We recommend succession and asset planning for your family to avoid taxes and inheritance disputes. Take action now!
Austria currently has neither a wealth tax nor an inheritance tax or gift tax. The inheritance and gift tax was abolished in 2008. Why has the legislature not introduced new taxes on inheritances and gifts in more than 15 years?
For one thing, inheritance and gift tax revenue was comparatively minor, at around EUR 110 to 150 million per year. For another, administrative expenses for tax collection were reportedly very high.
Similarly, tax revenue generated by the wealth tax, which was abolished more than 30 years ago, was also rather low.
Is a reintroduction of inheritance tax and wealth tax brewing?
Elections to the Austrian parliament will be held in September 2024. Last year, the Social Democratic Party of Austria (SPÖ) presented its model for introducing new wealth and inheritance taxes, essentially proposing the following tax rates:
SPÖ model
| Inheritance tax | |||
| up to EUR 1 million | 0% | ||
| 1 Mio. - 5 million | 25% | ||
| 5 - 10 million | 30% | ||
| 10 - 50 million | 35% | ||
| ab 50 million | 50% | ||
| Wealth tax | pro Jahr | ||
| up to EUR 1 million | 0% | ||
| 1 Mio. - 10 million | 0,5% | ||
| 10 - 50 million | 1% | ||
| ab 50 million | 2% |
Real estate used as a principal residence will remain tax-free up to a tax-exempt amount of EUR 1.5 million.
As for inheritance tax on enterprises, 85% of business assets will remain tax-free if the business is continued for at least 5 years and the employees remain with the enterprise, with a tax-exempt amount of EUR 1 million to be applied in such cases.
Currently, there is no telling what the government will look like after the elections to parliament in autumn of 2024, nor if there will be a political majority in favour of reintroducing inheritance tax or wealth tax in Austria.
However things turns out, we recommend timely succession and asset planning for your family to avoid taxes and inheritance disputes.
Asset planning for your family
The basic principle of asset planning for your family is: the earlier, the better. Ask yourself these essential questions:
- What is the composition of your family assets?
- Which family lines are there?
- How should the assets be distributed?
- Which family members want to be actively involved in asset management?
In succession planning, the main goals are:
- Providing for parents in old age
- Avoiding disputes between siblings
- Protecting family assets in case of divorce
Gifts, family holding company or private foundation?
In the course of asset planning, you should explore what would be the most favourable option: gifts inter vivos, or establishing a family holding company or a private foundation.
Gifts inter vivos are best suited for real estate, as long as you ensure that the parents will be provided for in their old age.
Establishing a family holding company is also a popular option, because a limited liability company or a FlexCo comes with low costs and lots of flexibility. This allows families to establish their own set of rules for the future.
A private foundation offers the advantage of great stability across generations, ensuring cohesion of family assets. Such long-term protection of assets enables you to sustainably provide for family members.
A major disadvantage often attributed to private foundations is the family’s lack of control rights over the assets. This can be avoided by carefully structuring the foundation to grant family members extensive rights of control.
While the tax advantages of private foundations have mostly been abolished, one major tax perk remains: Capital gains from the sale of Austrian enterprises remain tax-free if they are reinvested in the private foundation and not distributed to the beneficiaries. In such a case, the tax savings amount to 23% of capital gains. That is an advantage a family holding company lacks.
A further advantage of a private foundation is that in case of divorce, these assets do not fall in the scope of the joint assets to be split, provided that the private foundation was established more than two years prior to the divorce.
Moreover, the costs of a private foundation are often overestimated: It costs about EUR 10,000 to establish, and these are one-off costs. Drawing up and auditing the annual financial statements comes to about EUR 6,000 if it has been an uneventful year in which the private foundation did not carry out any transactions. The costs are therefore similar to those of a family holding company – with the exception of the costs for the board of the foundation, which are negotiable.
Comparison of tax burdens
In principle, both family holding companies and private foundations are liable for corporation tax at a rate of 23%, but a number of special rules exist:
For instance, profit distribution by Austrian enterprises in a family holding company is tax-exempt just like in the case of a private foundation.
As regards capital gains from securities or bonds, a private foundation has a tax advantage because the interim tax of 23% due for payments to beneficiaries may be refunded by the tax office under certain conditions. In contrast, a family holding company is liable for 23% in corporation tax, which is not refunded.
Payments to beneficiaries of a private foundation are subject to 27.5% in capital gains tax, just like distribution of profits by a family holding company.
However, a definite disadvantage of a private foundation is that when the family assets are transferred to the foundation, 2.5% of the assets’ fair value is due as foundation transfer tax.
Take action now!
If a new inheritance tax is introduced, there will be a certain transition period – though probably short – before the law enters into force.
Use that period for tax optimisation for your family, for instance by means of gifts of real estate to your children.
