Austria: Austria Outlook for 2015-17

The country (Austria) is situated in Central Europe, north of Italy and Slovenia. At the west and south generally it is mountains (Alps). Along the eastern and northern margins generally flat or gently sloping.
It has borders with Switzerland for 164 km, Czech Republic for 362 km, Germany for 784 km, Hungary for 366 km, Italy for 430 km, Liechtenstein for 35 km, Slovenia for 330 km and Slovakia for 91 km. Is land covers an area of 83 870 km².

The climate is temperate and continental, cloudy with cold winters with frequent rain and some snow in lowlands and snow in mountains; moderate summers with occasional showers.Croatian (official in Burgenland), Hungarian (official in Burgenland).

Executive Summary

Economic conditions continue to remain favorable in Austria, particularly those relevant to foreign investors. As a small and highly internationalized economy, Austria felt the effects of the 2012/2013 recession in the Eurozone and showed only modest increase in both 2013 and 2014. Slow increase is expected to continue in 2015, with the recovery gaining momentum no before than 2016. Macroeconomic fundamentals are relatively healthy, however, the Austrian government’s crisis response and the multi-billion Euro bailout of a major Austrian bank led to a deterioration in public finances.

Austria is a highly developed industrial country with a huge and dynamic services sector. The country’s geopolitical position between Western European industrialized nations and the increase markets in Central, Eastern, and Southeastern Europe (CESEE) has led to a high degree of economic, social, and political integration with fellow European Union (EU) member states and the CESEE. Border controls between Austria and all of its eight neighboring nations have been lifted under the EU's Schengen agreement. EU enlargements in 2004 and 2007 strengthened Austria's attractiveness as an investment location by increasing access to markets in Eastern Europe, but expansion as well bolstered Austria's competitors in that region in such a manner that nearby Budapest, Prague, and Bratislava presently compete due with Vienna for foreign investment .

Austria offers a lot of advantages for foreign investors, inclunding political stability, skilled labor, high productivity and international competitiveness, policy of law, quality of life, and personal security. Austria further scores with high-quality health, telecommunications, and energy infrastructure. The administrative system is transparent. Labor-management relations are relatively harmonious in Austria, which has a low incidence of labor unrest.

Austria receives lower marks for its in general high tax burden (despite an attractive corporate tax model), low innovation dynamics, a substantial public sector, and a complex regulatory system with an excessive bureaucracy (as well for established businesses). Policy differences between the two governing coalition parties has generally hindered reform efforts; the government’s recent agreement on gain tax reform, to become effective January 1, 2016, is viewed as a positive development. However, further reforms have been called for in the health and pension systems, the complex system of subsidies and regulation, and the relative responsibilities of the federal, national, district, and municipal governance. Additionally, a costly school system and over-crowded universities pose challenges.

Some 330 U.S. companies have invested in Austria; a lot of have expanded their original investment over time. All, Austria offers a stable, advantageous and still attractive climate for foreign investors, albeit one with increasing challenges.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

Observers do not expect Austria's positive view of foreign direct investment to change under the current coalition government between the center-left Social Democratic Party (SPÖ) and the center-right People's Party (ÖVP), which began its most recent five-year term on December 16, 2013.

Austria is particularly welcoming of foreign direct investment that creates new jobs in high technology fields, promotes capital-intensive industries, and has links to R&D activities, for which appropriate tax incentives are available. Officials are as well conscious of ensuring that investments avoid a negative impact on the environment. Austria is a high-tax country in general with a heavy personal gain tax burden. However, due to a relatively low 25% corporate tax rate, it is attractive as a business headquarters location. Inclunding tax base adjustments, experts estimate the effective corporate tax burden at no additional than 22%.

The corporate tax regime as well offers a highly favorable framework for group taxation, incomparable in Europe, which allows business to offset profits and losses of group operations (requiring direct or indirect participation of additional than 50%, but no other financial, economic or organizational integration) in Austria and abroad. This group taxation system offers interesting opportunities for U.S. investors, in particular joint-venture structures, merge and acquisition transactions, and corporate headquarters. Effective March 1, 2014, the eligibility for foreign tax group members was restricted to those residents in the EU or in a country which has concluded a comprehensive administrative assistance agreement regarding the exchange of data with Austria (Note: the United States and Austria have such an agreement). The deductibility of losses from the Austrian group’s tax base for foreign group members was limited to 75%; the amortization of goodwill-for-share deals was abolished.

All companies active in Austria are affected by a new regulation limiting the tax-deductibility of expenses for high salaries (cash and non-cash benefits) paid to top-level employees to €500,000 (about US$664,000 converted at the 2014 annual average exchange rate of US$1.00 = €0.75) per year. Austria has no wealth tax, trade tax, or inheritance/gift tax.

Austria’s macroeconomic fundamentals are relatively healthy; however, post-crisis fiscal pressures persist, as do repercussions from the Hypo Alpe Adria bank collapse. The economic climate affecting national and international investors will likely be characterized by continued modest economic increase averaging an annual rate of 1.3% through 2018; the unemployment rate of around 5.8-6.0% will remain part the lowest in the EU-28. However, all forecasts are currently beset by high variability due to the fallout of the Ukraine/Russian crisis, potential additional sanctions, and related geopolitical risks. Fiscal consolidation will be a dominant issue in coming years.

A tax reform effective 2016, intended to stimulate the economy, will reduce gain taxes by a volume of €5 billion annually; however, most of this all will be made up through a reduction of tax deductions, an increased land-transfer tax, a higher price-added tax on selected products, an increased withholding tax on dividends, unspecified administrative savings, and stepped-up efforts against tax fraud. Thus, while the idea of stimulating the economy may work, the tax reform will only have a minimal impact on Austria’s high tax quota of around 44% of GDP, which is unlikely to decrease significantly in the near term.

There are no sectoral or geographic restrictions on foreign investment . In some regions, the government offers appropriate facilities and services ("cluster packages") to foreign investors. For example, these can include incentives for automotive producers, and manufacturers of high-tech products, or environmental technologies.

Resistance to investment in the industrial sector may arise from environmental concerns. Potential U.S. investors need to factor Austria's strict environmental regulations and environmental impact assessments into their decision-making process. Heavy industries as well fall under the EU greenhouse-gas Emissions Trading System – part of the EU's policy to address climate change. Austria's Energy Efficiency Law of 2014, which requires energy providers to create incentives for customers to implement energy savings measures, may hamper investments in the energy sector. Strict liability and co-existence regulations sharply restrict research and virtually outlaw cultivation, marketing, or distribution of biotechnology crops.

Other Investment Policy Reviews

Not applicable.

Laws/Regulations of Foreign Direct Investment

There is no discrimination against foreign investors, but businesses are required to follow numerous regulations. Although there is no requirement for participation by Austrian citizens in ownership or management, at least one manager must meet residency and other legal requirements. Non-residents must appoint a representative in Austria. Expatriates are allowed to deduct certain expenses (costs associated with moving, maintaining a double residence, education of children) from Austrian-earned gain. Austrian immigration law requires those applying for residency permits to take German language courses/exams, but a university degree automatically fulfills this requirement.

Industrial Promotion

Not applicable.

Limits on Foreign Control

Not applicable.

Privatization Program

The government has not privatized any public enterprises since 2007. Austrian public opinion remains skeptical regarding further privatization and the senior coalition partner Social Democratic Party (SPÖ) is on record opposing additional privatizations. The current government program does not identify any public enterprises for privatization, but the government may reduce some of its shareholdings, while retaining a blocking minority share. In completed privatizations, foreign and domestic investors received equal treatment. Despite a historical government preference for having domestic shareholders retain a blocking minority, foreign investors have successfully gained full control of enterprises in several strategic sectors of the Austrian economy, inclunding telecoms, banking, power generation, and infrastructure.

Screening of FDI

An amendment to the Austrian Foreign Trade Act (FTA) entered into force in 2011 requiring advance approval by the Austrian Ministry of Economic Affairs for foreign acquisitions of a relevant stake in enterprises in certain "strategic" industries, comprising a wide range of sectors. Strategic sectors include not only industries concerning internal and external security, such as defence and security services, but as well public order and safety, and procurement and crisis services. The latter include hospitals, ambulance and emergency medical services; fire fighters and civil protection services; energy and gas supply; water supply; telecoms; railways; road traffic; universities; and schools of various types and pre-schooling institutions.

Only investors who are non-EU, non-EEA or non-Swiss citizens, or have their corporate seat outside this geographical region, are considered “foreign” for the purposes of the FTA regime.

There are two different procedures under the FTA: (i) an ex ante approval, and (ii) an ex officio review. The ex ante approval procedure takes one month from submission of the application for approval (phase I) and, in case of in-depth review, an additional two months (phase II).

Under the ex ante approval regime, the potential acquirer must submit the application before(i) entering into a legally binding commitment to acquire the relevant stake or (ii) announcing the launch of a public tender offer with respect to such target. During a phase I review, the transaction must be approved or a phase II review must be initiated.

If the Ministry of Economic Affairs issues no decision during the one-month timeframe, the transaction is deemed approved. The FTA does not, however, provide for any procedure for a (non-binding) assessment or a negative clearance. An investor would thus have to initiate the formal approval process to obtain legal certainty.

Competition Law

Austria's Anti-Trust Act is in line with European Union anti-trust regulations, which take precedence over national regulations in cases concerning Austria and other EU member states. The Austrian Anti-Trust Act prohibits cartels, anticompetitive practices, and the abuse of a dominant market position. The independent Federal Competition Authority (FCA) and the Federal Cartel Prosecutor (FCP) are responsible for administering anti-trust laws. Amendments to the Competition Act and the Anti-Trust Act in 2013 strengthened FCA’s position in conducting investigations and requesting data from firms, and the changes strengthened enforcement by entitling private parties to file damage claims based on an infringement of Austrian and European anti-trust rules.

Companies must inform the FCA of mergers and acquisitions (M&A). Appropriate M&A regulations apply to media enterprises. A cartel court is competent to policy on M&A notifications from the FCA or the FCP. For violations of anti-trust regulations, the cartel court can impose fines of up to the equivalent of 10% of a company's annual worldwide sales. An independent energy regulator separately examines antitrust concerns in the energy sector, but must as well submit cases to the cartel court.

Austria's Takeover Law applies to friendly and hostile takeovers of corporations headquartered in Austria and listed on the Vienna Stock Exchange. The law protects investors against unfair practices, since any shareholder obtaining a controlling stake in a corporation (30% or additional in direct or indirect control of a company's voting shares) must offer to buy out smaller shareholders at a defined " equitable market" price. The law as well includes provisions for shareholders who passively obtain a controlling stake in a company, i.e., not by buying additional shares, but because an extra large shareholder has reduced his/her shareholding. The law prohibits defensive action to frustrate bids. Austria has not implemented the breakthrough regulations of the EU's Takeover Directive's, but does allow individual companies to address these in company bylaws. The Shareholder Exclusion Act allows a primary shareholder with at least 90% of capital stock to "squeeze out" minority shareholders. An independent takeover commission at the Vienna Stock Exchange oversees compliance with these laws.

Investment Trends

Investor surveys and international rankings consistently award Austria high marks for political stability, transparent and competitive business environment, quality of life (Mercer’s 2015 Quality of Living Index ranks Vienna as the top location to reside in the world), high-quality healthcare, infrastructure, personal security (in general, crime is low in Austria and Vienna specifically, but the incidence of residential burglaries is relatively high), skill and motivation of labor, productivity, policy of law, and social factors. The Swiss Economic Institute’s (KOF) 2014 Index of Globalization ranks Austria fourth out of 207 nations, reflecting Austria's high degree of economic, social, and political integration. Despite these a lot of positive factors, Austria has permanently and consistently lost ground in most international investor rankings in completed years, mainly due to high in general cost and tax burden, regulatory red tape, the lack of qualified labor in specific sectors, and the government’s failure to implement economic policy reforms over several years. Austria as well gets low marks for low economic increase, high cost of living, shortage of risk capital, low market capitalization, low innovation dynamics, and size of the public sector.

Table 1

2. Conversion and Transfer Policies

Foreign Exchange

Austria has no restrictions on cross-border capital transactions, inclunding the repatriation of profits and proceeds from the sale of an investment , for non-residents and residents. The Euro, a freely convertible currency and the only legal tender in Austria and 18 other Euro-zone member states, shields investors from exchange rate risks within the Euro-zone.

ICSID Convention and New York Convention

Austria is a member of both the International Center for the Settlement of Investment Disputes (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Law, meaning local courts must enforce foreign arbitration awards in Austria. There is no specific domestic legislation in this regard.

Duration of Dispute Resolution

Not applicable.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

The Austrian government has not notified the WTO of any domestic measures inconsistent with Trade Related Investment Measures (TRIMs) requirements. U.S. Embassy Vienna has not been notified of any complaints or reports regarding any measures that are alleged to violate the WTO’s TRIMs obligations.

Investment Incentives

Austria offers financial and tax incentives (within EU competition policy limits) to firms undertaking projects in economically underdeveloped areas. In most of these areas, eligibility for co-financing subsidies under EU regional and cross-border programs has gradually declined under the EU's financial frameworks, but may still account for around €200 million per year within the new EU “Common Strategic Framework” for the period 2014 to 2020.

Financial incentives provided by Austrian federal, national, and local governments to promote investments are equally available to domestic and foreign investors and include tax incentives, preferential loans, loan guarantees, and grants. Most of these incentives are available only in the event that the investment meets specified criteria, inclunding employment creation and use of high technology. Tax allowances for advanced employee training and R&D expenditures are as well available.

Austria’s Wirtschaftsservice is the government's institution that provides financial incentives; further data on targeted investment incentives (German language only) is available at http://www.awsg.at. Data on investment incentives in English language is available on the website of the Austrian Business Agency (ABA-Invest in Austria), the national investment promotion company, at http://aba.gv.at/EN/Home/ABA-Invest+in+Austria.aspx.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Austria has ratified the United Nations Convention against Corruption (UNCAC), the OECD Anti-Bribery Convention, the Council of Europe's Civil Law Convention on Corruption, and has signed -- but not ratified -- the Criminal Law Convention on Corruption. Austria is a member of the Group of States against Corruption (GRECO) within the Council of Europe. Transparency International's (TI) 2014 Corruption Perceptions Index ranked Austria 23rd – up three ranks from 2013.

14. Bilateral Investment Agreements

The United States and Austria are signatories to a 1931 bilateral Treaty of Friendship, Commerce, and Consular Rights. Austria, along with all EU Member States, has signed a negotiating mandate for the European Commission to negotiate the Transatlantic Trade and Investment Partnership, with the United States which includes an investment chapter containing the same provisions found in a BIT.

Austria has bilateral investment agreements in force with Albania, Algeria, Argentina, Armenia, Azerbaijan, Bangladesh, Belarus, Belize, Bolivia, Bosnia-Herzegovina, Bulgaria, Cape Verde, Chile, China, Croatia, Cuba, Egypt, Estonia, Ethiopia, Georgia, Guatemala, Hong Kong, Hungary, India, Iran, Jordan, Kazakhstan, Kosovo, Kuwait, Latvia, Lebanon, Libya, Lithuania, Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Namibia, Oman, Paraguay, Philippines, Poland, Romania, Saudi Arabia, Serbia, Slovenia, South Korea, South Africa, Tajikistan, Tunisia, Turkey, Ukraine, United Arab Emirates, Uzbekistan, Vietnam, and Yemen.

Austria has signed an agreement with Nigeria, and signed and ratified agreements with Cambodia and Zimbabwe, but those agreements are still pending ratification by those nations and have not from presently on entered into result. Negotiations with Bahrain, Kirgizstan and Turkmenistan are ongoing. An agreement with North Korea was initialed in 2001, but has not been signed. Until new agreements take result, prior agreements with the former Czechoslovakia continue to apply to the Czech Republic and Slovakia, and that with the former Soviet Union to Russia. Austria and Russia are negotiating a new agreement.

Under all these agreements, if parties cannot amicably settle investment disputes, a claimant submits the dispute to the International Center for Settlement of Investment Disputes (ICSID) or an arbitration court according to the UNCITRAL arbitration regulations.

Bilateral Taxation Treaties

Austria and the United States are parties to a bilateral double taxation convention covering gain and corporate taxes, which went into result on February 1, 1998. An extra bilateral double taxation convention (covering estates, inheritances, gifts and generation-skipping transfers) has been in result since 1982. Austria and the United States signed the Foreign Account Tax Compliance Act (FATCA) Agreement on April 29, 2014, covering U.S. citizen account holders in Austria. The FATCA Agreement went into force December 9, 2014.

15. OPIC and Other Investment Insurance Programs

OPIC programs are not available for Austria. Austria is a member of the World Bank Group's Multilateral Investment Guarantee Agency (MIGA).

16. Labor

Austria has a highly educated and productive labor force of about 4.4 million, of whom 3.8 million are employees and 600,000 are self-employed or farmers. In line with EU regulations, the free movement of labor from all member states is allowed, excepting Croatia, which joined the EU in July 2013 and is subject to a transition period until 2020.

Austria’s labor market policy has for a lot of years maintained unemployment at part the lowest levels in the EU. The unemployment rate of between 4.8–5.6% in 2010/2014 (in all five years part the lowest in the EU-28) may increase to around 5.8-6.0% in 2015 and 2016 due to moderate economic increase and a growing labor force. Youth unemployment is much less a problem in Austria than other EU member states, due in large measure to Austria’s successful “dual-education” apprenticeship system, which combines on-the-job training with classroom instruction in vocational schools and includes guaranteed placement by the Public Employment Service for those 15-24 year olds who cannot find an apprenticeship place.

In general, skilled labor is available in sufficient numbers. However, regional shortages of highly specialized laborers may occur in such careers as engineers, technicians, natural and physical scientists, and – in specific sectors – systems government, metalworking, healthcare, and tourism. Additional labor supply due to the opening of the labor market to new EU member states, additional immigration, measures to curb early retirement and rising labor market participation of women should offset the demographic factor of a declining number of youth labor market entrants. A medium-term problem is the growing number of under-qualified school drop-outs – 15% of the 15-year olds leave school with only a lower secondary education, and a high share of these (additional than 20%) has low reading literacy performance and other deficits.

Compulsory Austrian social insurance is comprised of health insurance, old-age pension insurance, unemployment insurance, and accident insurance. Employers and employees contribute a % of total monthly earnings to a compulsory social insurance fund. Austrian laws closely regulate terms of employment inclunding working hours, minimum vacation time, holidays, maternity leave, statutory separation notice, severance pay, protection against dismissal, and an option for part-time work for those parents with children under the age of seven. Problem areas include increased deficits in the pension and health insurance systems, the shortage of personnel to care for the increasing number of elderly, and escalating costs for long-term care. Due to employer contributions to the social insurance for employees, paid leave, paid sick leave, fringe benefits, etc., additional wage costs in Austria add up to about 70% of the gross pay.

Labor-management relations are relatively harmonious in Austria, which has enjoyed a low incidence of industrial unrest. No major work stoppages have occurred since 2005. Approximately 32% of the work force belongs to a union.

Collective bargaining revolves mainly around wages and fringe benefits. Approximately 80% of the labor force works under a collective bargaining agreement. All collective bargaining agreements presently provide for a minimum wage of €1,000 (ca. $1,328) per month. Austrian law stipulates a maximum workweek of 40 hours, but collective agreements as well provide for a workweek of 38 or 38.5 hours per week for additional than half of all employees. Flexible work hour regulations allow firms to increase the maximum regular time hours from 40 to 50 per week in appropriate cases (and for a limited period up to 60 hours). Responsibility for agreements on flextime or reduced workweeks resides at the company level. Austrian employees are generally entitled to five weeks of paid vacation (and an additional week next 25 years in the workforce); the rate of absence due to illness/injury averages 13 workdays annually.

17. Foreign Trade Zones/Free Ports/Trade Facilitation

Austria has no foreign trade zones.

18. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Table 3: Sources and Destination of FDI

Below table reflects IMF figures for Austrian FDI, which encompasses all FDI including so-called special purpose entities (SPEs) with only limited business activity. http://cdis.imf.org

Table 4: Sources of Portfolio Investment

Source: IMF: http://cpis.imf.org

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