Estate planning in Austria
Two decades ago, the Austrian government wanted to provide an excellent instrument which could support the preservation and the accumulation of wealth for the benefit of a family. Subsequently, the Austrian Private Foundation Act was enacted on the first of September 1993 and made it possible to establish a foundation in Austria for private purposes only.
The Private Foundation Act creates excellent investment opportunities for high-net-worth individuals from both Austria and abroad. An Austrian private foundation is an excellent instrument to structure large family estates and is internationally recognised. An additional benefit is that the Austrian private foundation is not subject to any kind of state supervision, as opposed to foundations established under the Federal Foundations Act or the Investment Fund Act.
The Austrian private foundation is a separate legal person but has no shares and no shareholders (as opposed to a company for example). An Austrian private foundation comes into existence when the founder endows assets to the foundation and when he has drafts the charter of the foundation. The legal basis of transferring assets to a foundation is the notarial deed and this kind of transfer is considered to be a gift. The minimum amount to be endowed to the foundation is EUR 70,000, either in cash or in kind (shares, options or real estate for example).
The founder can establish an Austrian private foundation on an irrevocable or revocable basis. However, the right to revoke an Austrian private foundation in the future is exclusively granted to individuals and not to other types of founders such as a company or trust.
The charter of the Austrian private foundation is a public document and addresses general topics such as the name of the foundation, its seat, whether it is a revocable or irrevocable foundation, and whether the founder has foreseen the possibility to amend the charter of the foundation in the future or not.
The non-public by-laws include important details such as the names of the beneficiaries, specification of the amounts to be paid to the beneficiaries, an overview of the total amount of assets endowed to the foundation, etc.
The founder can remove a beneficiary and if such a provision was made in the charter of the foundation, he can nominate additional or new beneficiaries whenever he likes to do so. The founder has to include the details of the ultimate beneficiary(ies) in the non-public by-laws. If such an ultimate beneficiary is not included by the founder then the Austrian State will benefit from the proceeds and assets held by the foundation.
An Austrian private foundation has to be managed by a board of directors. This board of directors has to consist of at least three individuals. Two of them have to be a resident in the EU/EEA and their nationality does not matter.
The Austrian foundation’s annual accounts have to be audited by a Certified Public Accountant every year.
The founder and the members of his family are excluded from being members of the board of directors when they want to be beneficiaries of the foundation. That’s why the founder can decide to implement an advisory board. As such, the founder and his family can give guidelines to the directors and have influence on the daily management of the foundation.
The main purpose of an Austrian private foundation is to preserve and create wealth for the benefit of a family or any other individual or legal person. Therefore the Austrian private foundation may not engage in a business or trade directly in order to reduce the risk of going bankrupt. The Austrian private foundation can only be shareholder of a domestic or foreign company with limited liability or can be limited partner in a domestic or foreign limited partnership.
The Austrian private foundation is accompanied by supporting tax legislation and tax benefits serving the needs of a modern family.
Establishment of the Austrian private foundation
A minimum of EUR 70,000 has to be endowed to the foundation, either in cash or in kind. The net asset value received by the foundation is exposed to a one-time tax of 2.5%.
Income of the Austrian private foundation
A standard income tax rate of 25% applies but many tax exemptions are available. For example, domestic dividend income is completely tax exempt in the hands of the foundation. Foreign source dividend income is also not taxed in the hands of the Austrian foundation provided that the foundation holds at least 10 % of the shares of the foreign corporation for a period of at least one year. Dividends originating from EU/EEA countries tax exempt irrespective of the percentage of shareholding and holding period.
Distributions paid to beneficiaries
Depending on the country of residence of the beneficiaries and the applicable double taxation avoidance agreement between Austria and that country, a withholding tax between 0 and 25% will be levied.
Whoever takes a stroll between the baroque buildings of Vienna will clearly see and hear that many Russians love to visit this city. This isn’t only because of its beauty or the Schönbrunn Palace. It’s also because of the solid banking secrecy in Austria.
The advantage of Austria is that it isn’t the centre of attention, as compared to Switzerland. Even better yet, in Austria, banking secrecy is incorporated in the Austrian Constitution and not in a special law like in Switzerland or Luxembourg. Hence, its political weight exceeds that of other federal laws.
Violating the banking secrecy may be punished by a fine and an imprisonment of up to one year. Austrian bankers have a somewhat lower profile, unlike the Swiss bankers, and they can guarantee an extraordinary discreet investment environment. And it looks like Austria can’t be persuaded to make many concessions about their banking secrecy.