If an Austrian company receives dividends from an Austrian subsidiary, the dividends are tax exempt irrespective of the entity of the holding. If, however, the dividends are paid by a foreign company in which the Austrian company has a holding, they are tax exempt only if the Austrian company has had a holding of at least 10% in the foreign company for a period of more than a year and any form of abuse can be excluded.
Already last year, the Administrative High Court had ruled that this was considered unequal treatment of dividends paid by Austrian and foreign companies and therefore as violation of the free movement of capitals.
A bill has now been prepared in the framework of the budget law establishing that also holdings abroad of less than 10% can be tax exempt if the foreign company paying the dividend is a company of an EU member country or of Norway. Another condition to be met for claiming exemption is that the foreign company must be subject to corporate income tax of at least 15%. If the tax rate is less than 15%, as is the case in Bulgaria, Ireland and Cyprus, the imputation scheme has to be applied.
Consequently the foreign dividend is subject to a 25% rate in the Austrian parent company while the lower foreign tax will be considered for tax purposes. In this case there is no obligation to possess the holding for a year. Dividends derived from the so-called portfolio holdings in countries outside the EU and Norway continue to be subject to the corporate income tax of 25%.
If investors from the EU or Norway have holdings in Austrian companies of less than 10%, according to the current legislation and based on the tax treaties to avoid double taxation, they have to pay a corporate income tax of 15%.
In the future these investors will be able to claim the refunding of the whole amount of the corporate income tax if they are able to provide a proof that the imputation of the Austrian taxes on capital gains is not possible abroad.