[ESTABLISHING A BUSINESS ENTITY IN AUSTRIA]
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the profit may be compensated. This means that 25% of the profit is taxable even with existing loss carry-forwards. Branches of foreign companies are also subject to Austrian corporate income tax ( KÖSt ) with their income earned in Austria. 6.2 Group taxation Austria has a modern group taxation system, which allows compensation of profit and loss within a group. Even foreign entities may be part of this system. Austrian group taxation has the effect of balancing the profits and losses of the parent company and its subsidiaries by forming a group of companies. The group parent then combines the results of the group members and subjects them to taxation. The requirements for the eligibility of the group taxation are: - Capital participation (share capital, share capital or cooperative capital) of more than 50% and majority of voting rights of the group parent in the group members (financial link); - Submission of a group application to the tax authority; - Conclusion of a group agreement for the purpose of tax equalization within the group; - Financial link during the entire financial year and/or retention in the group for at least 3 years. 6.3 Tax relief and international box participation In general, taxation of foreign income is based on the provisions for avoiding double taxation. The so-called international box participation ( Schachtelbegünstigung ) is an
objective tax the framework of the corporate income tax ( KÖSt ) for distribution and capital gains from certain participations in foreign corporations. The goal of the regulation is to ensure that profits earned by corporations are taxed only once, as long as they do not flow to natural persons. The rules for an international box participation apply if exemption within
an Austrian parent company
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has a share of at least 10%
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- in a foreign subsidiary (that is like an Austrian company) - for an uninterrupted period of at least one year. In the case of an international box participation, profit distributions of the foreign subsidiary to the Austrian parent
company are tax-free. 6.4 Capital gains tax
Capital gains tax ( Kapitalertragsteuer , KESt ) is a special form of income tax. In the case of domestic income from capital assets, this income tax is levied by withholding tax. This means that the capital gains tax is withheld by the bank or the paying agent and paid directly to the tax office. Capital gains tax of 25% is imposed on investment income from cash deposits (e.g., for interest on savings books and current accounts). For all other income from capital assets, the tax rate is 27.5% (e.g., for dividends from shares in limited companies). Capital gains of a company are fully included in the taxable income and are taxed at the corporate income tax rate of 25%. Capital gains on sales of shares in foreign companies are exempt from Austrian income tax under certain circumstances.
ILN Corporate Group – Establishing a Business Entity Series
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