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Plekhanov Russian University of Economics

Investment climate in Austria

Done by Bastanova Aigul


Group 1390
Management Faculty
Supervisor:
Sybachin S.A.

Moscow 2016

Content
Introduction.................................................................................................................................................3
General Information....................................................................................................................................4
Economy...........................................................................................................................................4
Tax System........................................................................................................................................5
Tourism and Lifestyle........................................................................................................................6
Investment Profile.......................................................................................................................................7
FDI in Figures.............................................................................................................................................8
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11

Introduction
Austria is the country of utmost economical importance in the Central European region. It offers
an attractive climate and the highest level of security for investment. The stability of the business
environment is based on the combination of prosperous industry, highly-developed services sector,
substantial government reserves, and positive microeconomic indicators across the board.
Macroeconomic fundamentals are relatively healthy, however, the Austrian governments crisis response
and the multi-billion Euro bailout of a major Austrian bank led to a deterioration in public finances.
Austria is a highly developed industrial nation with a huge and dynamic services sector.
One of the most positive economic indicators is the lowest unemployment in the European Union
at below 5%. The real estate market is notable for its high stability, adequate profitability and sustainable
demand.
Economic conditions continue to remain favorable in Austria, particularly those relevant to
foreign investors. As a small and highly internationalized economy, Austria felt the effects of the
2012/2013 recession in the Eurozone and showed only modest growth in both 2013 and 2014. Slow
growth is expected to continue in 2015, with the recovery gaining momentum no earlier than 2016.

General Information
Austria is a parliamentary representative democracy comprising nine federal states. The capital
and largest city, with a population exceeding 1.8 million, is Vienna. According to the studies of the
international agency Mercer, Vienna has the highest quality of life in the world and has held this position
for the four last years. Austria is one of the richest countries in the world, with a nominal GDP per capita
estimated to be $ 41077.36 in 2014. The country has developed a high standard of living and in 2011 was
ranked 19th in the world for its Human Development Index. Austria has been a member of the United
Nations since 1955, joined the European Union in 1995, and is a founder of the OECD. Austria also
signed the Schengen Agreement in 1995, and adopted the European currency, the euro, in 1999. Austria
has one of the lowest unemployment rates in the world.
Economy
Austria, with its well-developed market economy, skilled labor force, and high standard of living,
is one of EU leading economies. Its economy features a large service sector dominated by tourism, a
high-tech industrial sector, and highly developed agricultural sector, which is not only a source of food
products, but also a tradition and part of the culture. Austrian industry is oriented towards high-tech
products and is characterized by high exports and leading positions in numerous sectors. Austrian banks
belong to the largest ones in the entire region, specifically Bank Austria and Raiffeisen International.
Basel III regulatory standard brings additional stability in a case of potential crisis to the already stable
financial institutions. Given the relative health of its financial sector, Austria's fiscal position compares
favorably with the other euro zone countries. Austria also has very diversified trading partners from all
over the world, it is preeminently active especially in Asia.

Tax System
Due to the qualification of corporations as independent tax subjects, a distinction must always be
made between tax ramifications at the level of the company and those at shareholder level. At the level of
the company, profits are taxed at the standard corporate income tax (CIT) rate of 25%, regardless of
whether profits are retained or distributed. At the shareholder level, the profit distributions are usually
subject to CIT of 25%. There is also a minimum CIT, payable by companies in a tax-loss position. The
minimum CIT amounts to 437.50 for limited liability companies (GmbH) and 875 for stock
corporations (AG) for each full quarter of a year. To promote the formation of new companies, the
minimum CIT is reduced to 273 for the first four quarters. The minimum CIT can be carried forward
without time limitation and be credited against future CIT burdens of the company. There is also a onetime ground purchase tax in the amount of 3.5% of the total price paid for an asset including land plot.
Depreciation of property plays the most important role in lowering the taxable base. According to
the Austrian laws the depreciation period of real estate varies between 20 and 66 years depending on type
and lifetime of a building.

The payment of credit interests and overdue interests also

lowers the taxable base. Through the use of a debt financing the sum of costs lowers the taxable base
almost to zero, with the assumption that the real cash flow stays positive.
Shareholders of companies are obliged to pay the dividend tax with a rate of 25% from the received
dividends. In the case of reinvestment or keeping the retained earnings on a companys accounts the
dividend tax is not payable. Austrian company that is owned an another company from abroad is not
obliged to pay the dividend tax in the Republic of Austria, except cases regulated by agreements against
double taxation with certain countries.
The standard Value Added Tax (VAT) rate in Austria is 20%. The threshold for VAT registration in
Austria is an annual turnover exceeding 30,000. A non-resident taxable person that maintains a fixed
establishment in Austria or supplies goods or services in Austria or performs taxable intra-Community
acquisitions, is obliged to register for VAT purposes in Austria and will, in case of a non-EU business,
require a fiscal representative in some cases.
There is also 3.5% property purchase tax and 1% land registry fee, both of which are not applicable in the
case of a share deal.
Tourism and Lifestyle
Austria is one of the most popular touristic destinations in the world. It is the world leader in
services purchased by foreign tourists per capita (1,665 per capita). The popularity of Austria as a
touristic destination is based on its rich cultural heritage, high standards of services, mild climate, and
beautiful nature.
Austria holds 11th place worldwide and 4th in Europe in the annual amount of incoming tourists,
which is the highest of any non-coastal country in the Europe. The Austrian tourism industry generated
14,6% of countrys GDP in 2014.
Business travel to Austria is also highly developed and taking into account the advanced
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economy, active investments abroad, and strong international relations, it supports the stability of the
Austrian tourism industry in general.
The Austrian tourism industry is dominated by the following kinds of recreational and cultural tourism:

Vienna architecture, museums, concerts, shopping, entertainment

Other historical cities in Austria such as Salzburg, Graz, Innsbruck

Alpine skiing resorts

Summer resorts in the mountains and at the lakes

Thermal resorts, spas, wellnesses

Vineyards and agricultural tourism

Another one of Austrias competitive advantages is its favorable location in the middle of Europe.
Vienna International Airport is the main hub in Central Europe with around 52 million of passengers
annually. The majority of the population speak local Austrian dialects of German as their native language,
and in its standard form it is the country's official language.
Investment Profile
The positive indicators, positive economic growth and healthy financial sector, coupled with
progressive measures undertaken by the government to maintain the necessary future stability make
Austria an attractive investment destination. Moreover the history of Austria's economic stability shows
that such conditions are deeply rooted in the very essence of Austria as a nation. The current level of
stability in Austria is comparable to Germany, perhaps even better given the fact that the German
financial institutions have large amount of exposure to unstable markets such as Greece, Spain, and Italy.
Other factors favoring investment in Austria, except those mentioned above, are highly functional and
enforceable legal system, high tolerance for direct foreign investment, and high respect towards keeping
of bank secrecy.
Austria has a highly skilled and well educated workforce, which makes the country interesting for
entrepreneurial as well as financial investors. Compared to the European Union, labour costs are on an
average level, whereas the workforce is skilled above-average.
Real estate investments in Austria are stable, quite profitable, and highly liquid due to the strong
demand. Residential real estate in Vienna and other larger cities in Austria offers only a low yield
(between 2% and 4% depending on the location and investment volume), however it guarantees a longterm liquidity.
Investment Incentives
a) Grants and Subsidies of Funds offered to Foreign Investors: The federal, provincial and
municipal governments encourage foreign investment by granting either cash, subsidies or other kind of
distributions to investors.
b) National Tax Incentives for Foreign Investors: Tax incentives most of which are granted in
the form of tax exemptions - have been granted to investors in the past.
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c) Export Incentives for Foreign Investors: Foreign investors also took advantage of this opportunity
offered by the state.
FDI in Figures
Thanks to Austria's geographical location at the crossroads of Eastern and Western Europe,
foreign direct investment has always been substantial. However, it seems that this position of a bridge to
the East is now beginning to fade as FDI inflows and outflows have been decreasing since 2012.
Nevertheless, since 2014, FDI is following a dynamic, upward trend due to the economic recovery.
Austria remains a capital exporter: its FDI outflows exceed its inflows. Austria's strengths are: its political
stability, its location at the center of Europe and its skilled and highly productive workforce. However,
Austria has been affected by the deterioration of the political-security situation of Ukraine since the end
of 2013 in terms of FDI outflows.

Foreign Direct

2012

2013

2014

Investment
FDI Inward

3,989

10,376

4,675

Flow (million USD)


FDI Stock (million

164,714

185,831

180,824

USD)
Number of Greenfield

78

68

69

Investments*
FDI Inwards (in % of

4.3

10.9

4.8

GFCF**)
FDI Stock (in % of

40.4

43.4

41.4

GDP)
Source: UNCTAD, 2015
* Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company
Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From
the Ground Up.
** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets
Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or
Scrapped.
FDI Inflows By Countries and Industry
Source: ONB, Central Bank of Austria - 2014.
Main Investing Countries
Germany
Italy
United States
Russia
Switzerland
The Netherlands

2014, in %
29.3
11.5
10.6
7.6
5.4
4.8
7

United Kingdom
France

2.6
2.3

Main Invested Sectors


Professional, scientific and technical

45.0

2014, in %

services
Trade
Financial intermediation
Petrochemical and pharmaceutical products
Electronic and optical products
Machinery, equipment

18.9
7.8
6.0
3.9
2.9

Conclusion

Austria is a highly developed industrial nation with a huge and dynamic


services sector. The countrys geopolitical position between Western European
industrialized nations and the growth markets in Central, Eastern, and Southeastern
Europe (CESEE) has led to a high degree of economic, social, and political
integration with fellow European Union (EU) member states and the CESEE.
Border controls between Austria and all of its eight neighboring countries have
been lifted under the EU's Schengen agreement. EU enlargements in 2004 and
2007 strengthened Austria's attractiveness as an investment location by increasing
access to markets in Eastern Europe, but expansion also bolstered Austria's
competitors in that region in such a manner that nearby Budapest, Prague, and
Bratislava now compete directly with Vienna for foreign investment.
Austria offers many advantages for foreign investors, including political
stability, skilled labor, high productivity and international competitiveness, rule of
law, quality of life, and personal security. Austria further scores with high-quality
health, telecommunications, and energy infrastructure. The administrative system
is transparent. Labor-management relations are relatively harmonious in Austria,
which has a low incidence of labor unrest. Austria receives lower marks for its
overall high tax burden (despite an attractive corporate tax model), low innovation
dynamics, a substantial public sector, and a complex regulatory system with an
excessive bureaucracy (also for established businesses).
Altogether, Austria offers a stable, advantageous and still attractive climate
for foreign investors, albeit one with increasing challenges.

References

1) Austria Investment Climate Statement 2015


2) Lex Mundi Guide To Doing Business In Austria 2014
3) Uhy-Tax Wirtschaftstreuhand Gmbh Austria 2014
4) Doing business inAustria Albert Birkner and Stefan Gurmann Cerha Hempel Spiegelfeld Hlawati (Lex
Mundi Member Firm)

5) Advances in Austrian Economics ,Virgil Storr


6) http://www.best-country.com/europe/austria/political_structure
7) Austrian Legal System and Laws, Taylor & Francis, Nigel Foster
8) ONB, Central Bank of Austria - 2014.
9) UNCTAD, 2015

10) http://www.statista.com/
11) https://en.santandertrade.com/establish-overseas/austria/foreign-investment

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