An Austrian Private Foundation provides foreigners with tax treaty protection who accept a small level of taxation. Full participation by foreigners can be accomplished.
Foundations offer protection of assets, preserving property, protection from external influences, and support for many generations of family members
Austria is a central European landlocked country bordered by Germany and the Czech Republic in the north, Liechtenstein and Switzerland in the west, Italy and Slovenia in the south, and Slovakia and Hungry in the east. Austria has been a member of the European Union (EU) since 1995.
Politically, Austria is described as a “parliamentary federal republic” with an elected two house parliament, a chancellor, and a president.
An Austrian Private Foundation offers these benefits:
• Complete Foreign Participation: All of the major participants can be foreigners.
• Asset Protection: All of the international assets belong to the foundation protecting the founder and the beneficiaries from future creditors.
• Estate Planning: With perpetual life, the foundation provides a family with generations of estate protection.
• Privacy: The names of the founder and beneficiaries can be kept out of all public records.
• Control: The founder can elect to retain control over the foundation.
• Low Taxes: After an initial 2.5% contribution tax, exemptions for all other taxes exist for non-residents. However, American taxpayers and others paying taxes on global income must report all income to their governments.
• Fast Formation: A private foundation can be formed and registered in one day.
• EU Member: Austria has been a member of the European Union (EU) since 1995 offering opportunities to engage in passive investments with other EU companies.
Austrian Private Foundation Name
Foundations must not use a name too similar to an existing legal entity’s name in Austria.
The name must end with the word “Foundation” to distinguish it from other legal entities.
Natural or legal persons may form a private foundation by executing a notarized Declaration of Establishment. A private foundation can be created using an authorized proxy who appears as the official founder for greater privacy. This saves the actual founder time by not having to personally appear at the public Foundation Registry.
Members of the public searching private foundations in the Registry can only learn that a private foundation was formed and the registration fee was paid.
Declaration of Establishment
The declaration must describe the foundation’s purpose and the assets contributed. In addition, the name of the trustee must be included.
Since private foundations may be perpetual or only for a specific time period, the declaration must establish its lifespan.
The founder can declare any type of purpose of the foundation. The purpose may include how the foundation is managed, how assets may be increased and secured, and how they are invested and their profits distributed. Upon completion of the purpose, the process for termination of the foundation and how the remaining assets will be distributed can be detailed.
Typically, the purpose of a foundation is to support the founder and his or her current family and future generations.
After registration, the declaration may be amended if the original declaration states that the founder reserves the right to amend it. Amendments require a notarized signature of the founder. Founders are also free to reserve the right to revoke their foundations.
The Austrian government does not get involved with establishing or with supervising the activities of a private foundation. The only government authority which may become involved is an Austrian court if a lawsuit is filed against the foundation.
The names of the founder and beneficiaries remain private as they are never included in public records when using a proxy founder.
Private foundations cannot engage in a trade nor perform management functions in a company. In addition, they cannot be partners with full liability in a registered partnership.
Founders can be citizens of any country residing outside of Austria.
The persons who benefit from the foundation known as “beneficiaries” can be citizens of any country and residing outside of Austria. The founder may appoint him or herself as a beneficiary.
The names of the beneficiaries are not included in the Declaration of Establishment. They are included in the addendum which remains a private document and is not filed with the Foundation Registry.
Board of Directors
Like a corporation, a private foundation appoints a board of directors to manage, represent, and administer the assets. In addition, the Declaration of Establishment is similar to a corporation’s Articles of Incorporation and Bylaws as the Board of Directors must abide by the terms and conditions it sets forth. The Board of
Directors must implement the purpose of the foundation.
Foundation beneficiaries cannot become members of the Board of Directors.
The initial Board of Directors is appointed by the founder. During the founder’s lifetime, he or she retains the right to remove and appoint directors as long as the founder is not a beneficiary.
A minimum of three members sits on the Board of Directors. Two members must be permanent residents of an EU members or the EEA.
The appointment of an Advisory Board is optional. If one is established, normally the founder and the beneficiaries are appointed as members.
The Board of Directors is supervised by the Advisory Board which must be consulted regarding all important matters. The declaration can provide a list of the types of transactions requiring approval by the Advisory Board in order to prevent fraud or negligence by Board of Directors members.
The Advisory Board typically appoints new Board of Directors members especially of the founder has passed away.
Contributions to private foundations by the founder are taxed at a rate of 2.5%. Experts consider this to be a small “gift” tax.
Private foundations are also subject to a corporate tax at a rate of 12.5%. However, exemptions apply for certain types of income such as capital gains from companies (Austrian or non-Austrian) and dividend income.
Withholding tax is also applied for distributions to the beneficiaries at a 12.5% rate. However, full exemption applies for non-resident beneficiaries.
Private foundations acting as a holding company of shares in companies outside of Austria and international equity participation pay no taxes. This includes the corporate tax and withholding tax.
Note: U.S. taxpayers must report all global income to their IRS. In addition, everyone paying taxes on their world income must also report all income to their tax agencies.
By using a proxy founder whose name is included in the public Foundation Registry, the actual founder’s name remains private. Since the beneficiaries names can be included in an addendum and not in the Declaration of Establishment filed with the Foundation Registry, their names remain private.
The Declaration of Establishment can be prepared in one day and registration on the same day.
An Austrian Private Foundation has these benefits: full foreign participation, estate planning, asset protection, low taxes, fast formation, and EU membership.