Austria has a civil law system with roots in Roman and German law traditions. Austrian substantive law is primarily codified in comprehensive legal codes for three core legal areas:  

• public law, mainly governed by the Austrian Federal Constitution; 
• private law, primarily set forth in the Austrian General Civil Code; and  
• criminal law, mainly codified in the Austrian Criminal Code.

Influence of the Austrian Courts and the ECJ

As a member state of the European Union (EU), Austria is strongly influenced by the legal acts of the EU and the decisions of the European Court of Justice (ECJ). Although case law is less significant for the development of the Austrian legal system (compared to common law jurisdictions), decisions made by the three highest courts in Austria, in particular – the Supreme Court (generally competent for civil and criminal law matters), the Constitutional Court, and the Supreme Administrative Court – have a significant impact on the outcome of future court proceedings. Therefore, decisions by the Austrian courts and the ECJ are crucial when interpreting Austrian law and considering investments in businesses based or operating in Austria.

The Austrian Court System

The formal administrative head of the Austrian judicial system is the Federal Minister of Justice (Bundesminister für Justiz). The Austrian court system is divided into two branches: (i) general courts, competent for civil, competition, and criminal law; and (ii) public law courts, competent for administrative procedures, acts, and decisions by the authorities. Regulatory authorities exist for specific business activities, such as the FMA (Austrian Financial Market Supervision Authority), an integrated "one-stop shop" authority and supervisor of banks, insurance companies, investment funds, etc, e-control for the energy sector, RTR for telecommunications, etc.

Social Partnership

Austria has had a lasting tradition of social partnership (Sozialpartnerschaft) since the post-war era, which essentially means a co-operative relationship among the major Austrian economic interest groups of employers (ie, businesses) and employees to resolve and avoid conflicts through consensus. The main associations representing the respective economic interest groups are the Austrian Federal Economic Chamber (Wirtschaftskammer Österreich) and the Austrian Industrial Association (Österreichische Industriellenvereinigung). Also, to a lesser extent, the Austrian Chamber of Agriculture (Landwirtschaftskammer Österreich) for employers, while for employees, the Federal Chamber of Labour (Bundesarbeiterkammer) and the Austrian Trade Union Association (Österreichischer Gewerkschaftsbund). A prominent feature of the social partnership is the annual negotiation of collective bargaining and wage agreements (see 10.1 Employment and Labour Framework) for certain core economic areas (eg, the iron and metalworking or trading industry), which is also followed by the media. In addition, the social partnership representatives submit proposals on draft legislation, participate in political and advisory councils and committees, and are frequently involved in proceedings in front of labour and social security courts as well as the Cartel Court (see 6.1 Applicable Regulator and Process Overview), and perform lobbying activities.

Private Law

Austrian private law is of particular relevance for investments in businesses based or operating in Austria and, inter alia, covers commercial, corporate, employment, and civil (contract) law. Despite recent efforts by the legislator to simplify the establishment of Austrian corporations, respective procedures are relatively complex (compared to other jurisdictions). For example, an Austrian limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) requires substantial initial share capital (EUR35,000 to incorporate an Austrian private limited liability company, at least half of which must be paid in). Efforts by the legislator in recent years to increase the attractiveness of establishing a GmbH in Austria – such as a special foundation privilege reducing the initial share capital required for a GmbH to EUR10,000 (at least half of which must be paid in) for a limited period or the possibility to incorporate very basic GmbHs with one shareholder at banks – have had modest effects. The required documents for incorporation (eg, identity verification, payment of initial share capital, sample signature, etc) are provided to the respective bank. The legislator is contemplating the introduction of a new company form with limited liability (working title "Austrian Limited") to offer an alternative to existing limited liability company forms, which may be interesting - particularly for start-up entrepreneurs and fast-growing companies. It remains to be seen whether the Austrian Limited will be implemented and how foreign investors will receive it.

Arbitration

Austria has established one of the most in-demand arbitration venues worldwide. In particular, the adoption of an arbitration-friendly legal system in line with the UNCITRAL Model Law, the well-established Vienna Rules of Arbitration and Mediation of 2018, and the International Arbitral Centre of the Austrian Federal Economic Chamber, being one of the leading international arbitration institutions, provide an environment fit for high-class arbitration proceedings. Traditionally, parties from Central and Eastern Europe choose Austria as their place of arbitration. However, Austria's popularity as an arbitration place has gradually increased globally.

The Federal Act on the Control of Foreign Direct Investment 2020 (Investitionskontrollgesetz 2020 – ICA) came into effect on 25 July 2020. Under the ICA, direct or indirect investments by non-EU, non-European Economic Area (non-EEA) and non-Swiss investors in an Austrian company require, in general, prior authorisation by the Austrian Federal Minister of Labor and Economy (Bundesminister für Arbeit und Wirtschaft – BMAW), if the Austrian target company is active in a critical sector (by statute, acquisition of such Austrian target company may pose a threat to security or public order). The ICA distinguishes between highly critical sectors (set out in an exhaustive list in Part 1 of the Annex to the ICA) and "normal" critical sectors (set out in a non-exhaustive list in Part 2 of the Annex to the ICA).

The following sectors are considered highly critical:

• defence equipment and technology;  
• critical energy infrastructure;
• critical digital infrastructure (eg, 5G infrastructure);
• water;
• systems to ensure Austria's data sovereignty; and
• research and development in the fields of medicinal products, vaccines, medical devices, and personal protective equipment.

The normal critical sectors include:

• critical infrastructure (institutions, systems, facilities, processes, networks or parts thereof), including in particular energy, information technology, health, food, telecommunications, data processing or storage, finance, etc.;
• critical technologies and dual-use goods as defined in Article 2 Para 1 of Council Regulation (EC) No. 428/2009, including artificial intelligence, robotics, semiconductors, cyber security, defence technologies, quantum and nuclear technologies, nanotechnologies and biotechnologies;
• security of supply of critical resources, including energy supply, supply of raw materials, food supply and supply of medicinal products, medical devices, vaccines and personal protective equipment, including research and development in these areas;
• access to or the ability to control sensitive information, including personal data; and
• freedom and plurality of the media.

The investment must involve the acquisition of an Austrian company, of minimum voting rights (10%, 25% and 50% in highly critical sectors; 25% and 50% in "normal" critical sectors) or the acquisition of control over all or significant assets of the Austrian company. The FDI regime does not cover greenfield investments and mere branches, and the ICA does not contain an explicit exemption for internal restructurings. This is, therefore, in principle applicable to internal restructurings.

Market Trends

In the first half of 2022, the Austrian M&A market was on par with the same period in the previous year in terms of M&A activity by a number of deals (despite international trends showing subsiding numbers). However, also in Austria, M&A activity by volume declined. (The data is still missing for the second half of 2022.) International trends show large-cap transactions being stronger affected by the general slowdown in M&A activity than mid and small-cap transactions, which are also more relevant for Austria's economy given its size. Time will tell if medium and small-sized transactions follow the trend of the larger ones.

New Threshold in Austrian Merger Control

Further notable legislation was introduced regarding Austria's merger control system, according to which a second national turnover threshold for all transactions closed since 1 January 2022 was implemented. Consequently, the combined national threshold of EUR30 million turnover generated in Austria now requires at least two undertakings to generate an Austrian turnover of more than EUR1 million each. Previously, transactions were subject to merger control notification even in cases where the acquirer alone exceeded the overall thresholds, which are considered comparably low by international standards. This new threshold is expected to bring more flexibility to the Austrian transaction market.

Innovations

On 31 January 2023, the implementation period for an EU-Directive requiring member states to allow certain cross-border de-mergers and reorganisations within the EU will expire. Therefore, upcoming legislation in this regard is expected to complement the already existing laws on union-wide mergers.

At the beginning of 2022, the Austrian laws on warranty were fundamentally renewed (in accordance with European Union requirements) by introducing a new code for customer warranties (Verbrauchergewährleistungsgesetz -VGG). Further, warranties for digital services took effect, and various deadlines were extended.

Impacts of the Tax Reform of 2022

The tax reform of 2022 provides some modifications concerning income tax and corporate income tax. The progressive income tax rate for income in the bracket between EUR19,134 and EUR32,075 was reduced from 35% to 30% on 1 July 2022. However, this reduced tax rate will only be applicable as of assessment for 2023. For the assessment of 2022, a tax rate of 32,5% will apply to income in the bracket between EUR19,134 and EUR 32,075., Further, the tax reform of 2022 provides a reduction of the income tax rate for income in the bracket between EUR32,076 and EUR 62,080 from 42% to 40% (with effect from 1 July 2023) - however, similar to the above, applicable only as of the assessment of 2024. For the assessment of 2023, the income in the bracket between EUR 32,076 and EUR 62,080 will be taxed at a rate of 41%.

The current corporate income tax rate of 25% will be reduced to 24% in 2023 and 23% in 2024 to increase competitiveness in the international economy. Furthermore, companies will get an incentive for business investments due to an investment tax allowance, whereby 10% of the acquisition or production costs related to that can be treated as expenses. Moreover, 15% of the costs incurred are tax deductible if the investments are attributable to green investments.

The tax reform provides another major novelty: Austria is one of the first countries in the world to introduce taxation of cryptocurrencies, similarly as portfolio investments are taxed. Although gold, other commodities or national currencies fall into a speculation period regime (ie, capital gains are not taxable if such period is fulfilled), cryptocurrencies are taxed like portfolio investments. Consequently, income from crypto-profits is subject to a 27.5% tax irrespective of how long they were held. This provision affects investments made after February 2021. However, if a corporation receives income from crypto-profits, the corporate tax rate of 25% is applicable.

Finally, as in Germany, Austria introduced the pricing of greenhouse gas emissions by means of a special, newly introduced tax. The price of greenhouse gas emissions will amount to EUR30 per ton of CO₂ from 1 October 2022 onwards. By 2025, this price will increase to EUR55 per ton of CO₂.

Share or Asset Deals

M&A transactions are typically structured as share deals or asset deals in Austria, ie, the acquisition of a part or the entire share of the target company (and thereby indirect acquisition of the company's assets); or acquisition of the assets comprising the business of the target (or part thereof) by acquiring the respective assets and liabilities such as inventory, customers, machinery, employees, IP, real property, etc, directly from the target. Under Austrian law, an asset deal through which the entire business of the target is acquired usually involves the transfer of all legal relationships and liabilities pertaining to such business by operation of law. This general rule may be excluded to a certain extent only, in particular, vis-à-vis third parties.

Acquiring a controlling share in an Austrian company listed with the Vienna Stock Exchange or VSE (Wiener Börse) may require a public takeover bid subject to the regulations of the Austrian Takeover Act or TOA (Übernahmegesetz). The TOA applies to stock corporations (Aktiengesellschaften – AGs) listed on the regulated market of the VSE, with a registered office in Austria, and sets forth the rules for public takeover bids, competing offers, and notification duties if certain shareholding thresholds are exceeded ("creeping-in"). 

Required Disclosure

The Stock Exchange Act 2018 or SEA (Börsegesetz 2018) requires disclosure by a holder of (cumulatively): (i) shares with voting rights, or financial instruments (rights to acquire and instruments with similar economic effect), or a combination of both; (ii) holding 4% (subsequent disclosure thresholds also apply) with disclosure at 3% if such 3% threshold is optionally imposed by the issuer in its articles of association; (iii) in an issuer which has Austria as its home member state and has shares admitted to trading on an EEA regulated market; (iv) promptly but no later than two trading days from the day that follows the date on which the disclosing person learns or should have learnt of the need to make the disclosure; and (v) to the issuer, exchange operating company (if the securities are listed on the VSE) and the FMA. 

Thresholds for disclosure

The thresholds for disclosure are the attainment, excess or shortfall of a person's holding of voting rights or financial instruments of over or below 3% if the issuer optionally imposes such threshold in its articles of the association (see above); or, generally, 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75%, and 90% of the total voting rights attached to the shares of the issuer.

The following legal provisions are most important for foreign investors considering M&A transactions in Austria.  

• Depending on the type of companies involved in an M&A transaction, the respective underlying corporate law applies (particularly in share deals), eg, the Act on Companies with Limited Liability (GmbH-Gesetz – GmbH Act) for GmbHs, the Joint Stock Corporation Act (Aktiengesetz – AG Act) for AGs, and the Austrian Commercial Code (Unternehmensgesetzbuch) for general partnerships and limited partnerships. Such underlying corporate laws, inter alia, regulate the share capital, shares and their transferability, corporate governance and the rights and obligations of shareholders, as well as the management of the company.   
• The SEA further governs listed companies. Particularly for M&A transactions, the rules on disclosure duties regarding ad hoc publications and the procedure for insider trading are relevant. Certain acquisitions may be subject to the TOA (see 3.1 Transaction Structures), setting forth rules for acquiring a controlling share in a listed company.  
• The Squeeze-Out Act (Gesellschafter-Ausschlussgesetz) governs the squeeze-out of minority shareholders owning up to 10% of the shares in a GmbH or an AG. As a squeeze-out may occur in connection with a reorganisation, eg, merger by conversion into the majority shareholder (verschmelzende Umwandlung), establishing conversion (errichtende Umwandlung), or non-proportional de-merger (nicht verhältniswahrende Spaltung), the relevant provisions of the GmbH Act and AG Act must also be considered in this respect. If the M&A transaction involves a reorganisation, special laws such as the Austrian Conversion Act (Umwandlungsgesetz) may apply.   
• The ICA regulates (direct and indirect) investments by foreign investors in Austrian companies and requires approval by the BMAW to acquire Austrian target companies active in a (particularly) critical sector.   
• For cross-border mergers of an Austrian GmbH or AG with other EU companies, the EU Merger Act (EU-Verschmelzungsgesetz) provides a comprehensive legal procedure.   
• When a merger is not subject to the merger control procedure by the European Commission (EC), the Austrian merger control rules must be observed (see 6. Antitrust/Competition). It is important to note: even if the EC has jurisdiction, Austrian merger control will still remain applicable if the transaction also involves the acquisition of a minority shareholding of 25% or more in the target, without conferring (joint) control, and the turnover thresholds of the Austrian Cartel Act are exceeded.

The Austrian FDI regime, ie, the ICA, is neutral as regards the choice of legal form. The decisive question is whether an Austrian target with activities in a critical sector is acquired. However, mere branch offices are not covered by the Austrian FDI regime.

A minority investment in an Austrian target company is subject to Austrian FDI control if the target is active in a critical sector and the applicable voting rights threshold is reached (10% if the target is active in a highly critical sector or 25% if the target is active in a "normal" critical sector).  

The acquisition of a minority investment may also be subject to Austrian merger control if the investment covers the acquisition of shares/voting rights of at least 25% in a target company with activities in Austria and the investor and the target company reach certain turnover thresholds. 

A foreign investor may have to submit (i) an application for authorisation by the Austrian FDI authority, in case the ICA applies; or (ii) a merger notification to the Austrian competition authorities, where the Austrian merger control rules apply (see 4.2 Relationship between Companies and Minority Investors).  

In both cases, the FDI may not be implemented prior to clearance by the Austrian authorities. A breach of such reporting obligation and implementation prohibition (so-called "gun-jumping") may trigger serious administrative or criminal sanctions. In addition, the agreements on the transaction would not be enforceable under civil law rules.

The VSE is divided into a regulated market and a non-regulated market. The Official Market (Amtlicher Handel) is the only regulated market operated by the VSE within the meaning of the Markets in Financial Instruments Directive II (2014/65/EU), the primary legal basis of which is outlined in the SEA. The VSE's non-regulated market is the Vienna MTF, an exchange-regulated market that functions as a multilateral trading facility (MTF). The Vienna MTF covers securities that are not admitted to the Official Market.  

Just under half of the financial liabilities of Austrian companies are raised by equity. Equity financing, in the form of crowdfunding, business angels, private equity and venture capital, etc, is a sought-after way of financing Austrian companies. Debt financing instruments such as corporate bonds, including hybrid and green bonds, both on the regulated market and the MTF, are gaining popularity.   

Off-market promissory note loans (Schuldscheindarlehen) also figure in companies' financing portfolios. Finally, state forms of debt financing, such as subsidised loans and crowdlending, have become effective financing tools.  

The key laws on securities and their exchange over capital markets in Austria are the following.   

• The Capital Market Act 2019 (Kapitalmarktgesetz 2019), which implements the EU Prospectus Regulation ((EU) 2017/1129) into Austrian law and constitutes the primary legal basis for the public offering of securities in Austria. An issuer planning to publicly offer securities must prepare a comprehensive prospectus containing key information on the issuer and the securities to be issued. Such a prospectus is subject to approval by the FMA.  
• The SEA regulates the admission of securities to a regulated market in Austria and has been amended to, inter alia, implement the Market Abuse Regulation ((EU) 596/2014) into Austrian law, the EU Transparency Directive (2013/50/EU), the EU Markets in Financial Instruments Directive II (2014/65/EU) as regards commodity markets, and the EU Regulation on Short Selling and Certain Aspects of Credit Default Swaps ((EU) 236/2012) towards harmonisation of the capital markets regulations in the EU member states. Foreign investors in companies listed on the regulated market of the VSE will be required to comply with the notification provisions of the SEA (see 3.1 Transaction Structures).

The key laws on investment funds in Austria are:  

• the Austrian Investment Funds Act 2011 (Investmentfondsgesetz 2011) implements the UCITS Directive (2009/65/EC) into Austrian law; and  
• the Austrian Alternative Investment Funds Manager Act (Alternative Investmentfonds Manager-Gesetz) implements the AIFM Directive (2001/61/EU) into Austrian law.  

Investment funds may only be set up and sold in Austria in accordance with these laws, depending on the type of fund. FDI by foreign investment funds in Austria is generally not subject to regulatory review (in so far as shares of the funds are not sold in Austria).  

Austria has a merger control regime with relatively low thresholds compared to other jurisdictions, which may trigger a filing obligation even in cases where the target has only a little or – if certain conditions are fulfilled – no turnover in Austria. There is a requirement for filing even in cases where mere shareholdings of 25% or more (without conferring control) are acquired, and the competition authorities have a rather strict attitude to gun-jumping.

Definition of Concentration 

The following types of transactions qualify as concentrations under the Austrian Cartel Act 2005 or CA (Kartellgesetz):   

• the acquisition of an undertaking or a substantial part thereof, especially by merger or conversion;   
• the acquisition of rights in another undertaking by operational management or operational lease agreement; 
• the (direct or indirect) acquisition of shareholdings of 25% or 50%;  
• the establishment of cross-directorships if at least half of the members of the management or supervisory boards of two or more undertakings are identical;  
• any other concentration which allows for controlling influence over another undertaking; and   
• the establishment of a full-function joint venture. 

The majority of concentrations notified under the CA consist of the acquisition of a shareholding or a (jointly) controlling influence.  

Merger Filing Thresholds 

Concentrations, as described above, are required to be notified to the Austrian Federal Competition Authority or FCA (Bundeswettbewerbsbehörde) if the following turnover thresholds have been met in the preceding business year:  

• the combined worldwide turnover of all concerned undertakings exceeded EUR300 million;  
• the combined Austrian turnover of all concerned undertakings exceeded EUR30 million, with at least two concerned undertakings having an Austrian turnover exceeding EUR1 million each; and  
• the individual worldwide turnover of at least two of the concerned undertakings exceeded EUR5 million each.

According to the de minimis exemption, concentrations meeting the above thresholds are not notifiable if only one of the concerned undertakings had a turnover of more than EUR5 million in Austria. In contrast, all other concerned undertakings had an overall worldwide turnover of no more than EUR30 million. Therefore, a filing obligation only exists if at least two of the concerned undertakings have an Austrian turnover exceeding EUR1 million in the preceding business year. Even if these thresholds are exceeded, it might still be possible to avoid a filing based on no-effects of the concentration in Austria if the target has no turnover in Austria (and the thresholds are exceeded only by the two (or more) parent companies in a joint venture scenario). However, the authorities are very strict in this regard, which is why they generally recommend filing whenever such thresholds are met.

Concentrations which do not meet the turnover thresholds set out above may, nonetheless, be notifiable under the transaction value threshold, namely – provided the overall worldwide threshold of EUR300 million is met – in the case of an overall Austrian turnover of more than EUR15million if the value of the consideration (ie, essentially the purchase price) exceeds EUR200 million and the target company is active in Austria to a significant extent, which is evaluated on a case-by-case basis.

Not only the turnover of the entire group – up to the ultimate beneficial owner – must be considered for the turnover calculation, but also 100% of the turnover(!) of all undertakings connected by a (direct or indirect) shareholding of 25% or more.  

Like the EU Merger Act, the CA exempts certain transactions undertaken by financial institutions or investment companies from a filing obligation, provided that voting rights may not be exercised to determine the competitive behaviour and, in the case of financial institutions, the shares must be resold within specific deadlines. Separate rules also exist for media concentrations, where the companies' turnover is multiplied by a factor of 200 or 20 with regard to some of the above thresholds.

Competent Authorities and Procedural Issues  

Filings can be made as soon as the parties have reached an agreement on the main aspects of the transaction (ie, even before signing a final agreement but already on the basis of an LOI or the like) and must be submitted to the FCA, which is in charge of the first review (Phase I), together with the Federal Cartel Prosecutor or FCP (Bundeskartellanwalt). The FCA and FCP are also known as the "official parties". Phase I lasts for four weeks from filing and can be extended for another two weeks upon application by the filing party (eg, if more time is required to deal with follow-up queries of the official parties, provided that clearance in a prolonged Phase I still appears possible). If the official parties see material issues, they will apply for an in-depth investigation of the transaction with the Cartel Court (Phase II). Otherwise, clearance results due to the lapse of time. In urgent cases, the filing party can apply for a waiver, which shortens Phase I to a minimum of about 17 days from filing (14 days plus mail routing). This requires sound reasons for urgency and no material concerns with the concentration. The vast majority (approximately 99%) of the concentrations filed (on average about 480 concentrations in recent years, however, the number has dropped by approximately 30% because of the second national threshold introduced in September 2021) are cleared in Phase I in Austria. In Phase II, the Cartel Court generally appoints an expert to determine the market definition and economic impact of the transaction and, in most cases, also follows such expert's opinion.

Prohibition of Implementation Prior to Clearance ("Gun-Jumping")

Concentrations which have to be notified must not be implemented before clearance by the competition authorities. Any agreements infringing such standstill obligation (gun-jumping) will be null and void. In addition, the official parties will initiate proceedings for the imposition of fines if gun-jumping comes to their attention (see 6.2 Criteria for Review through to 6.4 Enforcement).

Austrian merger control applies when the relevant thresholds (set out in 6.1 Applicable Regulator and Process Overview) are met. No overlap criteria or other competitive concerns are required for this to fall under the jurisdiction of the Austrian competition authorities. Once filed, the material test is whether or not the concentration will create or strengthen the dominant position of a merged entity on any relevant market or whether effective competition is significantly impeded (SIEC Test) as a result of the transaction (the SIEC Test was also introduced with the latest amendments to the CA in September 2021). There is a rebuttable presumption of dominance in the case of a market share of at least 30%. Obviously, horizontal overlaps are the focus of the assessment, but vertical issues may also arise if the parties are active in upstream/downstream/neighbouring markets and have a strong market position in these markets, enabling them to foreclose customers or competitors. If the 30% threshold is exceeded, parties have to provide good arguments to convince the authorities that competition will not be restricted as a result of the concentration (ie, potential competition/low barriers to market entry, strong buying power, efficiency gains, etc). To remove these concerns, conditions can already be imposed on the merging parties in Phase I. If the 30% threshold is reached and no commitments can be agreed upon, in most cases, Phase II proceedings will be initiated, where a court expert is appointed to provide an economic opinion on the likely impact of the concentration on the competition.  

The parties may offer remedies (conditions, obligations, or both) in Phase I and/or Phase II. Even after clearance of the transaction, the Cartel Court may impose measures on the parties to alleviate competition concerns if clearance has been obtained based on incorrect or incomplete information or if remedies are not complied with. The CA does not specify which remedies are acceptable, and in the past, both structural and behavioural commitments have been accepted as long as they sufficiently address the competition concerns identified by the competition authorities. Recently, there appears to be a growing tendency to favour structural remedies, such as divestments of (parts) of the overlapping business, as opposed to behavioural remedies, eg, the supply obligation of third parties, licences, etc (in line with the approach of the EU Commission and, for example, the German Federal Cartel Office). Non-compliance with commitments is equivalent to a breach of the standstill obligation (see 6.4 Enforcement).

A concentration subject to Austrian merger control may only be implemented after clearance, ie:

• both official parties have waived their right to request a Phase II review;
• neither official party has requested Phase II proceedings within the four-week period of Phase I (or within the approximately six-week period in the case of an extension); or
• in the case of initiation of Phase II proceedings, under a final decision of the Cartel Court or Cartel High Court.

Agreements infringing the standstill obligation are null and void. Parties (intentionally or negligently) implementing a concentration that has to be notified prior to clearance (gun-jumping) can be sanctioned with fines of up to 10% of their worldwide turnover. However, in practice, the respective fines are much lower, ranging from about EUR50,000 to EUR150,000, with the highest fine imposed so far amounting to about EUR9.6 million (Facebook/GIPHY). The penalty depends, inter alia, on the duration and gravity of the infringement, the degree of fault, and the economic capacity of the undertakings involved. Another unpleasant consequence is the publicity of the infringement: failure to notify the parties and the amount of the fine is published on the FCA's website. The Cartel Court imposes fines upon the application of the official parties. Usually, the Cartel Court follows the official parties' application, and it cannot impose a higher fine than it applied for. The decision can also be appealed at the Cartel High Court.  

Austria operates a tight FDI regime, ie, the ICA, regarding investments by non-EU, non-EEA and non-Swiss investors. The relevant authority is the BMAW, which is assisted by the Investment Control Committee. An FDI is subject to scrutiny under the ICA if it cumulatively fulfils the following criteria:

• the FDI is made by persons (natural and legal) who are not citizens of or do not have their seat/headquarters in the EU, the EEA or Switzerland;  
• the Austrian target entity pursues a commercial activity that may pose a threat to security or public order (see the list of critical sectors in 1.2 Regulatory Framework for Foreign Direct Investment (FDI)); and 
• the investment concerns the direct or indirect acquisition of:
1. a business or a legal entity;
2. material parts of a business resulting in the acquisition of a controlling influence over such parts of a business;
3. a shareholding that reaches or exceeds at least 10% of the voting rights (if the target is active in a highly critical sector) or 25% of the voting rights (if the target is active in a "normal" critical sector); or
4. controlling influence over a business or legal entity.

Exceptions

The FDI regime does not apply to foreign investment in a micro-enterprise. According to the BMAW's FAQs, the FDI regime does not cover branch offices.

Authorisation

An application for authorisation to the BMAW is mandatory and must be made immediately following the signing. The target is subsidiarily obliged to apply for authorisation if the foreign investor does not apply for FDI clearance.

Timeline

The EU co-operation mechanism with the EC and other member states takes 35 days on average (but may take up to 60 days in case of comments and/or questions from the EC or other Member States). Thereafter, the national proceedings that follow take up to one month in Phase I and up to two months in the case of an in-depth investigation (Phase II). A transaction requiring FDI clearance may only be implemented following authorisation by the BMAW (standstill obligation). A transaction requiring clearance that is implemented without FDI authorisation (gun-jumping) is void under civil law. In addition, criminal sanctions may be triggered.

Substantive Test

The BMAW must assess whether foreign investment is likely to pose a threat to security or public order. In this context, the ICA specifies two factors for consideration.

• The effect of the FDI on the sectors listed in the Annex to the ICA.
• Aspects related to the foreign investor, in particular:
1. whether the foreign investor is directly or indirectly controlled by the government (including state bodies or armed forces) of a third country (including through ownership structure or significant funding);
2. whether the foreign investor has already been involved in activities affecting security or public order in a member state; or
3. whether there is a serious risk that the foreign investor engages in illegal or criminal activities.

The BMAW may impose conditions or commitments (eg, supply commitment, maintain production/storage in Austria) if the threat to security or public order can thereby be adequately reduced.

The BMAW may block (ie, prohibit) a foreign investment through FDI proceedings initiated upon application by the foreign investor. If no application is submitted, despite the FDI falling within the scope of Austrian FDI control, the BMAW may initiate proceedings ex officio and impose commitments or even discard a foreign investment post-closing.  

The decree of the federal minister may be appealed to the Federal Administrative Court, the decision of which may be contested before the Supreme Administrative Court (and the Constitutional Court). The effectiveness of a review by such courts is limited, given the discretion of the BMAW as to when security or public order is threatened.  

Real Estate

The transfer of real estate-related property rights to foreign investors may require the approval of the respective land transfer authority. This generally includes:   

• acquisition of ownership of land (direct or indirect);  
• acquisition of superficies structures (ie, buildings erected on the land but owned by another person);  
• acquisition of building rights;  
• usufruct rights;  
• easements; and  
• tenancy rights and other rights of use.  

In this respect, each Austrian federal province has its own legal framework defining the applicable restrictions and approval processes, typically governing both asset and share deals (eg, the direct or indirect acquisition of shares in companies holding real property rights).   

With few exceptions, individuals who are not Austrian citizens and legal persons either having their registered seat outside of Austria or having their registered seat in Austria but are ultimately controlled by non-Austrian citizens or legal entities domiciled abroad, are generally considered foreign investors under the applicable land transfer regulations. EU and EEA persons and corporate bodies have the same status as domestic persons and corporate bodies. For certain federal provinces, creating an Austrian holding structure is sufficient to fulfil the requirements of the applicable land transfer regulations.   

If the necessary approval is not obtained, a transfer of ownership cannot be registered in the respective land register (in case of asset deals), and the contemplated transaction may not be carried out (as real estate ownership is generally obtained only through registration of the new owner in the land register). Furthermore, administrative fines may be imposed for violations of the applicable land transfer provisions, and the validity of the underlying contracts may be impacted.

Foreign Exchange Regulations

FDI transactions in Austrian target companies which reach or exceed EUR500,000 (or the accumulated equivalent in EUR per transaction) are to be reported by the Austrian target company to the Austrian National Bank (Österreichische Nationalbank) for statistical purposes. The report must be made at the latest on the 15th of the month following the completion of the FDI transaction. A reportable transaction comprises all FDI transactions relating to that transaction that takes place within a reporting period and that involve either a change in equity relationships, a distribution of profits, or an acquisition/sale of equity between a reporting resident and a non-resident, even if that transaction is settled in several individual steps or, if applicable, is split into several payment tranches.  

Corporations are subject to unlimited corporate income taxation ("unlimited" meaning worldwide taxation) if they have their residence or place of effective management in Austria. By contrast, a company is subject to limited tax liability if it has neither its residence nor its place of effective management in Austria. In such cases, pursuant to the territoriality principle, only income derived from Austrian sources is taxed (eg, a business operation, dividends paid from Austrian corporations, or payments made on patents or trade marks registered in Austria). The current corporate income tax rate (for FY 2022) amounts to 25% but will be reduced to 24% in 2023 and 23% in 2024 (see 2.1 Recent Developments and Market Trends). Even if the company only turns a small profit or even generates losses, a minimal tax must be paid. This amount is typically 5% of one-quarter of the standard share capital of a company, multiplied by the number of quarters in the calendar year in which the company was subject to unlimited tax liability, eg, EUR1,750 per year and EUR437.50 per quarter for a GmbH. Partnerships are treated as tax transparent, and their income is attributed to the respective partners.  

In addition to corporate income tax, some other taxes are important for business activities in Austria, eg, value-added tax (VAT), real estate transfer tax, and stamp duties. For such taxes, partnerships are also recognised as legal entities and, therefore, as taxpayers. While VAT at a standard rate of 20% is usually refunded to or credited to businesses, this is not (fully) the case in the context of the banking or insurance sector.

Dividends

Dividends (ie, profit distributions) to foreign investors are subject to a 25% withholding tax if received by corporations and 27.5% if received by other recipients. Most tax treaties (Austria has concluded more than 90) reduce the withholding tax rate to 15% or 10%, or even less for corporations holding a certain stake (eg, for Germany and the US, the withholding tax rate is 15% or, if at least a 10% stake is held, 5%; for the UK the withholding tax rate is 10% or, if at least a 10% stake is held, 0%). Reductions of the Austrian withholding tax rate also apply to various Middle Eastern countries (eg, there is no withholding tax for the UAE). Finally, the Austrian withholding tax on dividends can be reduced to 0% by corporate shareholders if they cannot credit any Austrian taxes and if certain criteria are fulfilled. A reduction of dividend withholding taxation at source is only possible if the recipient corporation has substance.

Tax Treaty Relief

Tax treaty relief can be obtained as relief-at-source or a refund. Relief-at-source is possible if a tax residence certificate is provided to the distributing corporation stating that the recipient fulfils a substance requirement. Within the EU, there is no Austrian taxation of outbound dividends if at least a 10% stake is held for at least one year. In addition, the UK has a special status. Despite the withdrawal from the EU, similar regulations to those in Europe apply to the UK, based on the agreed double-tax convention. In addition, the double-tax convention with Switzerland aims to accomplish the same tax treatment. Measures against treaty shopping and, generally, against tax avoidance are also implemented in Austria based on the EU Anti-Tax Avoidance Directive ((EU) 2016/1164 – ATAD). In summary, a substance is needed for relief-at-source; for a refund, a substance may not be required if an underlying business purpose exists. Furthermore, under the Multilateral Instrument (MLI), Austria has opted for the Principal Purpose Test (PPT).

Interest Payments

Interest payments made by Austrian borrowers are generally not subject to withholding tax, not even regarding interest linked to a loan secured by Austrian real estate. Generally, withholding tax may apply at a rate of 25% or 27.5% in the context of publicly offered securities if the paying agent is in Austria. If the recipient is a corporation, such withholding tax does not arise if an exemption certificate is provided.  

Capital Distributions

In Austria, capital distributions can be freely used if sufficient amounts are shown on the relevant capital account; they are free of any withholding tax and, to the extent that they do not exceed the relevant tax base, are also free of capital gains taxation.

Generally, tax planning measures are only accepted under Austrian tax law if they align with EU ATAD and the MLI. Therefore, a chosen structure or arrangement must have a business purpose and reflect economic reality. Against this background, a standard tax measure when acquiring Austrian targets is to use or establish an Austrian acquisition company that debt-finances the acquisition and subsequently forms a tax group with the target. This allows for a tax-effective debt push-down (interest payments on the acquisition financing offset the target's profits).

Exemption Regime

Austria has a broad participation exemption regime that exempts dividends and capital gains from taxation in Austria if at least a 10% stake in foreign corporations is held directly or indirectly for at least one year. The exemption may not apply if the foreign corporation has only passive income, taxed at less than half the Austrian corporate income tax rate in the country where such a foreign corporation is tax resident. If a corporation sells its participation in another corporation, capital gains realised on the alienation (Veräußerungsgewinne) are subject to taxation (different rules are applicable regarding capital gains realised on sales in an international context if a respective option is elected). The combination of participation exemption and an extensive tax treaty network makes Austria an attractive country for holding companies. The reduction of the Austrian tax base by interest or royalty payments is generally not possible if the recipient of such payments is a related party and is taxed at a low rate (less than 10%). Austria also allows for the carrying forward of losses and, in some instances, for a limited carrying backwards (only with regard to COVID-19).

Moreover, it is also possible for companies to utilise losses. However, only 75% of the taxable year's total income can be offset by losses carried forward (ie, at least 25% will be taxable). The remaining losses can be carried forward to the following years. In the course of reorganisations and acquisitions carried forward, losses may vanish. In a tax group, losses of foreign group companies can offset Austrian profits to a certain extent.

Generally, Austrian tax law does not provide for debt-equity ratios, but internal group loans might be treated as equity. Furthermore, interest payments are not deductible if the related-party recipient is taxed at less than 10%. Finally, legislation has implemented an interest barrier regime as of 2021. The interest barrier results in the non-deductibility of an interest surplus exceeding 30% of the corporation's EBITDA. However, the interest barrier does not apply if the debt leverage in Austria is not higher than in the total group, or to the first EUR3 million of interest surplus, or to standalone corporations.

Capital gains relating to participation in Austrian companies of at least 1% (held at any time five years prior to the disposition) are taxable in Austria unless a double-taxation treaty disallows this. Other Austrian assets may only attract capital gains tax if they are Austrian real estate or held through a permanent establishment.  

Austria has a general anti-avoidance rule (Anti-Missbrauchsbestimmung), and the substance-over-form concept also applies by statutory rule. Furthermore, the arm's length principle is standard. In addition, as already noted in 9.2 Withholding Taxes on Dividends, Interest, Etc, Austria has adopted the EU ATAD and MLI measures. Furthermore, the Austrian Corporate Income Tax Act (Körperschaftsteuergesetz) contains a special anti-evasion provision relating to the above-described international participation exemption.  

It is also worth noting that the transfer pricing rules of the OECD are recognised in Austria.  

The Austrian rules on controlled foreign corporations or CFC rules (Hinzurechnungsbesteuerung) attribute low-taxed passive income earned by a controlled foreign entity to an Austrian parent company, and these rules apply if passive income exceeds one-third of the CFC's annual income. Finally, in Austria, there are also rules for hybrid mismatches.

Collective Bargaining Agreements

In addition to EU laws, Austrian federal statutes govern the majority of employment and labour law regulations, most of which are mandatory. In addition, almost all employers in the private sector are subject to collective bargaining agreements or CBAs (Kollektivverträge). CBAs are usually negotiated and concluded annually between the competent divisions of the employee union and the Austrian Federal Economic Chamber, ie, the bodies representing the interests of employees and businesses for a specific sector (eg, trade, industry, IT). The provisions of the CBAs are mandatory and cannot be amended to the detriment of an employee.

Works Councils

A works council may be elected in every business where at least five employees are permanently employed. Austrian law distinguishes between two different types of employees: (i) white-collar employees (Angestellte), essentially performing office work, commercial activities (eg, sales, marketing, finance), and complex activities of a non-commercial nature (eg, consultant, IT specialist, medical staff); and (ii) blue-collar workers (Arbeiter), who work in a crafts trade (eg, butcher, waiter, mechanic). Blue-collar workers and white-collar employees may have separate works councils. There is no obligation on the employer to establish a works council; rather, it is a workforce right. On a company level, shop agreements are concluded between the works council and the company regarding certain topics specified by law. In addition, the works council has certain information and participation rights, in particular regarding the termination of employees and envisaged changes to the business operation.

Salary

In Austria, employees are entitled to a minimum salary generally determined by the applicable CBA. If no CBA applies, an adequate salary shall be paid. It is common for employees to receive 14 salaries per year. Although not stipulated by law, almost every CBA contains an entitlement to holiday and Christmas remuneration (one gross monthly salary each), which is paid out with substantial tax benefits. The salary is usually paid in arrears at the end of each month.

Severance

Employees whose employment started before January 2003 will probably be subject to an old severance system (unless they switched to the new system by agreement). Such employees are entitled to a statutory severance payment from the employer upon termination of their employment relationship. The amount ranges between two and 12 monthly remunerations, depending on the duration of employment and the grounds for termination. Under the new severance system, employers are obliged to pay ongoing contributions of 1.53% of the monthly gross salary into a severance fund. There are no direct severance payment obligations by employers under the new system.

Other Benefits

In addition, employees may be entitled to mandatory premiums, jubilee grants, or other benefits under the applicable CBA. The employer can also voluntarily grant remuneration in the form of variable components (eg, bonuses or commissions, premiums, equity compensation, pension contributions, retirement benefits, benefits in kind, etc), which is standard practice in Austria.

Social Insurance

Austrian employees are automatically covered by the social insurance system, which includes health, accident, unemployment, and pension insurance.

Where an acquisition or investment transaction constitutes a business transfer within the meaning of the EU Acquired Rights Directive (2001/23/EC), implemented into Austrian law in Section 3 of the Employment Contract Law Amendment Act (Arbeitsvertragsrechts-Anpassungsgesetz), all employment agreements of employees of such business or business part automatically transfer to the purchaser, by operation of law.

Employee Rights

Generally, employees affected by a business transfer are not entitled to object to the transfer of their employment; such right only exists in very limited circumstances. However, employees do have an extraordinary termination right if their working conditions are considerably worse after the business transfer. In addition, the termination of employees shortly before or after the business transfer is not permitted if such a business transfer is the main reason for such termination. However, personal or economic reasons may justify a termination, triggering statutory and contractual termination entitlements.

Involvement of the Works Council

The works council (or, if no works council is established, the individual employee) must be informed and consulted at the works council's request regarding an envisaged business transfer. However, in general, there is no legal possibility for the works council to prevent or delay a transaction. In the case of negative effects for considerable parts of the workforce, the works council may request the conclusion of a social plan with the aim to mitigate the impact of the business transfer on the workforce.

The Austrian FDI regime also applies to critical sectors in which intellectual property (eg, patents for medicinal products or vaccines), know-how or sensitive information (eg, personal data) play an important role. The critical sectors are listed in the Annex to the ICA – see 1.2 Regulatory Framework for Foreign Direct Investment (FDI).

Austrian law provides strong protection for intellectual property rights. Certain intellectual property rights (eg, patents, designs, trade marks) come into existence upon registration with the competent registration authority. Other intellectual property rights (eg, copyrights or unregistered community designs) come into existence upon creation (or, regarding an unregistered community design, once it is first made available to the public within the EU), and there is no registration of these intellectual property rights. Infringements of intellectual property rights can be pursued before the civil courts and can also trigger criminal liability.  

Under Austrian law, there are no exceptions for the protection of intellectual property rights in or concerning certain sectors. Furthermore, enforcing intellectual property rights does not depend on the sector. If there are exclusions from protectability, such exclusions are of a general nature and do not depend on or relate to specific sectors. Austrian patent law requires certain compulsory licences, but these do not depend on or relate to specific sectors.

The General Data Protection Regulation (GDPR) provides a uniform legal framework within the EU in the field of general data protection law, which is directly valid and applicable in each member state. The Austrian Data Protection Act or DPA (Datenschutzgesetz) supplements the GDPR. The GDPR comprises rules on the processing of personal data, such as the principles of processing, the rights of the data subjects, and the responsibilities of the controllers and processors. Personal data is any information that relates to an identified or identifiable natural person. A natural person is deemed identifiable if they can be identified directly or indirectly, for example, by utilising a name or an identification number (eg, tax identification number, social security number or account number). 

Applicability

The GDPR applies to the processing of personal data by controllers and processors with an establishment in the EU, irrespective of whether the actual processing is carried out inside or outside the EU. The ECJ ruled that "any real and effective activity – even a minimal one – being exercised through stable arrangements" may suffice to qualify as an establishment. However, the GDPR also applies when controllers and processors are not established in the EU but process the personal data of individuals who are within the EU. Such processing activities must relate to the offering of goods/services for payment; or for free to these individuals (eg, via a website targeting EU markets); or to monitoring the behaviour of these persons, as long as this behaviour takes place in the EU. According to recital 23 of the GDPR, the mere accessibility of a website in the EU is insufficient to ascertain the intention that a company envisages to target EU markets.  

Non-EU data controllers and data processors that fall under the scope of the GDPR are obliged to appoint a representative in the EU who will serve as the point of contact for enquiries by national data privacy authorities. The responsibility and liability remain with the non-EU organisation.  

Fines and Compensation

In Austria, the Data Protection Authority (Datenschutzbehörde) can or must assess fines for specific data protection violations in accordance with the GDPR. The fines must be effective, proportionate, and dissuasive for each case. For the decision of whether and what level of penalty can be assessed, the authorities keep a statutory catalogue of criteria they must consider. Among others, intentional infringement, failure to take measures to mitigate the damage that occurred, or lack of collaboration with the authorities can increase the penalties.  

Non-compliance with the principles for data processing activities, as set out in the GDPR, is subject to fines of up to the higher of EUR20 million or 4% of the company's annual worldwide turnover. A sanctionable situation can be revealed through proactive inspection activities conducted by the authorities, by an unsatisfied employee or customer, through the company making a self-denunciation, or by the press through investigative journalism. Moreover, individuals may claim compensation if a company has infringed the GDPR and such individuals have suffered material damages, such as financial loss or non-material damages, such as reputational loss or psychological distress.  

At this time, there are no significant issues to report beyond those previously discussed.