The private foundation (Privatstiftung) is the civil law cousin of the common law trust. A grantor must endow the Privatstiftung with assets of at least ATS 1 million (EUR 70,000) in the form of cash or in kind. If capital is raised as a contribution in kind, an audit is required.
In Austria private foundations which meet certain criteria enjoy a number of fiscal advantages:
TAX ON TRANSFER OF ASSETS
A capital transfer tax of 5% (plus 3.5% in the case of real estate) is payable on the value of assets transferred into a private foundation. This capital transfer tax rate is considerably less than the tax rates applied under the Austrian gift and inheritance laws which otherwise govern the transfer of assets by way of donation. (N.B. If the assets are not retained in the private foundation for a minimum period of 10 years then normal rates of gift or inheritance taxes are levied retrospectively).
TAX ON INCOME EARNED
Private foundations are considered corporate entities for tax purposes and therefore subject to corporate income tax at the standard rate of 34% (25% from 2005). However unlike other corporations they benefit from a number of fiscal advantages:
• Dividend Income: Dividend income received by a private foundation on a shareholding held in a resident or non-resident corporate entity is exempted from corporate income tax in the hands of the private foundation. (In Austria dividend income received by a resident corporation from a non-resident corporation is only exempted from corporate income tax if certain strict criteria can be met, namely that the resident corporation has directly owned 25% of the shares in the non-resident corporation for a minimum period of 24 months). However, the international participation exemption for dividend income is only applicable in cases in which foreign withholding taxes have not been reduced under a tax treaty.
• Interest Income and Capital Gains: Interest income from bank deposits, bonds or mutual funds as well as capital gains from the disposal of substantial shareholdings, i.e. 1 % or more, are subject to a 12.5 % tax rate. Such tax will be credited against withholding tax on distributions to beneficiaries. (In Austria capital gains are taxed as corporate income and resident corporate entities are not exempted from corporate income tax on the profitable disposal of shares in a resident entity).
TAX ON INCOME DISTRIBUTED
Income distributed by the private foundation is subject to a final withholding tax of 25% whether the recipient is an individual or a corporation, and this may be reduced by tax treaties. Thereafter no taxes are payable by the recipient. If however the recipient is an individual with a lower marginal tax rate part of the withholding taxes may be re-claimed. Where the recipient is a corporate entity no reclaim can be made but since the rate of corporate income tax is 34% (25% from 2005) and no more taxes will be levied on the income distributed this fiscal treatment potentially represents a substantial fiscal concession.
(N.B. A foundation is not allowed to carry on business, agricultural or forestry activities (except as sideline activities) nor to take over the management of or assume personal liability for a partnership).
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