Subsidiary vs. Branch in Austria
Subsidiary vs. Branch in AustriaUpdated on Monday 18th June 2018
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Foreign companies that plan to expand their business to Austria need to choose a business form in order to conduct their activities in the country. The branch and the subsidiary are the two choices in this case and their characteristics need to be carefully considered by all investors.
Our team of lawyers in Austria can help foreign investors find the most suitable solution for setting up a business in the country.
A short comparison between the branch and the subsidiary in Austria
The table below is a guideline on the main differences between branches and subsidiaries in Austria.
|Independence||The branch is not an autonomous legal entity. In Austria, it has to engage in the same business activities as the parent company abroad.||The subsidiary is an independent business structure that, in general, will follow the same business activities as the parent company but when and if needed it can also engage in other commercial activities.|
|Incorporation||The incorporation of a branch will require fewer steps as the parent company abroad will need to provide its own Articles of Incorporation and the Decision to open the branch.||When opening a subsidiary, the founders will need to draft the Articles of Association and follow all of the usual steps for company registration in Austria.|
|The parent company abroad is fully liable for the debts and obligations incurred by its branch in Austria.||The subsidiary is usually incorporated as a limited liability company, so the founders are liable up to the extent of the invested capital.|
|Taxation||The branch is subject to the same corporate income tax rate, only on the income derived from Austria. Special dividend withholding tax rates can apply when a double tax treaty is in force.||The subsidiary is taxed as a resident company in Austria, at the usual corporate income tax rate.|
The characteristics described here are just general ones. Investors can use this information to decide which business type would best suit their needs. However, for complete details and in-depth information about the taxation regulations for each business form, please feel free to reach out to our experienced team of attorneys in Austria.
The characteristics of the branch in Austria
The branch is a local office of the parent company abroad and it is essentially an extension through which the foreign company expands its scope of activity. It is not an independent Austrian legal entity and the foreign company is liable for the debts and obligations incurred by the branch during its functioning in Austria. The branch needs to have the same name as the parent company and should be registered to perform the same types of business activities.
The parent company provides the branch capital and appoints a managing director who needs to reside in Austria (only for non-EU foreign companies). In order to set up a branch in Austria, the foreign company abroad must prepare a resolution to establish a branch office in the country and register it with the Companies Registry.
The branch in Austria is taxed only on its income derived from the country and the provisions of the various double tax treaties signed by Austria can prove advantageous for the taxation of the branch office.
Our attorneys in Austria can give you specific details on branch/parent company liability in case of bankruptcy or liquidation in Austria.
The characteristics of the subsidiary in Austria
The subsidiary is a separate legal entity from the parent company abroad, meaning that the foreign legal entity is not liable for its debts and obligations in Austria and it does not fully control it. The subsidiary is commonly a limited liability company (GmbH) that needs to be registered and managed according to the Company Law and the applicable tax, accounting and reporting laws for this type of company. The founders may be natural persons or legal entities.
Unlike the branch, the GmbH is an independent legal entity that may act on its own behalf and the managing director of a limited liability company does not have to reside in Austria.
Subsidiaries are taxed as per the applicable corporate income tax rate on their worldwide profits. The founders of a GmbH in Austria need to observe the requirements for the minimum share capital.
While there are limited differences in terms of taxation in Austria, there are clear differences between a branch and a subsidiary/new company. Both business forms have their advantages and disadvantages and investors are advised to consult with an expert before deciding which legal entity is best suited to their business needs.
You can contact the experts at our law firm in Austria for more information on the requirements for setting up a company and the options for foreign investors in the country.