The Austrian private foundation is a type of legal entity which allows the grantor to determine the internal organization and the aim of the entity. Although most aspects of private foundations resemble those of limited companies, Austrian private foundations provide grantors with a greater flexibility to:(1) protect and maintain assets, (2) tailor the foundation according to grantor’s specific requirements, and (3) avoid fragmentation in wealth due to succession. Therefore, Austrian private foundations are especially attractive entities for succession planning and retention of family wealth.
An Austrian private foundation may be used for various purposes, including conducting charitable activities and obtaining financial benefits. A private foundation in Austria is not permitted to conduct business activities. However, it may be used as a holding company for owning shares in (1) limited partnerships, (2) limited liability companies, and (3) joint-stock companies. Moreover, a private foundation can be used as an instrument for governing the succession of a business among family members.
A private foundation can be created during the lifetime of the grantor or after the death of the grantor. The will of the grantor for the formation of a posthumous foundation should be stated in a testament.
Grantors can be natural or legal persons. The status of a grantor can be acquired only by establishing an Austrian private foundation. Hence, such a status cannot be acquired by subsequent legal acts performed after the establishment of the private foundation. If a grantor would like to appoint a co-grantor who is still a minor, it is possible to do so by receiving an approval from Austrian court.
The Austrian Banking Act defines a beneficiary as a legal or natural person who controls 25% or more of the private foundation’s assets. The beneficiaries of an Austrian private foundation may be (1) natural persons, (2) other domestic and foreign foundations, (3) incorporated entities, and (4) partnership entities. The legislation of Austria requires determining the identity of beneficiaries in the deed of the foundation or in the general terms of the foundation. Moreover, the list of beneficiaries should also be reported to the competent Austrian tax authorities.
The legislation of Austria requires a private foundation to have certain structural elements, i.e., (1) two constitutive bodies, (2) a management board that consists of minimum three persons, and (3) a foundation auditor. Moreover, if a private foundation or its equity interest (e.g., group entity) employs more than 300 individuals, a foundation should also create a supervisory board.The formation of a private foundation requires securing initial assets having a value of at least EUR 70.000. According to the Bank of Austria, private foundations are usually created with assets of about EUR 3 million.
Private foundations in Austria are taxed on three levels, namely,(1) on the level of asset contribution, (2) on the level of the income received by the private foundation, and (3) on the level of asset distribution. However, the taxation procedure highly depends on the type and other specifics of a foundation. In general, the asset contribution to a private foundation is taxed at a rate of 2,5%. The real estate is exempted from such a tax. The base for the asset contribution taxation is the fair market value of the contributed assets. The worldwide income of a private foundation is subject to a corporate tax of 25%.
The provisions of Austrian double taxation treaties apply to Austrian private foundations. The Austrian tax code contains the possibility for tax exemptions on certain investment income, such as dividends distributed by Austrian and foreign corporations. Are fund able 25% interim tax is applied on specific income, including, but not limited to, asset distribution, interest received in bank deposits, capital gains related to the sale of financial assets and real estate.