Israel – Austria Tax Treaty

Business Activity in Austria

Austria’s economy is heavily service-oriented, with the tertiary sector accounting for 70% of its gross value added (GVA) in 2020. This marks a significant shift from the 1960s when agriculture and manufacturing dominated. Today, agriculture contributes just 1.2% of GVA, while the secondary sector, including manufacturing and construction, makes up 28%.

Small and medium-sized enterprises (SMEs) are the backbone of Austria’s economy, representing 99.6% of all businesses and employing over two million people. These companies often specialize in complex and niche markets, earning Austria a global ranking of 10th in economic complexity.

Austria excels in producing world-leading exports such as Glock handguns, cellulosic fibers by Lenzing AG, and railway maintenance vehicles by Plasser & Theurer. Iconic brands like Red Bull further highlight Austria’s innovative and export-driven economy, showcasing the country’s ability to compete globally in specialized industries.

Austria 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, and 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

In 1973 Israel and Austria signed a convention on social security. The purpose of the convention is to regulate the social rights and obligations of individuals who relocate from Israel to Austria and vice versa.

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 1/4/1968 and went into effect on 29/1/1970. The countries signed an amended agreement on 27/11/2016, this agreement went into effect on 31.12.2018.

To read the treaty in English, please click here.

Applicability of the MLI

Both Austria and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework. Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Austria as well, affixed its signature to the MLI on the 7^th of June 2017, and its provisions became effective as of the 1^st of July, 2018.

Residency for Tax Purposes in Austria

Residence of an Individual

For income tax purposes, individuals are considered residents of Austria if they have a home or live there regularly. A home is established if the person has a place to stay that they can use, regardless of whether they own or rent it, and it’s used for more than 70 days a year under certain conditions. Living in Austria for more than 6 (six) months automatically makes someone subject to full income tax, even for the first six months.

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

Residency of a Company

A corporation is considered a tax resident in Austria if it is registered there or if its main management activities take place in Austria. The “main management activities” refer to where the company’s daily operations are conducted, not just where formal board decisions are made.

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: 20%

Capital Gains Tax: 27.5%

Withholding Tax

Inheritance Tax and Estate Tax in Austria

As of August 2008, the inheritance tax was abolished in Austria, and the property transfer tax was introduced as a replacement for it.

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.

Real Estate Taxation in Austria

Real estate tax is collected by the municipalities in accordance with federal law (Grundsteuergesetz 1955). The tax base is the tax value of the real estate. The tax rate depends on the type of real estate and is, at most, 1%. The transfer of Austrian real estate triggers a real estate transfer tax of generally 3.5%.

In regard to gratuitous transfers (intra-family and between third parties), a progressive tax rate applies:

• 0 euro to 250,000 euros – 0.5 %;
• 250,000 euros to 400,000 euros – 2%; and
• over 400,000 euros – 3.5%.

A gratuitous transfer is defined as a transfer for either no consideration or for a consideration that is less than 30 percent of the so-called “property value”.

Transfer of Funds from Israel to Austria

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Austria

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.

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​​.

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 liability for all debts and one or more limited partners with restricted liability to a certain amount​​​​.

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​​.

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.

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, and export guarantees.

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 the 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 in 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