For tax purposes, an Austrian corporation, which has subsidiary companies abroad, is often confronted with the question if the latter is to be considered a corporation or partnership. This classification is very important for the fiscal treatment of dividend payments of the foreign subsidiary in Austria and to clarify if a profit gained with the sale of the subsidiary is tax exempt or if a group can be formed with the subsidiary according to the act on company taxes.
A foreign subsidiary is deemed to be an incorporation if, according to the Austrian company law, it presents the characteristic features of an Austrian incorporation. However, the fiscal treatment received according to the foreign legislation is not relevant with this regard.
In the framework of the corporate income tax law several aspects have been established which allow to state if a foreign company can be compared with an Austrian corporation:
the foreign company must be a stand-alone legal body;  the registered capital must not be connected in any way to the economic result and must be owned by the company; one or more persons must have shares in the registered capital; the liability for debts incurred by the company is limited to the amount of the registered capital and decisions regarding the company must be taken involving the shareholders.
In a recent ruling, the Ministry of Finance has enlarged the criteria to apply in the framework of the classification of a foreign company. In order to be able to compare a foreign company with an Austria corporation, the following criteria must be considered:
the possibility to transfer shares without any limit and constraint to non share holders; the requirement of the formation of the capital by contributions in kind or cash contributions, but not by contributing services; the necessity of a decision reached by a meeting of the shareholders with regard to the division of the profits; the registration of the company in a public register as precondition for the establishment of the company and a decentralized management and representation of the company.
The classification of a foreign company as corporation or partnership can be verified by an expert opinion delivered by an Austrian auditing company or a tax consultant company.