Just as in Germany, you can also set up a holding company in Austria. A holding company in Austria naturally fulfils the same function as a German holding company. However, there are also certain differences between a holding company in Austria and one in Germany. In some cases, these differences are even significant. Thus, profit distributions of a corporation to the holding company in Austria are completely tax-free. On the other hand, the sale of a subsidiary incurs a tax at the level of the holding company in Austria, while a holding company in Germany usually has to pay almost no taxes on it. Thus, the sale of shareholdings by a holding company in Austria ultimately leads to double taxation, because shareholders of the holding company also pay capital gains tax on the profit distribution. In Austria, you can do without a blocking period for a conversion, which is called re-establishment there.

25% Avoid capital gains tax: Tax-free profit distribution foreign holding /§ 50d para. 3 EStG

1st Holding in Austria – Introduction

The opportunity to set up a holding company exists in many countries around the world; including here in Germany. Likewise, a holding company is also known as a corporate construct in Austria. A holding company primarily serves the asset management of the companies in which it holds a participation. Hence the English name, which is derived from “to hold”. But asset protection also plays a major role in a holding company.

But in addition to these general principles, depending on the legal structure, there can also be many differences between a holding company at home and abroad. Especially in the way a holding company is subject to the respective taxation, there can be clear differences.

Therefore, in this article we consider the differences between a holding in Austria and a holding in Germany. Finally, the tax laws of the two countries in particular are considered similar in many respects. Does this also apply to the taxation of a holding company and its shareholders?

2nd Holding in Austria: Differences from Germany

First of all, in both Austria and Germany, a GmbH is the most common legal form for a holding company. This is certainly primarily due to the advantageous possibility that a GmbH offers within the framework of asset protection. However, if we ignore the different prerequisites for founding a GmbH in Austria and Germany, this represents a first common feature of holding companies in Austria and Germany.

But that was also the case with the similarities. From here follows our analysis of the differences. And even if the differences in quantity hardly impress, this already looks completely different in qualitative analysis.

Taxation of dividends received at a holding company in Austria

If a holding company in Austria now receives a dividend from an operating subsidiary, then the subsidiary has usually already paid its corporate tax if it is itself a corporation. The remaining profit distributed to the holding parent company was thus already subject to income tax recognition. Therefore, the Austrian legislature has determined that the dividend received by the holding company should remain tax-free. However, the prerequisite here is that the holding company holds at least 10% of the subsidiary. A holding company in Austria therefore usually pays a tax on profit distributions only if the subsidiary is a transparent tax subject. And this is only the case with partnerships.

In addition, in the case of a holding company in Austria, it must be noted that a capital gains tax return must be submitted when a profit distribution from a corporation to another corporation is made. Although the dividend is tax-free as described, this step is still formally necessary.

2.2 Taxation of dividends received at a holding company in Germany

In principle, a holding company in Germany is also exempt from tax if it receives a dividend from a corporation as a subsidiary. However, at the beginning of the calendar year in which the dividend is paid to the holding company, the holding company must have at least a 10 % stake in the subsidiary in order to benefit from the tax exemption. But anyone who has looked closely when reading the last lines has certainly noticed the telling word “principally” in connection with the tax exemption. And so it is actually meant by the legislature in § 8b KStG. This is because, under the abovementioned condition on the level of participation, a tax treatment of expenses applies which only indirectly entails taxation of the dividend. For example, the German legislature assumes that a flat rate of 5% of the dividend from the tax deduction is excluded costs in asset management. This share is therefore subject to both corporate tax and business tax.

2.3 Sale of subsidiaries of a holding company in Austria

2.3.1. Taxes at holding level

Another difference between a holding company in Austria and in Germany emerges when you want to sell a subsidiary out of the holding company.

In Germany, this is also possible as far as possible tax-free, provided that at the beginning of the year the holding company had a shareholding in the subsidiary to be sold. The profit from the sale differs only insignificantly from a dividend received by the subsidiary in tax terms. Only the shareholder of the German holding company pays a tax on the capital gains of the operating subsidiary. But even this happens only indirectly, namely in the distribution of dividends of the holding company to him by capital gains tax.

In Austria, on the other hand, the sale of a subsidiary by the holding company is considered to be a normal taxable transaction; If you make a profit, you pay taxes on it. Thus, the holding company has to tax the profit from the sale of the subsidiary on a regular basis as part of its corporate tax assessment. The corporate tax rate is 25%.

2.3.2. Taxes at shareholder level

However, this already taxed profit is at some point made the subject of a second taxation. If the shareholder of the holding company in Austria receives a dividend from it, then it is subject to capital gains tax. This is the case irrespective of whether the distribution of profits originates originally from a current profit from receiving a dividend from the subsidiary, or whether its sale entails the profit. In fact, this represents a double taxation in Austria, which is largely unknown for a holding company in Germany. In Austria, for example, a further 27,5 % of capital gains tax at the shareholder of the holding company is added to the previously paid 25 % of corporate income tax from the sale of the subsidiary. In total, this corresponds to an actual tax burden of approximately 45 % of the capital gain.

In order to avoid double taxation at the level of the holding company and at the level of the shareholders of the holding company in Austria, different paths can be followed.

3.1. Sale of the subsidiary together with the holding company in Austria

Double taxation on the sale of an operating subsidiary can be avoided by selling it together with the holding company in Austria. So you basically sell the holding company. But as elegant as this variant may seem at first glance, there are a number of circumstances to consider.

First of all, this is only advisable if the holding company does not have any other subsidiaries. At the very least, it must not hold a subsidiary that you want to keep or in which a potential buyer has no interest. As we shall soon see, however, there is also a solution to this. In addition, one must consider in this design how valuable the holding company itself is. Because if their value is also included in the sales negotiations, this can prevent an acquirer who is only interested in the operating subsidiary from acquiring the entire package.

In addition, it must be noted that the holding company as a private reserve of its shareholder now loses its role as a savings box for retirement age. Instead, when selling the holding company, the profit must be taxed at 27,5 % KESt (KESt is the common abbreviation for capital gains tax in Austria).

But this aspect is also important because the sale of the holding in Austria also loses its advantage in further asset building. However, if the holding company does not contain any larger assets other than the subsidiary, then its sale in Austria may well appear attractive under the circumstances mentioned.

In addition, it should be mentioned that the sale of a foreign subsidiary in Austria remains tax-free.

3.2. Merger of the subsidiary with the holding company in Austria

Furthermore, a merger of the subsidiary with the holding company in Austria can be considered. This corresponds to the merger in German conversion law. In this way, two taxpayers who would have to pay tax on their profits when selling the subsidiary also produce only one taxpayer, namely the shareholder of the holding company in Austria. But it is also decisive whether there are other subsidiaries. If this is the case, then this variant comes into question only to a limited extent. Moreover, the cost of the merger should also play a role compared to the cost of selling the holding company under the model described above.

However, if a potential acquirer is only interested in buying an operating company, this alternative offers the optimal solution. Indeed, given that the sale of the operating subsidiary leads to double taxation, the seller will also set the sales price higher in order to at least partially compensate for the 25 % corporate tax that would be incurred at holding level.

3.3 Conversion of the holding company in Austria

If the holding company in Austria is a corporation, then it can be transformed into a partnership. It must therefore be considered transparent for taxation purposes. Consequently, the shareholder(s) of the partnership now pays the taxes on the sale of the operating subsidiary included in the assets of the holding company. In this way, one of originally two taxpayers has also been removed from the taxation system as a taxable person.

But also here you have to pay attention to whether there are other sister companies under the holding company in addition to the operating company for sale. If so, then the application of this reorganisation will of course also have an impact on the taxation of the sister companies or on that of the holding shareholders. In any case, the holding company then also loses its purpose as an asset management unit in the corporate structure.

3.5. Spin-off of the subsidiary

If it is indeed the case that a holding company in Austria holds several subsidiaries, of which one only wants to sell, then a suitable solution exists with the separation.

In this arrangement, the holding company is separated from its subsidiary by division for acquisition (division), with the shareholder of the holding company initially taking over the shares in the subsidiary indirectly. In a first step, the shareholder establishes an independent GmbH. This then takes over the subsidiary, which has been split off from the holding company and is for sale. The takeover once again creates a corporate relationship between the operating subsidiary and the company, which was recently founded in Austria, as a holding company. After the takeover, the two companies can then be merged (merged). The resulting unit is now directly subordinate to the shareholder. If he now sells the merged company, usually also a GmbH, then in this case ultimately only the shareholder as a natural person pays a tax on the profit from the sale of the company. To be more precise, then there are also 27.5% KESt in taxes.