Investment in Progress

Capital Gain Tax for Foreign Investors

powered by ECOVIS

When foreign investors sell their Austrian Start-up investments, one question arises: Where should the capital gain (sale of shares or liquidation) be taxed?

Due to the Austrian Income Tax Act (EStG), Austria has the right to tax all capital gains if the investor held at least 1% of the Austrian shares (According to section 98 (1) item 5 EStG).

However, most double taxation treaties (DTTs) stipulate that taxation may only take place in the seller’s country of residence. Since a DTT restricts a national right of taxation, therefore the tax liability of investors (if the investor held more than 1 % of the shares) in Austria only exists in the following cases:

  • Austria and the country of residence have not concluded a DTT (e.g. this also applies to shareholders that invest out of tax havens, with which no DTT has been concluded).
  • A double taxation agreement exists, but Austria has the right to tax according to the double taxation agreement, e.g in the following cases.:
    • Chinese investors
    • French investors: if there is an investment of at least 25%

 

In addition, in these cases it must be examined whether the capital gain is tax-exempt or (again) taxable in France or China and whether the Austrian tax can be credited.

In all other cases, the capital gains are taxable exclusively in the seller’s country of residence. However, if the foreign investor is subject to Austrian tax (see above), the investor must file a limited income or corporation tax return in Austria (tax rates: special income tax of 27.5% or corporate tax of 25%).

Authors: 

Barbara Hölzl, Managing Director and Tax Advisor ECOVIS Austria & David Gloser, Partner, Chartered Accountant and Tax Advisor