A holding company organization consists of at least two layers: A holding corporation (parent company) and several legal and organizationally independent subsidiaries in which the holding company has its equity investment. A distinction is made between operating holding companies and pure investment holdings which are restricted to acquiring and administering equity investments and thus only realize those rights which arise from shareholder positions.
The advantage of a holding company in terms of earnings tax lies in the so-called intercorporate privilege which under Austrian law is governed in the Austrian Public Entity Tax Act and the Austrian Valuation Act. Provided that the legal requirements are met, the intercorporate privilege ensures that a limited liability company headquartered in Austria is not taxed on dividend proceeds, either on the national or the international level.
Domestic limited liability corporations which have interests in other domestic limited liability companies are not taxed on earnings on interests of any type that are based on their participation (so-called domestic intercorporate privilege) as provided for in the so-called release from earnings on participations under Article 10, Section 1 of the Austrian Public Entity Tax Act). This tax exemption relates both to open and concealed distributions. Here it does not matter whether this participation is held in the holding company's fixed or circulating assets. For this exemption on earnings from participations to apply, there is no limit to a participation; thus shares in profits from even the smallest participations are tax free.
The international intercorporate privilege under Article 10, Section 2 of the Austrian Public Entity Tax Act will also release, in certain cases enumerated for tax purposes under the law, those shares of earnings of any type that arise from international intercorporate participations: You can find details on the conditions here (LINK):
The foreign corporation (subsidiary) must be comparable to a domestic limited liability company or – to the extent the companies belong to EU member states – must fulfill the requirements of the EC Merger Guideline.
The participation must be held by a public entity that has an obligation to report its accounts
The participation must amount to at least 10% of the capital; an indirect participation through a partnership is sufficient
The shareholding must continue uninterrupted for a one year period
In addition, the participation’s so-called tax neutrality applies in international intercorporate participations (Article 10, Section 3 of the Austrian Entity Tax Act). Thereafter, not only continuous profits, but also sales and liquidation profits as well as losses and other changes in value incurred during the assessment of income will not be subject to taxation. The option to have the participation taxed remains open.
Holding Structure and Turnover Tax
Forming a holding company is optimal particularly in those circumstances where profits can be transferred to Austria from abroad with the least amount of adverse taxation. This is especially possible within the context of the international intercorporate privilege when the double taxation treaties of the countries in which the subsidiaries are incorporated provide for a substantial capital earnings tax reduction which must be paid by the Austrian parent company at the time of the profit distribution.