The withholding tax rate for dividends and capital gains will be increased to 27.5% (up from the current rate of 25%). If dividends are paid to corporations, a reduced withholding tax rate of 25% may still apply. It is expected the 25% rate would also apply for dividends paid to foreign corporations (but is subject to confirmation by the tax authorities). Interest payments on cash deposits and with respect to other loans involving banks (bank savings, transfer accounts) will continue to be subject to the 25% rate even if being paid to individuals.
New limitations on taxpayer ability to elect an equity repayment of capital versus a dividend distribution have been introduced. The effective date for these new rules is different—they are effective for business years starting after 30 June 2015. Under the new rules, a company having accumulated profits and "released equity" reserves can no longer elect to make a return of equity (that would not be subject to withholding tax) or to distribute profits (that would be subject to withholding tax). Instead, there will be a requirement for a profit distribution first (subject to withholding tax). Withholding tax-free equity repayments can only be made if the company does not have any accumulated profits.
Dividend distributions are subject to withholding tax (which may be reduced under an applicable treaty provision or the EU Parent-Subsidiary Directive. Dividends paid to an Austrian shareholder continue to be tax-exempt).
Equity repayments are not subject to withholding tax. They are treated like a sale of the shares at the shareholder level, and imply a reduction of the tax book value or potentially even in a capital gain (as under prior law).
Under these new rules, evidence of accumulated profits must be provided by an evidency account on internal financing, and evidence of released equity reserves must be provided by an evidency account on external financing. Both accounts must be attached to the tax return. As long as the evidency account on internal financing shows a positive amount, no equity repayments can be made.
The new rules are somewhat complex, and are still being discussed by tax professionals and others. It is, therefore, possible that the rules could be amended or eased (e.g., by ordinance). The effects of these rules will need to be carefully considered, depending on the taxpayer’s situation. In some instances, it may be appropriate to effect equity repayments before the effective date (i.e., before 31 December 2015, if the taxpayer’s fiscal year corresponds to the calendar year).
The tax legislation includes the following changes relating to tax incentives:
For more information, contact a tax professional with KPMG in Austria:
Christoph Plott | +43 (1) 31332 - 697 | firstname.lastname@example.org
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