Private foundations under the private foundations law are legal entities without owners and members which were established as legal persons under private law during the lifetimes or at the time of the death of one or more founders. The private foundation must have dedicated assets of at least EUR 70,000. It is established through a Declaration of Foundation (the Declaration of Foundation must contain: among other things, dedication of assets, foundation purpose, designation of the beneficiaries, name and location of the private foundation) and comes into existence at the time it is entered into the commercial register. The foundation board, which must consist of at least three members, administers and represents the private foundation and must ensure that the purpose of the foundation is fulfilled. The private foundation must have two accounts, each year it must issue an annual report, and it must have this report audited by the foundation’s auditor (who must be a sworn auditor or accountant).
Private foundations are taxed at three levels:
Taxation of Donations made to the Private Foundation
Starting on 08/01/2008, inheritance and gift tax are no longer assessed in Austria. However, legislators enacted new tax rules for foundations. Pursuant to Article 1, Section 1 of the Austrian Foundation Receipts Act, “gratuitous donations to private foundations or estates that are comparable thereto” are subject to the foundation receipts tax. The receipts tax amounts to 2.5% of the donations.
Donations to private foundations and comparable estates under foreign law are also subject to the tax on foundation receipts.
Continuous Taxation of Private Foundations
Continuous taxation of the private foundation is divided into three areas which are subject to the following tax rates:
- Dividends, limited liability company profit distributions and profits on sales from a participation of less than 1% are free from corporate income tax
- Interest on bank credit balances, interest from loans, mortgage debentures, bonds, profits on sales from a participation of over 1% are subject to a corporate income tax of 12.5% (so-called interim tax)
However, the interim tax does not lead to an additional tax burden but represents an advance tax on taxable donations to the beneficiary.
- Income from business operations, independent work, agriculture and forestry, renting and pledging and other income (for example, profits on speculation) are subject to corporate income tax (25%).
Taxation of Donations made by the Private Foundation
All donations made by the private foundation to beneficiaries are deemed income from capital assets and are subject to a terminal capital earnings tax in the amount of 25%. The capital earnings tax is retained by the foundation and paid to the Ministry of Finance.
Until now, private foundations had the tax disadvantage that donations to beneficiaries from asset principal (repayment of deposits or distribution of assets upon dissolution of the foundation) were taxed at the same 25% capital earnings tax as donations from earnings on the foundation assets. The Austrian Donative Registration Act of 2008 now sets the “payment on principal of foundation related assets" as tax free by making it subject to the legal requirements of Article 27, Section 1, Clause 8 of the Austrian Income Tax Act (this applies to assets which were donated to the foundation after 07/31/2008).