pluswithdrawals, less contributions to the capital of a business during the course of

the year.

Business income must also be computed on the basis of a profit and lossaccount. For small enterprises a simplification concerning the bookkeepingrequirements exists (no obligation). Profits may also be computed as the surplusof business income over business expenses.

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In general deductible are expenses concerning acquiring, securing andmaintaining taxable income.

Starting with the year 2004 there is a special benefit for individuals derivingbusiness income or income from agriculture or forestry. These individuals who

reinvested profits up to 100,000 Euro per year and per business are taxed at onlyhalf of the average income tax rate.

If the owner of the business withdraws more than the annual profits derived in thefollowing seven years, the withdrawals exceeding the annual profits willsubsequently be taxed at half of the average income tax rate (up to thepreferentially taxed retained profits of the last seven years). This measure is onlyapplicable for individuals not for corporations.

1.4. Employment income

- SalaryAll kind of remuneration which is derived by an employed person and which ispaid by the employer is included. Tax is levied by withholding.

- Pension incomePension payments received by a former employee from social security, from apension fund, or from the employer himself are included in employment income.

- Director's remunerationIf a managing director is an employee of the company his remuneration is taxedas income from employment. Characteristic is that he is not allowed to own more

than a 25% share capital of the company. Otherwise it is income fromprofessional services.

- Benefits in kindBenefits in kind are taxable as income from employment. Benefits in kind are forexample company cars, housing allowances, living allowances, free holiday tripsetc. Free sports facilities, training and pension premiums and working clothespaid by the employer are exempt from taxation.

1.5. Investment income

Dividends received from a resident company and interest are subject to a finalwithholding tax at a rate of 25%.

However, if dividends and interest are received in the course of a businessundertaking, they are>

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Royalties and income from immovable property are taxable as business incomeor income from rents, lease payments and royalties not at 25% but at the normalincome tax rates.

1.6. Capital gains

Capital gains realized in the course of a business, gains from the alienation ofshares forming a substantial shareholding and speculative gains are taxableincome.

In case a business or a part of it is sold and the proceeds are higher than thebook value of the business the differential amount is taxed as capital gains.

Speculative gains are derived from the sale of immovable property within 10years after acquisition and the sale of other property, especially securities (withsome exceptions), within 1 year after acquisition and the exercise of futures and

forward contracts, written options and swaps within 1 year.

If a shareholder of a company owns directly or indirectly a substantialshareholding consisting of more than 1% of the company# share capital then thegains arising from the disposal of the shares are taxed as extraordinary income.The taxation also takes place if the shareholder owns the shares at any timeduring the preceding 5 years. The tax rate is one half of the effective rate appliedto the taxpayer# total income (half rate taxation).

Half the effective tax rate is also applied on capital gains.

1.7. Deductions

In general expenses concerning acquiring and maintaining income aredeductible.

For purposes of determining the taxable total income it is possible to deductspecial expenses, losses incurred in any category, exceptional expenditure andcertain allowances and exemptions.

Lump-sum deductions are for example:

- 60 Euro for special expenses and 132 Euro for income-related expenses.However in case that actual expenses are higher they may be deductedaccording to the law

- In addition to the transportation tax credit a lump-sum deduction for high travelcosts to the workplace incurred by employees is increased by 15% from 2004.This deduction varies according to the distance travelled

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20 km to 40 km 450 Euro

40 km to 60 km 891 Euro

more than 60 km 1.332 Euro

If public transport is not available or reasonable

2 to 20 km 243 Euro

20 to 40 km 972 Euro

40 to 60 km 1.692 Euro

over 60 km 2.421 Euro

The deductibility of educational expenses and medical expenses is dependent onwhether they form an extraordinary burden for the taxpayer or not. The concreteamount is dependent on the income of the taxpayer. Expenses for vocationaltraining of a child outside the town of residence are always deductible at a fixedamount of 110 Euro per month.

1.8. Credits

All resident taxpayers are entitled to a general tax credit, the amount of whichdepends on the taxpayer's personal situation and on his total taxable income.The basic credit amount is 887 Euro for 2003. From 2004 the general tax credit is

1,264 Euro. The credit is phased out gradually for income exceeding 35,511Euro: for income between 10,000 and 15,000 Euro, the credit ranges from 1,264to 889 Euro; for income between 15,000 and 21,800 Euro it ranges from 889 to617 Euro; for income between 21,800 and 35,511 Euro, it ranges from 617 tozero Euro.

From 2005 on the general tax credit is integrated in the tax rate structure. Thephase-out of tax credit does not exist anymore.

Married taxpayers are entitled to a head of household credit of 364 Euro if thespouse's income does not exceed 2,200 Euro. From 2004, the spouse of a sole

earner with at least one child may earn up to 6.000 Euro per year (4,400 Eurobefore 2004) without losing the tax credit. The credit of 364 Euro is also grantedto single parents.

Persons deriving employment income are entitled to an employment tax creditamounting to 54 Euro and to a transportation tax credit of 291 Euro. Commutingexpenses are generally covered by them.

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A credit of 400 Euro is for retired persons. They are not entitled to the lump-sumdeduction of 132 Euro for expenses connected with employment. The credit isphased out for pension income between EUR 17,000 and 25,000.

Taxpayers whose income tax is negative may get a cash tax refund up to a

maximum amount of 364 Euro. But they have to qualify for the head of householdor the single parent credit. In addition to that taxpayers who have a negative taxand qualify for the employment tax credit, receive a credit for future tax years at10% of the social security contributions paid, subject to a maximum of 110 Euro.

From 2004, in addition to the sole-earner (single-parent) tax credit, a childsupplement is to be introduced (130 Euro per year for the first child, 175 Euro peryear for the second child, and 220 Euro per year for each additional third). Forlow incomes, the child supplement #like the sole-earner (single-parent) tax credit#may also be paid out as negative tax (i.e. tax credit).

The church tax will be deductible up to 100 Euro from 2005 (before 2005 75Euro).

1.9. Losses

General Rule:

- Losses must first be set off against income from the same category and

- second against all other categories of income.

Exemption:

Capital losses not attributable to business income can only be set off againstcapital gains.

Losses incurred from 1991 can be carried forward indefinitely. In general onlytaxpayers who determine their profits according to the net-worth comparisonmethod qualify for a loss carry forward. Taxpayers who determine their businessincome under the cash accounting method may however carry forward start-uplosses arising from the first three assessment periods.

From 2001 losses that have been made in the current or a previous tax year canonly be set off against 75% of the income from the current tax year. Excesslosses may be carried forward to the following tax year.

Losses made by an individual from a business consisting mainly of themanagement of intangible assets or of leasing activities, may not be set offagainst income from any other source. Such losses may be set off against futureprofits of the same business.

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Deduction of foreign losses:

Regarding the losses of foreign permanent establishments and losses from otherforeign activities (e.g. renting out property), the decision of the SupremeAdministrative Court (VwGH, 25 September 2001, 99/14/0217) on taking such

losses into account #where tax treaties provide the exemption method foreliminating double taxation #has been incorporated into the Individual IncomeTax Act. Thus, the losses of foreign permanent establishments may be offsetagainst domestic positive income in the year the foreign losses are incurred. Iffuture profits are generated abroad and if the foreign tax losses are carriedforward and deducted from these profits, Austria will have the right to tax suchforeign profits to the extent the foreign losses were used in Austria in the past.

1.10. Rates

The reform of the income/wage tax rate:

The most important change of the income tax is the planned reform of theincome/wage tax rate schedule that should generate tax savings for taxpayers ofbetween 144 Euro and 679 per person and per year from 2005 in comparison to2003. The main part of the tax relief will be granted to low and medium incomeearners. The gross annual income of employees up to 15,770 Euro and ofretirees up to 13,500 Euro as well as (taxable) income of self-employed personsup to 10,000 Euro will be exempt from tax. Therefore, from 1 January 2005, 2.55million out of 5.9 million employed and self-employed persons will not pay anyincome tax.

Further, the structure of the income tax rate schedule will be reformed from 2005.Applying the average tax rates (with the general tax credit being integrated) willfacilitate the calculation of individual income tax from 2005. The following simpleformulas will apply:

income income tax (EUR)

10,000 Euro to 25,000 Euro (income #10,000) x 5,75015,000

25,000 Euro to 51,000 Euro (income #25,000) x 11,335 + 5,75026,000

over 51,000 Euro (income #51,000) x 0,5 + 17,085

The schedule of tax rates applicable until the end of 2004 shows five bands oftaxable income. In addition, the complicated calculation of the general tax creditcreates additional bands of income. The result is that the effective marginal taxrates #except for the highest tax rate of 50% - to a certain extent deviatesubstantially from the (marginal) income tax rates (of 0%, 21%, 31% and 41%)as stated in the Individual Income Tax Act.

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Half the effective rate applied to the taxpayer# total income concerns thefollowing types of income:

- capital gains from the sale of a holding in a resident company held as abusiness asset by a sole entrepreneur or partnership;

- extraordinary income, including gains from the sale of a business (if owned forat least 7 years), certain indemnifications for lost income and the repayment ofshare capital;

- income from qualifying use of forests; and

- capital gains from the sale of a substantial shareholding in a company.

1.11. Withholding tax

Subject to a final withholding tax at a rate of 25% are dividends and other profitdistributions to resident individuals. This is also applicable if the income isderived in the course of a trade or business. In case that the final 25% tax is lessfavourable than one half of the effective rate applied to the taxpayer's totalincome the latter will apply if requested by the taxpayer within 5 years.

Subject to a final withholding tax at a rate of 25% are the following types ofinterest received by individuals resident in Austria:

- interest on deposits and other debt claims with certain banks;

- income from participations in investment funds and similar participations;

- interest on certain securities, including convertible and profit-sharing bonds; and

- interest on securities issued by international institutions after 30 September1992.

In general employers have to withhold tax from salaries paid to their employees.The wage tax is a prepayment of the employee's final income tax and is creditedagainst the assessed income tax liability if an obligation to file an income taxreturn exists. For example this might be the case if the taxpayer has derived

income other than employment income in excess of 730 Euro or if he has beenemployed by two or more employers at the same time. The taxpayer may alsorequest an assessment. Not applicable is the wage tax on salaries paid by anemployer who has no business establishment in Austria.

1.12. Taxable period

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Generally the tax year is the calendar year. If approved by the tax authoritiesindividuals who earn business income and are registered with the commercialregister and individuals who earn income from agriculture and forestry sourcesare entitled to use a tax year different from the calendar year.

1.13. Tax returns and assessment

Generally tax returns are due by 30 April of the year following the tax year.

It is up to the discretion of the competent tax authorities to impose a penalty of amaximum of 10% of the tax due in case a tax return is filed late.

Furthermore interest is due on any tax owed.

If tax returns are transmitted via "Finanz Online" the tax returns are due by 30June.

1.14. Payment of tax

During the year taxes are collected by preassessment or where possiblewithholding at source. For income tax purposes prepayments have to be madeby 15 February, 15 May, 15 August and 15 November. These payments aregenerally based on the prior year's tax.

Withheld or prepaid taxes are credited against the final tax liability, unless theyare final. Tax may be refunded if the taxpayer's final tax liability exceeds theaggregate of the amounts already withheld or paid. The final tax is payable within

1 month after the date of receipt of the notice of assessment.

1.15. Other taxes on income

Since the business tax on income has been abolished with effect from 1 January1994 there are at the time being no other taxes on income in Austria. Themunicipalities get a share of the national individual income tax.

A church tax is levied according to special rules on the income of the taxpayer.Church tax paid up to 100 Euro per calendar year is deductible (see page 8).

1.16. Taxes on Capital

Net wealth tax:

The net wealth tax has been abolished with effect from 1 January 1994.

1.17. International Aspects

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Foreign income and capital gains:

An Austrian resident individual is subjected to worldwide taxation on income andcapital gains. Foreign income is subject to the same income tax as domesticincome; foreign capital gains are taxable under the same rules as domestic

capital gains.

Foreign dividends, interest and royalties are fully taxable. If paid out in Austria afinal withholding tax of 25% is levied on foreign dividends and interest. If not paidout in Austria foreign dividends and interest are taxed at a rate of 25% by annualassessment. Royalties are taxed at the normal progressive rates by assessment.

Foreign capital:

No net wealth tax exists. Immovable property located abroad cannot besubjected to real estate tax in Austria.

Expatriates:

Inward expatriates:

Special relief to individuals who take up residence in Austria may be granted bythe Ministry of Finance for persons who perform research or developmentactivities or who are sportsmen or artistes by profession.

This is a kind of compensation for the additional tax burden due to the removal.But the possible relief is limited to income other than that which is considered

Austrian-source income for non-residents.

Expatriates may deduct certain expenses for wage tax purposes according to adecree of the Ministry of Finance. This provision applies to individuals who havenot resided in Austria for the past 10 years if they work in Austria only temporarily(maximum 5 years) and if their salary is subject to Austrian tax. Deductible arethe following expenses: Travel expenses to the residence abroad up to 180 Europer month and expenses for a second residence at the place of work up to 2,200Euro per month, provided that the expatriate keeps his main residence abroad(may be deducted even if the residence is not only used by the expatriate himselfbut also by his family); furthermore private school fees for the taxpayer's children

up to EUR 110 per month and moving expenses.

Outward expatriates:

Austrian officials on duty in a foreign country, agents working in developingcountries and employees in the construction and mining business workingabroad for more than 1 month are granted income tax exemptions.

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Non-residents

Taxes on income and capital gains:

Non-residents are subject to the normal income taxation rules if it is not indicated

in a different manner. Non-residents can solely deduct expenses which are inrelation to his Austrian taxable income. In general personal tax credits are notgranted to non-residents.

Persons not residing in Austria are subject to income tax and inheritance and gifttax concerning income from certain enumerated sources or income in Austriaand property located there.

If they request, non-residents who are nationals of an EEA country (includingAustria) can be treated as deemed residents for Austrian tax purposes if theyreceive at least 90% of their worldwide income from Austrian sources or if their

income not subject to Austrian taxation is not more than 10,000 Euro. Nationalityis sufficient; residence in an EU Member State or an EEA country is no condition.Austrian-source income which under a tax treaty is not taxable in Austria or istaxed only at a reduced rate (such as passive income), is not taken intoconsideration when determining the 90% or 6,975 Euro limitation.

In general deemed residents are treated like residents irrespective of thecategory of their income. A deemed resident whose spouse or partner is livingabroad is entitled to the head of household credit, but he is not granted theadditional credit for children.

Employment income:

Income from employment is taxable in case the employment is performed or thework is exploited in Austria. This also applies to remuneration paid by Austrianpublic funds in respect of present or past employment. Pension income fromAustria is also subject to tax.

Employment income which is received from being hired out to work in Austria bya foreign employer is subject to a final withholding tax of 20%.

Business and professional income:

Business and professional income is solely taxable in case it is attributable to anAustrian permanent establishment.

Investment income:

Dividends and other corporate distributions and in addition to that distributions tosilent partners which are paid to non-residents are subject to a withholding tax at

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a rate of 25%. This withholding tax is a final tax. For the distributions to silentpartners the tax is not final.

According to double taxation treaties lower rates can be applicable.

As far as interest payments to non-residents are concerned they are not subjectto withholding tax. But interest derived by non-residents from loans (excludingbond loans) secured by Austrian-situs immovable property is subject to incometax by assessment at the normal rates of income tax, if not a reduced rateaccording to a tax treaty is applicable.

Subject to a final withholding tax at a rate of 20% are royalties. Also lower ratesmay apply according to double taxation treaties.

Subject to normal income taxation is income including capital gains fromimmovable property located in Austria.

Capital gains:

Generally capital gains are taxable only in case the asset from which the gainsare derived may be attributed to a permanent establishment located in Austria.Also taxable if they are not attributable to a permanent establishment are gainson immovable property located in Austria and on a substantial shareholding in anAustrian company.

Taxes on capital:

No net wealth tax exists. As far as immovable property located in Austria isconcerned non-residents are subjected to real estate tax.

If no final withholding tax is applicable non-residents are taxed by assessment.

2. The Austrian Corporate Income Tax

The corporate income tax is a tax on profits of companies (profits tax). It is acommon federal tax.

2.1. Subject to the corporate tax are:

Stock companies, limited liability companies, private foundations, associations,trade or business of entities of public law, institutions, foundations withoutindependent legal existence and accumulations of property for a specificpurpose.

Corporate taxpayers are subject to national corporate income tax. There are noother taxes on the income of companies.

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Since 1988 Austria has had a>

For tax purposes limited and general partnerships are treated as transparententities.

This brochure deals with resident stock companies, limited liability companiesand foreign-incorporated entities of a similar description.

Resident companies are taxable on their worldwide income and capital gains. Acompany is resident if it has its legal seat or its place of effective management inAustria. Companies which are established under Austrian commercial law musthave their legal seat in Austria.

The Individual Income Tax Law lists up all kinds of sources which constitute theso called taxable income (= Total income minus losses made from these sourcesless special expenses).

Income and capital gains are pooled and taxed at the same rate. Unless theCorporate Income Tax Law provides otherwise the computation of the incomefollows the rules of the Individual Income Tax Law.

Domestic and foreign dividends are exempt (participation exemption).

Contributions by shareholders to the capital of a company upon formation orincrease, if in return for shares or other membership rights or in proportion toshareholding are also exempt.

2.2. Deductible items

Generally expenses made in acquiring, maintaining and securing taxable incomeare deductible. In addition to that employees' remuneration is deductible. Directpayments of remuneration are as well deductible for employers as the costs ofemployee benefits such as cars, meals, other fringe benefits, health, accidentand life insurance and retirement plans. Limitations for the deductions by law orrulings are possible.

In general interest on loans and other debts to third parties if they areeconomically connected with any type of income is deductible. The arm's length

principle is applicable on interest payments to shareholders or parties related toshareholders.

Royalties are also generally deductible. But excessive royalty payments toshareholders or affiliates are treated as hidden profit distributions. The arm'slength standards also play an important role in this connection, for royalties notpaid at arm# length are not deductible.

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The financing costs (for example interest) relating to the acquisition ofparticipations should be tax deductible from tax assessment year 2005.

2.3. Non-deductible items

Dividends and all other profit distributions may not be deducted.

As far as directors#fees are concerned certain restrictions on the deductibilityexist.

Not deductible are one half of the benefits and compensations paid to membersof the supervisory board or any other persons in relation to supervisory services.This may also be said for one half of the reimbursement of travelling expensesinsofar as they exceed the maximum tax-free lump-sum reimbursement amountsof the Individual Income Tax Law.

2.4. Depreciation and amortization

Only an owner is entitled to claim depreciation. Depreciation is compulsorywhether there is a profit or a loss in the financial year concerned. It can ingeneral be effected with regard to all assets used in business. Certain types ofassets whose value basically does not decrease do not qualify for depreciation.Depreciation begins when an asset is put to use in the business.

The depreciable base is the production cost or cost price. If the reduction in valueis expected to be permanent the asset must be valued at its lower going-concernvalue at the end of the financial year. Even if the reduction in value is not

expected to be permanent financial assets may be written down to a lower going-concern value.

In case an asset has been in use for more than 6 months depreciation is allowedfor 12 months for the first financial year of use. In all other cases depreciation isallowed for 6 months.

The allowable deduction for depreciation of fixed assets used in a business iscomputed according to the useful life of the asset in the respective business.

Though there exist no general guidelines concerning the rate of depreciation,

buildings can be depreciated at a rate of 2%, 2.5% or 3%. It is up to the taxpayerto prove otherwise. Goodwill can just be written off over a 15-year period. Amovable asset whose net cost does not exceed 400 Euro can be written off tothe full extent in the year of acquisition.

Cars may only be written off over an 8-year period.

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The depreciation of a plant is explicitly allowed. Without any proof of the usefullife, depreciation of a plant is allowed by applying a percentage of up to 3% (331/3 years) if the building serves directly the purpose of the trade or business. Ashorter economic life of not less than 20 years will be permitted if justified bytechnical or economic circumstances.

2.5. Valuation of inventory

Each category of inventory may be valued at production cost or at cost price. Theweighted average cost method is used for fungible goods. In cases where thegoing-concern value at the end of the financial year is lower than the cost price orproduction cost, inventory has to be valued at this lower going-concern valueaccording to the Austrian commercial law.

The FIFO method is an accepted method in cases where inventory is valued withregard to the cost price. If the LIFO method is allowed or not depends on the

taxpayer's actual practice.

2.6. Reserves and provisions

Taxable profits are increased and reduced by provisions and valuationadjustments. Provisions may be set up in cases of current pension payments andfuture interests in pensions, severance payments, anticipated losses frompending projects and other uncertain liabilities.

Liability provisions do not have to be certain or legal in amount and if based onobjective facts and special business experience in the particular transaction or

industry the taxpayer# estimates are claimable. Setting up such liabilityprovisions on a globally estimated basis is disallowed. Typical liability provisionsare set up for actual liabilities on for example surety obligations, damage claims,warranties, tax advisers' costs. Not allowed are self-insurance and deferredrepair provisions.

When the reason for the creation of provisions has disappeared they must bedissolved immediately with one exception: valuation adjustments for bad debtscan be maintained until the debt is paid. Furthermore provisions have to appearin the commercial balance sheet. Exceeding the going-concern value of theexpected liability is disallowed.

Provisions with a term of up to 12 months can be taken into account to the fullextent.

But only 80% of the value of provisions, other than those for severance paymentsand pensions, can be taken into account from year 2001.

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The difference arising from the adjustment at the end of the financial year endingin 2001 may be spread over the 5 subsequent financial years.

Tax-free reserves can be set up for capital gains in the year of realization if theyhave not been transferred to other assets replacing the sold assets in the same

financial year. The reserve is to be treated as taxable income if it is not used for arollover relief in the following year.

2.7. Capital gains

Normal rates do apply for gains derived from the sale or other disposition ofbusiness property.

Certain exemptions exist for example for capital gains realized on the disposal ofshares being part of a substantial holding in a company abroad qualifying for theinternational participation exemption. But the exemption is not granted to the

extent that a prior tax-effective depreciation of the participation to the lowergoing-concern value has been taken in prior years (unlimited recapture period).

2.8. Losses

Ordinary losses:

An indefinite carry-forward of losses made from 1991 is allowed. Not allowed is acarry-back of losses. Deductible are only losses which are incurred (exceptionsfor divisions and mergers do exist). Losses made in the current or a previous taxyear can only be set off against 75% of the income of the current year. A carry-

forward of excess losses to the following tax year is permitted.

If the main purpose of a participation is to obtain tax advantages then lossesincurred from a participation in a company or a partnership can not be set offagainst profits from other activities.

There is the possibility for these losses to be set off against future profits from theparticipation.

If the acquisition of the participation is offered to the public and if the after-taxreturn that would be obtained is more than twice the pre-tax return that would

have been obtained under the general participation exemption then the intentionto receive tax advantages is supposed.

Capital losses are treated as ordinary losses.

From tax assessment year 2005 it will no longer be possible to make multipleuses of losses in the case of multi-tier participations in corporations.

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2.9. Rates

The corporation tax rate will be reduced from the current 34% to 25% (flat rate).The base of the corporation tax will be broadened mainly by abolishing the tax-free transfer of realized hidden reserves for corporations.

According to official calculations of economists, the effective corporation taxburden is currently 27% to 29%, while several European countries have nominaltax rates of 20% or less. Due to the tax rate applicable from 2005, the effectivecorporation tax burden in Austria will be reduced to around 21%.

To prevent the earlier use of the lower tax rate, it is planned that #if a financialyear differs from the calendar year #the profits derived until 31 December 2004will be taxed at 34%.

Considering the 25% corporation tax rate and the 25% withholding tax on profit

distributions to Austrian shareholders, the total tax burden on the distributedprofits of corporations is:

Until 2004(EUR)

From 2005(EUR)

Taxable profit 100 100

Corporation tax (34) (25)

After-tax profit (= possible profit distribution) 66 75

25% withholding tax on profit distribution (16.50) (18.75)

After-tax profit in the case of profit distribution 49.50 56.25Total tax burden 50.50 43.75

For stock companies an annual minimum tax of 3,500 Euro and for limited liabilitycompanies a minimum tax per year of 1,750 Euro is levied. For banks, insurancecompanies and new companies adjustments are made. The minimum tax is duein advance and can be set off against the final corporate income tax.

2.10. Withholding tax

Subject to withholding tax at a rate of 25% are dividends and other profitdistributions to resident companies. In case the dividends are paid to a companythat holds at least 10% of the shares in the distributing company no withholdingtax is due. If tax is withheld it may be refunded if requested or it is creditedagainst the final income tax liability (on other income) of the respective company.

Dividend distributions and hidden profit distributions received by residentcompanies from other resident companies are subject to special rules. These

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distributions concerning intercorporate dividends are exempt from corporateincome tax in the hands of the recipient company, irrespective of the size of theholding (participation exemption). Not deductible are costs concerning suchshareholdings.

The participation exemption does not extend to liquidation proceeds and capitalgains.

Dividends and other corporate distributions paid to non-resident companies aresubject to a final withholding tax at a rate of 25%. A reduced rate according to atax treaty might apply.

2.11. EC Parent-Subsidiary Directive

Dividend distributions by resident subsidiaries to non-resident EU parentcompanies are exempt from any withholding tax under the provisions that

implement the EC Parent-Subsidiary Directive in Austria. The followingconditions must be met:

- the parent company has a form listed in the Directive;

- the parent company owns at least 10% of the capital in the subsidiary; and

- the shareholding has been held directly for an uninterrupted period of 1 year.

Tax at source has to be withheld provisionally in case the dividends aredistributed within the holding period of 1 year. A refund can be granted as soon

as the holding period has expired.

In the following cases tax at source has to be withheld:

- Abuse of law,

- tax avoidance; and

- constructive dividends

Tax avoidance or abuse of law is not the case if the receiving company has

submitted a written form to the paying company which says that it receives itsincome from active business, that it maintains its own business facilities andemploys its own personnel.

Constructive dividend distributions are generally assumed if the paying companygrants to its shareholders benefits it would not have granted to independent thirdparties when acting with the diligence of a prudent businessman.

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Under the Austrian tax law, which transposed the provisions of the ECparent#ubsidiary directive, qualifying dividends from and capital gains on the saleof a substantial shareholding in a company which is resident in an EU memberstate are exempt. But if a subsidiary is comparable to a resident company,dividends and gains derived from subsidiaries which are resident outside the EU

are tax exempt under the same conditions.

2.12. International participation exemption

From 1 January 2004 the conditions under which dividends qualify for theinternational participation exemption are fulfilled if:

- the parent holds directly or indirectly at least 10% of the equity of the subsidiary;

- the parent's minimum 10% shareholding is held for an uninterrupted period of 1year;

- the subsidiary company has a form listed in the Directive and is subject to acorporate income tax listed in the Directive with no possibility of opting fortaxation or being exempt; and

- the parent company is legally required to keep books and records under theCommercial Code or the parent company is a foreign company that qualifies as aresident of Austria for corporate income tax purposes

Non deductible are capital losses and write-downs, whereas write-ups andcapital gains are exempt. Capital losses upon insolvency or liquidation of the

subsidiary are generally deductible with the restriction that they have to bereduced by distributions made by the subsidiary within 5 years prior to theliquidation or insolvency.

Furthermore in case the parent company has made use from its right to opt withthe consequence that capital gains or losses and write-ups and write-downs aredeductible or taxable, then the respective capital gains and losses are deductibleor taxable. The option has to be made in the year of acquisition of theparticipation and for existing participations the last possibility to opt is theassessment for 2004.

The exemption is also given to Austrian permanent establishments of companiesresident in an EU Member State if they have a form listed in the Directive and theholding attributable to the permanent establishment fulfils the requirements asmentioned above. It is not yet decided whether costs related to the shareholdingare deductible or not.

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If tax avoidance or abuse of law happens a switchover from the exemptionmethod to the credit method takes place. This provision is applicable for allforeign dividend payments.

This provision shall prevent resident companies from benefiting from the

affiliation privilege concerning their foreign-source income which has beensubject to low taxation (if the foreign tax is under 15%). If the switchover from theexemption method to the credit method has taken place, the foreign corporateincome tax paid on the foreign-source income received will be credited up to theamount of the domestic tax due on that income. This just happens if requested.

If at least two of the following conditions are fulfilled and the third one is closelymet tax avoidance or abuse of law may be assumed:

- the main part of the non-resident subsidiary's business operations consistsdirectly or indirectly in receiving interest income, income from the leasing of

assets or the sale of shareholdings (passive income);

- the tax rates or the taxable base in the country in which the non-residentsubsidiary is resident are not comparable with Austrian taxation; foreign taxationis not comparable if it is < than 15% of the taxable base determined by Austriantax law; a foreign average tax burden of < than 15% is not detrimental if it hasbeen caused by using special depreciation methods or carry-backs or carry-forwards of losses; and

- the resident parent company is predominantly directly or indirectly controlled byindividuals resident in Austria.

The anti-abuse rule is also applicable to resident companies wholly owned bynon-residents from 1 January 2004.

2.13. Interest

For most types of interest which are paid out in Austria a withholding tax of 25%is applicable. The exception is interest on loans between two companies. Taxwithheld is only to be seen as a prepayment of the corporate income tax due andcan be credited against the final tax liability. For the types of interest that aresubject to the withholding tax see page 10 (identical).

Not subject to withholding tax is interest paid to non-resident companies.

2.14. Royalties

No withholding tax is levied on royalties paid to resident companies.

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Royalties paid to non-resident companies are subject to corporate income tax bywithholding at source at a rate of 20%. This is a final tax. A reduced rateaccording to a tax treaty might apply.

As far as management fees are concerned no withholding tax is levied. Subject

to a 20% withholding tax are fees for technical and commercial consultingservices performed by a non-resident.

There is no branch profits or remittance tax in Austria.

2.15. Double taxation relief

Unilateral relief is granted by way of an exemption with progression for activeincome, such as income from a business carried on through a permanentestablishment situated abroad. Under the condition that the income has beensubject to a tax of at least 15% the exemption is granted.

As far as dividends, interest and royalties are concerned and for active incomethat does not qualify for the above-mentioned exemption, unilateral relief isgranted by way of a foreign tax credit. The income tax abroad is credited on aper-country limitation basis. The relief is also granted concerning local incometaxes which are levied in the source state but which do not fall under the scope ofa treaty.

The recipient has to document each item of foreign income including the amount,the date of payment, the foreign state and the foreign income tax.

2.16. Incentives

Invention allowance:

For the development or improvement of inventions which are valuable for theAustrian economy an invention allowance is granted. The exceptions areadministration costs, distribution costs and expenses on fixed assets. The valueof an invention for the Austrian economy has to be proved by a certificate by theFederal Minister for Economic Affairs. If the invention is already protected underpatent law this certificate is not necessary. Generally the maximum inventionallowance is 25% of the research and development expenses. An increased

invention allowance of up to 35% applies to that portion of the expenses whichexceeds the arithmetic average of such expenses incurred in the last 3 fiscalyears. In addition, from 2003 an allowance of 15% and from 2004 an allowanceof 25% is granted concerning the respective research and experimental activitiesperformed in a company. As far as research and experimental activities areconcerned the company may in case of losses obtain a premium of 8% from2004.

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Education allowance:

An education allowance may be granted concerning expenses which are madefor the education and training of employees. The allowance is equal to 20% ofthe qualifying expenses. The allowance is solely granted in case the expenses

are directly related to the education which means that travelling expenses are notcovered by this relief. In general only expenses paid to institutions offeringeducation and training may qualify for this relief. As far as expenses foreducation and training in a company are concerned, they can also be taken intoconsideration under the condition that they do not exceed a limitation per day of2,000 Euro.

2.17. New group taxation (for groups of companies)

One of the main structural measures of this tax reform is the replacement of theold restricted group regulations dating back to the last century by a modern,

comprehensive and internationally attractive group taxation scheme. The keyadvantage of a group taxation scheme is that legally independent corporationsbelonging to a group of companies are regarded as a single unit for taxpurposes, with the result that profits and losses can be compensated within thegroup.

The key points of the new group taxation scheme, which is expected to be inforce from tax assessment year 2005, are indicated below.

1. Financial integration in the form of a (direct or indirect) participation of morethan 50% of the share capital in the case of a majority of voting rights will be

sufficient to form a group. In contrast to the former group regulations it will not benecessary for the group members to be organizationally or economicallyintegrated or to have a profit/loss pooling agreement. Thus, in the future, a"financial holding" can also be the parent company of the group.

2. A "more than one parent" group will be possible. Thus, several companies atthe top of the group may hold financial participations of more than 50% in total. Inthis case, a main shareholder with a participation of at least 40% is required. Theother group parent companies must hold a participation of at least 15% each.

3. To be entitled to use the group taxation scheme, an application must be filed

with the responsible tax authorities. A binding group formation of at least threeyears is required; if the group breaks up within three years after formation, thegroup members will be taxed separately and all the tax effects resulting from thegroup formation will be reversed.

4. The scheme provides for a 100% profit/loss attribution to the parentcompany of the group. If the parent company holds only a 60% participation in a

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group subsidiary, 100% of the profits and/or losses will be attributed, not only aproportionate part.

5. A group can also be formed between domestic and foreign companies. Thismeans that a domestic parent company can make use of the losses of its foreign

subsidiaries (but not of the profits) according to the participation percentage. Ifthe foreign subsidiary has future profits, the domestic parent company is taxedon the profits to the extent of the losses used in the past.

6. If a participation in connection with the group formation is acquired after 31December 2004, it is possible to amortize the goodwill included in the acquisitioncost on a straight-line basis over a period of 15 years. The goodwill must becalculated as follows:

acquisition costs of participation

minus: proportionate equity capital of subsidiary

minus: hidden reserves related to non-depreciable fixed assets

_______________________________________________

= basis (limited to 50% of acquisition costs)

minus: tax-effective amortization

The amount amortized is limited to 50% of the acquisition costs. In order to avoidabuse, acquisitions from group companies are excluded from goodwillamortization. Goodwill amortization is limited to directly held domesticparticipations.

7. The amortization of participations is tax neutral within the group since thegroup parent company makes use of the losses of its group subsidiaries directly.

From tax assessment year 2005, it will no longer be possible to make multipleuses of losses in the case of multi-tier participations in corporations.

2.18. Payment of tax

Prepayments of tax have to be made by taxpayers in four equal instalments by15 February, 15 May, 15 August and 15 November of each tax year according toan assessment notice issued by the tax authorities that generally is based on the

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prior years tax, plus an adjustment (4% for the calendar year following the yearof the last assessment, 5% for every subsequent year). The prepaid amount canfurther be adjusted in case the liability for the current year is estimated to varysubstantially from the total prepayments to be made in the year. The minimumprepayments are 875 Euro for stock companies and 437.50 Euro for limited

liability companies. The prepayments fixed for the assessment period and anyamounts collected through withholding are credited against final corporateincome tax liability. Excess prepayments are refunded if they do not exceed theminimum tax. In this case, they are carried forward and offset against thecorporate income tax liability of future years.

Generally assessed corporate income tax is payable within 1 month after thedate of issue of the assessment notice. In case an appeal has been lodgedpostponement may be granted.

Tax year is the calendar year. If approved by the tax authorities a tax year whichdiffers from the calendar year may be used. Tax authorities have to consent ifthere exist valid economic reasons for the change. Saving of taxes is no suchreason.

2.19. Tax returns

For calendar year taxpayers, the due date for filing corporate income tax returns

is 30 April of the following year. In case tax returns are transmitted via FinanzOnline the date is 30 June.

2.20. Rulings

In general advance rulings are granted. Sometimes the authorities may refuse togive a ruling. A ruling request may be addressed to the local tax office.

Rulings of the local tax office are binding on the tax administration on theprinciple of good faith as long as there are no contradicting legal provisions. Butin general rulings are not binding on the taxpayer and on the courts. There is no

appeal against a ruling.

2.21. Miscellaneous

No other taxes on income exist.

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No general payroll tax exists. A municipal tax is levied (3% on the aggregatesalaries paid to the employees) which constitutes a substitute for the businesstax on payroll which has already been abolished.

For corporate income tax purposes the municipal tax is a deductible item.

Contributions to the Family Burden Equalization Fund have to be made by everyemployer irrespective of whether he has a permanent establishment in Austria ornot. The employer's contribution is levied at a rate of 4.5% on the aggregateamount of the salaries.

The net wealth tax has also been abolished.

Real estate tax is levied on immovable property situated in Austria.

The tax is levied on the assessed standard rateable value of immovable property,whether developed or not. Generally the assessed value is substantially lower

than the market value.

The real estate tax is levied at a basic federal rate, multiplied by a municipalcoefficient. The basic federal rate is usually 0.2% and the municipal coefficientsrange up to 500%. The tax is payable in four quarterly instalments by 15February, 15 May, 15 August and 15 November.

It is deductible for corporate income tax purposes.

Publication details:

Editor, owner and publisher: Federal Ministry of Finance, Himmelpfortgasse 4-8,1015 Vienna

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Layout and production: Printing office of the Federal Ministry of Finance

Vienna, August 2004

Documents

reglem fiscale in austria