Austrian Economics: A Guide To Investing Wisely

Investing in Austria has many benefits, from its strong economy and attractive foreign direct investment opportunities to its residence and citizenship by investment programs. Austria's economy is driven by the services sector, the industrial sector, and the agricultural and forestry industry, with the tourism industry also being highly valuable. The country offers a fast track to citizenship for investors, with no minimum investment amount, but applicants need to make a substantial contribution to the economy or demonstrate achievements in the interest of Austria. Austria also offers residence permits, providing freedom of travel within the EU and visa-free access to numerous countries. The country's business environment is also ranked highly, making it an attractive prospect for investors.

Citizenship by investment

Austria is an attractive country for foreign direct investment (FDI) due to its strong and stable economy, favourable tax policies, and strategic location between Western and Eastern Europe. The country's economy is driven primarily by the services, industrial, and agricultural and forestry sectors, with tourism also playing a significant role.

When it comes to "citizenship by investment," Austria stands out as the only Western European country that offers the opportunity to obtain citizenship and an EU passport without prior residence requirements. This path to citizenship is outlined in the Austrian Citizenship Act and requires individuals to make substantial contributions to the country's economy or achieve extraordinary achievements in Austria's national interest.

To obtain Austrian citizenship by investment, applicants are typically required to actively invest in the Austrian economy. This can be done through joint ventures or direct investments in businesses that create jobs or generate new export sales. Significant direct investment is generally expected, and passive investments, such as government bonds or real estate, do not qualify. The specific investment options include contributing significantly to Austria's economy or showcasing extraordinary achievements that benefit the country.

It's important to note that obtaining citizenship by investment in Austria usually involves various procedures and requires government approval at different levels. Applicants are advised to seek proper guidance from the beginning and carefully prepare their applications. Additionally, under the Austrian Citizenship Act, applicants may be required to renounce their current citizenship as a precondition for obtaining Austrian citizenship. However, in certain cases, such as Article 10 (6) of the Citizenship Act, individuals may be able to retain their former citizenship.

The benefits of obtaining Austrian citizenship through investment are significant. It offers full citizenship for life, which can be passed on to future generations, and provides visa-free or visa-on-arrival travel to approximately 190 destinations, including countries in the EU, the Schengen Area, Canada, Hong Kong, Japan, Singapore, and the United States. Additionally, Austrian citizenship grants the right to reside, work, and study in Austria and anywhere else in the EU, providing access to high-quality healthcare and education.

Residence permits

Austria is a desirable country to settle in, with its economic and political stability, top-quality healthcare, highly-ranked educational institutions, stable investment and business environment, and safety. Austria's immigration policy is strict, with a limited number of residence permits available each year.

There are several types of residence permits available, including the Red-White-Red Card, which is for qualified third-country nationals (those outside the EU) who want to live and work in Austria. This card is issued for 24 months and allows the holder to work for a specified employer. After this period, it can be extended for three years without reference to a particular job. After five years, the holder can apply for permanent residence.

The Austria Private Residence Program is another option, which does not require an investment, but applicants must have approximately EUR 50,000 in liquid funds, proof of residence, private health insurance, and A1-level German language skills. This program has a strict annual quota of around 300 individuals.

For financially independent individuals, there is the Settlement Permit - Gainful Employment Excepted. Only 450 individuals are granted this permit each year, and applicants must prove they have a sufficient level of income, usually around EUR 80,000 for a family of three. They must also have health insurance and beginner-level German language skills.

Investors and self-employed top managers can also obtain residence permits if their projects are deemed beneficial to the regional economy. A minimum investment of EUR 50,000 with a 50% equity share is required for start-up founders, who must also operate according to an approved business plan and launch innovative products or services.

Taxation

Capital Gains Tax:

Austria has a capital gains tax of 27.5% on income from capital assets, including realised value increases from the sale of investments, shares, securities, and other financial assets. This tax applies to both Austrian and foreign investment funds held by private investors on domestic deposit accounts. It's important to note that capital losses from the disposal of 'grandfathered' assets are not taxable and cannot be offset against gains.

Corporate Taxation:

Austria has a flat corporate tax rate of 25% on taxable profits, and this rate is consistent across the country. Additionally, Austria offers group taxation, where the profits and losses of domestic group members and foreign subsidiaries can be set off, reducing the overall tax burden for the group. This group taxation system is available for companies with an equity share of more than 50% in a subsidiary.

Double Taxation:

To avoid double taxation, Austria has signed double taxation conventions with various countries based on the OECD Model Tax Convention. These agreements ensure that income is taxed in only one of the relevant countries. Understanding these conventions is crucial for international investors to avoid potential tax disputes.

Tax Incentives:

Austria provides several tax incentives to encourage investment and economic growth. This includes the investment allowance and a 14% research premium, which further reduce the effective tax burden. Additionally, the New Companies Promotion Act exempts startups from specified fees and taxes, such as court and stamp duties, providing a boost to new businesses.

Value-Added Tax (VAT):

Austria has a standard VAT rate of 20%, with certain exceptions. For example, accommodation, passenger transport (excluding aircraft), and the delivery of living animals and plants are taxed at a lower rate of 10% or 13%, as outlined in the Value-Added Tax Act (UStG).

Income Tax:

Income from investments, such as interest income, dividends, and capital gains, may be subject to income tax. Interest income from publicly placed securities is taxed at 27.5%, while interest from bank deposits is taxed at 25%. Dividend income is subject to the average tax rate, and foreign tax credits may be applicable under double taxation treaties.

Investment funds

When considering investment funds in Austria, it is important to note that the country offers a favourable business environment, ranking 27th out of 190 countries in the World Bank Group's 2020 Doing Business ranking. Austria's corporate tax rate of 25%, along with group taxation and pro-investor legislation, make it an attractive target for domestic and international investors.

The Austrian Investment Fund Act outlines several principles that funds must follow. Firstly, diversification is key—funds must invest in multiple companies or countries. Secondly, funds are 'open-ended', accommodating an unlimited number of investors and allowing new shares to be issued at any time. Additionally, funds must be chosen by experts and managed by a team of independent auditors.

If you're considering investment funds in Austria, it is recommended to start by seeking advice from your bank and using online tools to calculate potential profit margins. Remember, investing generally follows a fundamental rule: higher returns are usually associated with higher risk. Thus, it is crucial to assess your financial situation, including savings, running costs, and potential unforeseen expenditures, before committing to any investment.

Stock market

Austria has sophisticated financial markets and a stable economy, making it an attractive prospect for investors. The country's location between Western Europe and higher-growth markets in Central, Eastern, and Southeastern Europe has led to a high degree of economic, social, and political integration with fellow European Union member states. The Austrian government welcomes foreign direct investment, particularly in sectors such as automotive, pharmaceutical, ICT, electronics, and finance. Austria also offers tax exemptions and a fast track to citizenship for foreign investors.

The Austrian Stock Exchange (ATX) is the main stock exchange in Austria and is based in Vienna. The Austrian Traded Index (ATX) is a price index consisting of the 20 largest stocks on the market and is the most important index of Austria's stock market. The market capitalization of Austrian-listed companies is small compared to its Western European counterparts, accounting for 26% of Austria's GDP, compared to 48% in Germany or 158% in the United States.

When investing in the Austrian stock market, one can consider buying individual stocks or shares in a company, researching its performance, and selling stocks later at a higher price. This approach requires knowledge of the stock market and time to research various companies. Alternatively, one can invest in Exchange-Traded Funds (ETFs), which are funds containing multiple stocks from various companies. ETFs are ideal for investing in the Austrian stock market as a whole, especially for those who don't have the time or expertise to pick individual stocks.

Additionally, investors can utilize the services of a stockbroker or a robo-advisor. A robo-advisor is an automated investment platform that makes investment decisions based on the investor's preferences and its algorithm. This option may be suitable for those who want a more hands-off approach to investing in the Austrian stock market.

It is worth noting that Austria's rental market is currently landlord-friendly, with high demand for rental properties in city centers. The country's economy is driven primarily by the services sector (68%), the industrial sector (30%), and the agricultural and forestry industry (2%). Austria's corporation tax stands at 25%, and the country has pro-investor legislation, making Austrian companies attractive targets for domestic and international investors.

Frequently asked questions