Israel – Austria Tax Treaty

Business activity in Austria

Austria has a well-developed economy that encourages FDIs, particularly in technology and R&D. The country has a skilled labor force and a high standard of living, with Vienna consistently ranking first in global quality-of-life rankings.

According to the OECD, Austria ranks among the trailblazers when it comes to innovation, research and development.

The following are key sectors that have historically attracted significant investment in Austria:

• Automotive
• Pharmaceuticals
• Electronics and ICT
• Financial

Bilateral agreements between Austria and Israel

Several agreements were signed between Israel and Austria:

1. Free trade agreement
2. Social Security convention
3. Double taxation convention

Social Security convention

On November 28, 1973, Austria and Israel an agreement for the implementation of the Convention on Social Security. It was established to govern the reciprocal relations between the two countries in the area of social security and prevention of double payment for social security.

To read the Social Convention treaty in English, please click here.

Convention on the Prevention of Double Taxation

The original agreement on preventing double taxation between the Governments of Israel and Austria was signed on January 4, 1968, and went into effect on January 29, 1970. The countries signed an amended agreement on November 28, 2016, and this agreement went into effect on January 1, 2019.

To read the treaty in English, please click here.

Applicability of the MLI

MLI is a mechanism for automatically amending bilateral tax treaties. To put it into effect, both countries must ratify the MLI with their reservations. Israel has signed and ratified the MLI convention, which went into effect on January 1, 2019. Austria has ratified the MLI convention, which went into effect on July 1, 2018. The agreement between Israel and Austria has been automatically amended in accordance with the MLI convention and is subject to both countries’ reservations (as of 1/1/2019).

To read the bilateral treaty agreement for the prevention of double taxation between Israel and Austria combined with the MLI treaty (unofficial) in the English language, click here.

Residency for tax purposes in Austria

Residence of an individual

The Austrian tax system can consider an individual a tax resident, if they there in Austria for at least 6 months (183 days) in one tax year.

Additionally, an individual is considered a tax resident if they have a reidence or thier habitual abode in the country.

To read about how an individual is considered a resident of Israel, click here.

Residency of a company

A corporation can be considered a tax resident in Austria either if its legal seat is in Austria or has its place of effective management in Austria. The place of effective management of a corporation is where most of the necessary and essential measures for the corporation’s management are taken.

To learn about how a company is considered a resident of Israel, click here.

The tax system in Austria

The Austria’s Tax Authority is called Federal Ministry of Finance or BMF (Bundesministerium für Finanzen).

Income taxation: 0-55%

Taxation of companies and branches: 24%

VAT: 10-20%

Capital gains tax: 27.5%

Withholding Tax

Inheritance tax and estate tax in Austria

As of August 2008, inheritance tax was abolished in Austria, and the property transfer tax was introduced as a replacement. This tax is imposed on gifts, donations, and grants exceeding €50,000 between relatives and more than €15,000 between non-relatives.

Despite the absence of an inheritance tax in Austria, discussions on the topic persist in public discourse. Notably, a significant increase in the real estate transfer tax was implemented in 2015/2016 as part of a tax reform. The property transfer tax rate applicable to transfers between family members varies based on the property value. The tax rate stands at 0.5% for properties under €250,000, 2% for properties ranging from €250,000 to €400,000, and 3.5% for properties exceeding €400,000.

Relocation to Austria

Austria is home to a Jewish population of 10,300 people. The Federation of Austrian Jewish Communities functions as the representative body for the present-day Jewish community in Austria and serves as the Austrian affiliate of the World Jewish Congress.

Tax benefits for those who move to Austria:

• Foreign researchers or scientists in Austria who have relocated from abroad may be eligible for preferential tax treatment if the relocation is in the public interest of Austria.
• There are two tax benefits: keeping the previous foreign tax burden (but at least 15%) on foreign income (Section 103 (1) of the Austrian Income Tax Act), and granting a tax allowance of 30% of income from scientific activities taxed at the rate (“immigration allowance”) pursuant to Section 103 (1a) of the Austrian Income Tax Act.

Athletes and artists who relocate to Austria can also take advantage of the first tax break.

Real estate taxation in Austria

Real estate tax is collected by the municipalities in accordance with federal law (Grundsteuergesetz 1955). This tax distinguishes between agricultural and forestry assets and real estate assets. Foreign nationals must obtain official approval to acquire ownership or joint ownership of properties, except for nationals of EU and EEA Member States, who are treated the same as Austrian nationals. Generally, only nationals of third-party countries need to undergo an authorization procedure. However, due to bilateral agreements, some third-party country nationals can purchase property without this procedure, though they often still need to confirm that no authorization is required.

The Tax Authority of Austria determines the real estate tax base by applying a tax measurement figure based on the unit value. This tax base is then transmitted by the tax office to the municipalities, which apply assessment rates to calculate the annual amount of real estate tax. Under the Financial Equalization Act, municipalities are entitled to apply a uniform assessment rate of up to 500% on the real estate tax base when determining the tax.

Real estate tax exceeding 75 euros per year is collected in four instalments on February 15, May 15, August 15, and November 15. Amounts up to 75 euros are due once a year on May 15. Information on tax exemptions is available in the relevant section

Click here to read more on the tax exemptions.

Transfer of funds from Israel to Austria

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Austria

1. The Austrian Private Limited Liability Company (GmbH) – The minimum share capital required for a GmbH has been reduced to €10,000 for startups since July 2014, of which half must be paid up in cash before incorporation. One director and shareholder must be appointed, both allowed to be of any nationality and residency.
2. The Austrian Stock Corporation (AG) – The AG requires a minimum share capital of €70,000 for incorporation, with at least 25% of the capital paid up before business setup. At least one shareholder and one director must be appointed, with no nationality or residency requirements. A statutory auditor must also be appointed​​.
3. General Partnership (Offene Gesellschaft, OG) and Limited Partnership (Kommanditgesellschaft, KG) – Both partnerships require a minimum of two owners. In an OG, all partners are fully liable for the partnership’s debts and liabilities. In a KG, there are one or more general partners with unlimited joint and several liability for all debts and one or more limited partners with restricted liability to a certain amount​​​​.
4. Silent Partnership (Stille Gesellschaft, stG) and Civil Law Partnership (Gesellschaft bürgerlichen Rechts, GesbR) – In a silent partnership, one partner is the proprietor with full liability, while other partners are ‘silent’ and do not participate actively in managing the business. A civil law partnership is not a legal entity and is typically used for time-limited projects between businesses and individuals
5. Sole Proprietorship – This is the simplest business form in Austria and can be established by one person. The sole trader is personally liable for the business’s debts and obligations. It’s important to note that foreigners can open sole proprietorships in Austria only after obtaining a residence permit.
6. Branch and Representative Offices- Foreign companies can establish branches in Austria, which can be wholly foreign-owned. If the parent company is outside the EEA, a resident representative in Austria must be appointed. The branch is permitted to maintain a corporate bank account in Austria. The Austrian representative office of a foreign entity can engage in market research and promotion but cannot conduct commercial activities.

Incentive laws in Austria

Austria offers a variety of attractive incentive packages to all foreign investors including:

• Cash incentives.
• Loans.
• Subsidies for research and development projects.
• Environmentally friendly projects.
• Export guarantees.

Most common types:

Austria offers a tax credit of 12% on certain in-house and contract research and development expenses. Companies that are interested in this tax credit must be approved by the Austrian Research and Promotion Organization (FFG). The privileged R and D costs are limited to EUR1 million per year.

• Provincial assistance agencies – On a municipal level, companies can benefit from specific incentive programs, which vary between the federal provinces. Those incentives often serve as an attractive supplement to the incentives offered at federal level.

• New Companies Promotion Act (Neugründungs-Förderungsgesetz) – Austria has introduced further tax breaks or exemptions for start-up companies within the first 12 months of their existence, such as an exemption from stamp duty and exemptions from other federal charges (including notary fees for entry in the company’s register and the land register, the real estate transfer tax and certain charges in connection with employee salaries).

• Austria Wirtschaftsservice Gesellschaft mbH (AWS) – The AWS is the Austrian federal promotional bank. Its purpose is to assist companies implementing innovative projects by granting loans, awarding subsidies and/or issuing guarantees at favorable interest rates, especially if the companies cannot acquire necessary and sufficient funds from other sources. It also provides relevant information, advisory and other services to companies at any stage.

Austria Double Tax Treaties